HDGE: 1st Quarter 2022 Portfolio Manager Review
For the first quarter of 2022, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost -0.97% while the S&P 500 lost -4.60%.
Bear Market Odds Surge
A bear market prediction tool created by Goldman Sachs has surged in recent months to its highest level in decades. Here is the chart courtesy of SentimenTrader.com.
This is a model outlined by Goldman Sachs using five fundamental inputs:- the U.S. Unemployment Rate, ISM Manufacturing Index, Yield Curve, Inflation Rate, and the market P/E Ratio. Each month’s reading is ranked against its historical readings and assigned a score. The resulting scores are aggregated into this bear market prediction tool. The higher the score, the higher the probability of a bear market in the months ahead.
When the model’s readings were as low as 20% – 29%, the S&P’s average forward one-year return was +21%. Conversely, when the model’s reading were as high as 80% – 89%, that average return plunged to -2%. So the higher the model’s score, the greater the chance for a bear market, or at least negative forward returns.
Time to increase market hedges?
Internally, investors are swinging back to favor momentum, but with a different set of momentum stocks than during the tech euphoria. Energy and Industrials have become momentum while Tech has turned sharply out of favor.
Cyclical outperformance was important in late 2021, with some carryover into 2022.
Another interesting development is the improvement in performance of lower market cap stocks. Small caps are normally higher beta. Currently the deterioration in small caps appears to be over.
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.
For the first quarter of 2022, the largest realized and unrealized gains were Carvana Co. Class A (CVNA), Just Eat Takeaway.com N.V. ADS (JTKWY/GRUB)and Wix.com Ltd. (WIX). Carvana Co. Class A (CVNA) stock fell consistently, ending the quarter down -48.54%. Analysts commented that the stock’s valuation and recent acquisition of Adesa leave investors exposed to execution risk. The broader growth stock sell-down also had an impact. The fund was short GRUB, which merged in a stock-for-stock deal by Just Eat Takeaway.com N.V. GRUB stock fell -36.39% during the quarter, leaving the fund with the second highest profits in the quarter. Wix.com Ltd. (WIX) stock fell -33.80% in the quarter as growth stocks were punished and the company said it could not provide guidance for the coming year due to “volatility in demand for online services”. Investors took the news as telegraphing disappointing results in the coming quarters and sold the stock down.
The largest realized and unrealized losses for Q1 were Plantronics, Inc. (POLY) , Renewable Energy Group, Inc. (REGI) and Zillow Group, Inc. Class A (ZG). Plantronics, Inc. (POLY) stock spiked 34.29% on news that it would be acquired by HP. Renewable Energy Group, Inc. (REGI) stock gained 42.91% on the quarter after an acquisition bid by Chevron. Zillow Group, Inc. Class A (ZG) stock lost -22.48% in the quarter although the timing of short sales produced a loss for the fund. Zillow traded down with widening realization that interest rates are going to impact housing affordability and, hence, the value of Zillow’s marketing and agent services.
|Ticker||Security Description||Portfolio Weight %|
|IWM||ISHARES RUSSELL 2000 ETF||-6.20%|
|MKTX||MARKETAXESS HOLDINGS INC||-4.11%|
|OMF||ONEMAIN HOLDINGS INC||-2.63%|
|LANC||LANCASTER COLONY CORP||-2.55%|
|WDC||WESTERN DIGITAL CORP||-2.25%|
As of 03.31.2022. Cash not included.