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.
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%%.
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.
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 %|
|JKHY||JACK HENRY & ASSOCIATES INC||-3.06%|
|QQQ||INVESCO QQQ TRUST SERIES 1||-2.73%|
|MDRX||ALLSCRIPTS HEALTHCARE SOLUTI||-2.62%|
|IWM||ISHARES RUSSELL 2000 ETF||-2.48%|
|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.
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Portfolio Manager
Past Manager Commentary