HDGE: 1st Quarter 2021 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.

Performance

For the first quarter of 2021, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) fell -16.12% while the S&P500 gained 6.17%%.

Markets Review

Market breadth is now reaching extreme highs. After a nasty down-move at the beginning of the Covid pandemic, the market has marched steadily upwards.  Nearly every stock has done so.  As this chart illustrates, the percentage of stocks in the S&P 500 that are above the 200-day moving average hit 95.23%, a 15-year high.  The image today is nearly 180 degrees inverted from one year ago.  From here, one might expect at least a cooling off.

Can stock push higher from here?  Absolutely.

Yet, at a breadth level of +95%, a position not seen in 15 years, stock would truly have to behave as if “this time it’s difference” for there  not to be a meaningful pullback in stocks sooner than later.

The market remains steeply overvalued.  The price-to-sales ratio of the market today exceeds the highest levels of the dot-com bubble of 1999 by a fair amount.  This is not a time to enter the market.  Rather, it is a time to hedge one’s bets.

We can see confirmation of the market’s overvaluation by looking at a range of metrics.  The chart below shows a composite of three widely used valuation ratios, all come to the same conclusion: Equities are overvalued and it is long past time to deploy shorts to hedge your portfolio.

Top Holdings

For the first  quarter  of 2021, the largest realized and unrealized gains were JFrog Ltd. (FROG), Yext, Inc. (YEXT), Companhia de Saneamento Basico do Estado de Sao Paulo SABESP Sponsored ADR (SBS) and

Green Dot Corporation Class A (GDOT).  JFrog Ltd. (FROG) slid  -29.38% during the quarter, generating profits for the fund.  JFrog stores software updates for other software vendors for distribution to customers.  Sales growth continued to slow for this very expensive stock.  The post-IPO lockup period expired in February, contributing to the stock price decline.  We closed the position.  Yext  (YEXT) stock also fell hard in February, closing the quarter down  -7.89%.  Growth was slowing sharply, insiders boosted their stock sales and the company issued disappointing fiscal first quarter guidance.  We closed the position.  Companhia de Saneamento Basico ADR (SBS) stock slid throughout January and February, ending down  -14.67%.  The public water and sanitation company faces deep problems in its receivables book, stemming from the spread of the Covid pandemic across Brazil and a reduction in required payments from their customers.  The problems are compounded by high leverage.  Green Dot  (GDOT) rode three downwaves in the stock to finish  -17.94% by March 31st.  The prepaid debit card company also has a banking charter and is involved in the payment space.  They are facing stiff competition from traditional and epayment competitors.

The largest realized and unrealized losses for the first quarter were Credit Acceptance Corporation (CACC) , Teladoc Health, Inc. (TDOC) and Teradata Corporation (TDC).  Credit Acceptance Corporation (CACC) stock rose  4.07% in the quarter.  The economic recovery is leading to rising earnings and estimate revisions are rising as a result.  Teladoc Health, Inc. (TDOC) plunged in February, after an initial rise earlier in the year.  It ended the quarter down  -9.11%.  TDOC faces substantial new competition from the likes of Amazon’s iCare, Microsoft and American Well at the same time as telehealth visits are expected to decline post-pandemic.  We closed the position.  Teradata Corporation (TDC) stock spiked in February.  It climbed  71.52% on the quarter.  The company’s public cloud business, which was less understood than its data warehousing business, saw revenues rise dramatically.  This caused an upward rerating of the stock by analysts and the rise in the stock price.  We closed the position.

Ticker Security Description Portfolio Weight %
FCFS FIRSTCASH INC -3.60%
JKHY JACK HENRY & ASSOCIATES INC -3.06%
AUDC AUDIOCODES LTD -2.97%
QQQ INVESCO QQQ TRUST SERIES 1 -2.73%
MDRX ALLSCRIPTS HEALTHCARE SOLUTI -2.62%
IWM ISHARES RUSSELL 2000 ETF -2.48%
CRI CARTER’S INC -2.45%
GNW GENWORTH FINANCIAL INC-CL A -2.44%
SAP SAP SE-SPONSORED ADR -2.26%
SWCH SWITCH INC – A -2.24%

As of 03.31.2021. Cash not included.

Respectfully,

Brad Lamensdorf
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Portfolio Manager

 

Past Manager Commentary

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.


Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.advisorshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

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.