HDGE: 2nd Quarter 2022 Portfolio Review
Performance
For the second quarter of 2022, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) gained +30.72% while the S&P500 lost -16.10%.
Markets Review
Despite the recent poor performance of equities, the market remains very overvalued. Many longer term metrics support that stocks are too expensive. One such metric is the dividend yield. This chart shows that, at current S&P 500 levels, the dividend yield is dangerously low. Equities would have to fall in order to adjust that yield, even in the absence of dividend cuts from any oncoming economic slowdown. Specifically, the S&P would need to decline to 3000 to get back to a 2% (midpoint) dividend yield. That represents another 26% of downside from recent index levels.
Looking deeper into the market, we see that over the past quarter, cyclicals have begun to weaken after a strong run through February 2022, as recession fears take hold.
Related to cyclical underperformance, companies with higher levels of leverage are seeing their stocks come under pressure.
Related to cyclical underperformance, companies with higher levels of leverage are seeing their stocks come under pressure.
Stocks were grouped and ranked by the relevant factor as of the end of the prior month and the returns computed for the month just ended. Stocks chosen were based on Two Rivers Analytics’ universe of stocks. © Copyright 2022. All Rights Reserved Two Rivers Analytics. Further distribution prohibited without prior permission.
Top Holdings
For the second quarter of 2022, the largest realized and unrealized gains were MicroStrategy Incorporated Class A (MSTR), Cloudflare Inc Class A (NET), Carvana Co. Class A (CVNA)and Snowflake, Inc. Class A (SNOW). MicroStrategy Incorporated (MSTR) stock fell all through April and most of May to end the quarter down -66.22%. This enterprise analytics SaaS company has purchased a large amount of Bitcoin, on leverage, for its own account. The value of Bitcoin has fallen dramatically since November of last year, and investors have sold MSTR off in sympathy. Cloudflare (NET) stock plunged in early May, ending Q2 down -63.45%. The stock joined the larger tech groups selloff that began late last year. Analysts have been cutting price targets on cloud and security companies. The company delivers SaaS focused on security, content delivery, routing and related solutions. Carvana Co. (CVNA) stock fell steadily for nearly a year. The stock ended the quarter down -81.07%. The company acquires and resells used cars via online and delivery capabilities. Investors are concerned that an economic slowdown and rising interest rates could hurt the company’s sales. In addition, rising rates will affect the company’s ability to raise financing. Snowflake (SNOW) stock closed Q2 down -39.31%. The stock traded down in sympathy with other software growth stocks. The company sells a cloud data platform.
The largest realized and unrealized losses for the second quarter were BlackLine, Inc. (BL) , Olo, Inc. Class A (OLO) and CarMax, Inc. (KMX). BlackLine. (BL) stock rebounded in May reducing the stock’s losses for the quarter to -9.04%. The company managed to earn $0.01/share when forecasts were expecting a loss of $0.08. BlackLine provides cloud-based solutions to automate and streamline accounting and finance operations worldwide. Olo, Inc. (OLO) stock fell -25.51% during the quarter. Olo is an ecommerce infrastructure platform delivering its products as a service. The stock bounced during the quarter on improved expectations of the company reaching breakeven soon. CarMax,(KMX) stock was very volatile in Q2 but ended the quarter down -6.22%. This retail and wholesale auto company was able to take advantage of rising used car prices to raise recent profitability.
| Ticker | Security Description | Portfolio Weight % |
| OLED | UNIVERSAL DISPLAY CORP | -4.87% |
| MCO | MOODY’S CORP | -4.50% |
| DB | DEUTSCHE BANK AG-REGISTERED | -3.68% |
| OMF | ONEMAIN HOLDINGS INC | -3.37% |
| MSTR | MICROSTRATEGY INC-CL A | -2.67% |
| QSR | RESTAURANT BRANDS INTERN | -2.26% |
| NET | CLOUDFLARE INC – CLASS A | -2.11% |
| ADSK | AUTODESK INC | -2.07% |
| DASH | DOORDASH INC – A | -1.93% |
| TPX | TEMPUR SEALY INTERNATIONAL I | -1.93% |
As of 06.30.20202. Cash not included.
Respectfully,
Brad Lamensdorf
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Portfolio Manager
Definitions:
The S&P 500 Index is a free-float capitalization-weighted index based on the common stock prices of 500 American companies. It is one of the most commonly followed equity indices and many consider it the best representation of the market and a bellwether for the U.S. economy.
A Bear Market (Bearish) is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.
A Bull Market (Bullish) is a financial market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.
A short position is the sale of a borrowed investment with the expectation that it will decline in value.
Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.
Implied Volatility is the estimated volatility of a security’s price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.
The Volatility Index (VIX) is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant
to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”. The VIX is a contrarian sentiment indicator that helps to determine when there is too much optimism or fear in the market.
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There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The Fund may invest in (or short) ETFs, ETNs and ETPs. In addition to the risks associated with such vehicles, investments, or reference assets in the case of ETNs, lack of liquidity can result in its value being more volatile than the underlying portfolio investment. Other Fund risks include market risk, equity risk, short sales and leverage risk, large cap risk, early closing risk, liquidity risk and trading risk. Short sales involve leverage because the Fund borrows securities and then sells them, effectively leveraging its assets. The use of leverage may magnify gains or losses for the Fund. See prospectus for specific risks and details.
Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times.
Holdings and allocations are subject to risks and change.
The views in this commentary are those of the portfolio manager and many not reflect his views on the date this material is distributed or any time thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.