HDGE: 1st Quarter 2022 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 2022, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost -0.97% while the S&P 500 lost -4.60%.

Markets Review

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.

Top Holdings

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%
SNA SNAP-ON INC -4.08%
PTC PTC INC -2.71%
OMF ONEMAIN HOLDINGS INC -2.63%
WHR WHIRLPOOL CORP -2.61%
LANC LANCASTER COLONY CORP -2.55%
CVNA CARVANA CO -2.40%
WDC WESTERN DIGITAL CORP -2.25%
C CITIGROUP INC -2.15%

As of 03.31.2022. 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.