HDGE: March 2020 Portfolio Manager Review
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent standardized and month-end performance, please click www.advisorshares.com/etfs/hdge.
For the month of March, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) gained 21.65% on market price while the S&P 500 Index lost 12.35%.
|Performance History (03.31.2020)||HDGE NAV (%)||HDGE Market (%)|
As stated in the Prospectus, the total annual operating expenses are 3.12% (includes 0.18% acquired fund fees). Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent month-end performance please visit www.advisorshares.com/etfs/hdge.
The escalating high yield CDX index spread shows markets are bracing for an ugly period. The CDX index measures returns that high yield investors require to assume elevated default risk of high yield bonds. In good times the spread between the High Yield CDX Index and Treasuries narrows. This happens because investors feel confident enough in the state of the economy to take on the higher default risk that high yield bonds carry.
However, as the chart below shows, in times of financial crisis the spread spikes sharply as investors sell down risky assets, fearing the worst. The fact that the spread is a now a lofty 593 is an indication of how frightened investors are becoming. The current spread is even higher than it was during the periods around the financial crisis in 2012- 2013 and 2015-2016.
Short investors performed well in March, with the most heavily shorted stocks losing 30%. We have several names that have lost that much in our portfolio.
One of the factors most associated with stock price declines is financial leverage. Stocks of companies with high net debt to EBITDA ratios fell hard as compared to their less-levered brethren.
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 2019. All Rights Reserved Two Rivers Analytics. Further Distribution Prohibited without prior permission.
The fund continues to focus on cash-burning companies that need periodic funding in order to survive. In this environment, these types of shorts provide the best opportunities.
For the month of March 2020, the largest realized and unrealized gains were Credit Acceptance Corporation (CACC), Harley-Davidson, Inc. (HOG), Lyft Inc Class A (LYFT) and TechnipFMC Plc (FTI).
Credit Acceptance stock plunged -36.58% in March. The business lends money to subprime auto buyers, then repackages the loans into asset backed securities. We are witnessing a deterioration in credit quality, with defaults primed to rise. Lending terms are being stretched beyond what is prudent. Harley-Davidson stock dropped -37.87%. The troubled motorcycle manufacturer has been losing share to overseas competitors. We covered the short as our thesis has played out. Lyft Inc stock plummeted -29.56%. Lyft, like larger Uber, is a consistent cash burner that is dependent on the capital markets. The stock is expensive, and it is unclear if they will ever make a profit. Corona virus fears are dampening demand severely. TechnipFMC lost -54.58% in March. Technip services the oil industry. The decline in oil prices and the Corona virus woes forced the company to delay a much-anticipated transaction that would split the company into two parts. We covered the short.
The largest realized and unrealized losses for March were Chewy, Inc. Class A (CHWY), Wayfair, Inc. Class A (W) and Grubhub, Inc. (GRUB).
Chewy stock gained 26.66% due to Corona-virus induced “nesting”. The company burns cash and the stock is very expensive. Wayfair stock fell -15.46% in March. The company is a cash burner as well and is dependent on capital raising to stay afloat. Their business model does not allow for visibility into how the company can ever turn a profit. Grubhub stock fell -15.34%. The company’s fundamental metrics are weak and growth is slowing. New competitors are rushing into the space, including Google, DoorDash, UberEats and others. The company also burns cash. We covered the short in April.
|Ticker||Security Description||Portfolio Weight %|
|W||WAYFAIR INC- CLASS A||-4.29%|
|PAM||PAMPA ENERGIA SA-SPON ADR||-2.51%|
|HSBC||HSBC HOLDINGS PLC-SPONS ADR||-2.05%|
|OLLI||OLLIE’S BARGAIN OUTLET HOLDI||-2.04%|
|TCOM||TRIP.COM GROUP LTD-ADR||-1.98%|
|GPC||GENUINE PARTS CO||-1.98%|
|BZUN||BAOZUN INC-SPN ADR||-1.84%|
As of 03.31.2020. Cash not included.
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Portfolio Manager
Past Manager Commentary