HDGE: 3rd 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 third quarter of 2021, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) gained 12.03% (NAV) while the S&P 500 Index gained 0.58%.

Markets Review

In our opinion, in the short-term, the market is overbought. The below chart, the Short-Term Composite Indicator, courtesy of Investors Intelligence, represents a composite of dozens of other indicators. Right now, it has reached an extreme level on the upside.

While the current reading of 75 doesn’t necessarily indicate a crash is imminent, it does mean that easy money has been made from the extreme oversold reading in September 2021.  Back then, we wrote about how the market should rally from that level.  That rally has played out from a low-risk point of view.

As a trader, it’s time to pare back long positions or hedge.

We can see echoes of this extreme in bullish sentiment by delving deeper into stock and factor behavior.  The two best performing risk factors are momentum and cyclicals, currently.  Both are outperforming the broader markets.  Momentum strategies, less charitably known as “chasing stocks” is one of the most consistent indicators of irrational exuberance.  Here, the Highest Momentum stocks indicator – represents those stocks that have shown the highest rate of return during the last 12 months – has begun outperforming again after September.

Equally, cyclicals outperformance indicates confidence in the economic cycle.  They have been performing well since January 2021, but especially so over the past month.

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 2021.  All Rights Reserved Two Rivers Analytics.  Further Distribution Prohibited without prior permission.

Top Holdings

For the third quarter of 2021, the largest realized and unrealized gains were Logitech International S.A. (LOGI), GDS Holdings Ltd. Sponsored ADR Class A (GDS), and Redfin Corporation (RDFN).

Logitech International S.A. (LOGI) declined steadily during the quarter ending down -27.10%.  PC and gaming peripherals company Logitech had pulled revenues forward and “stuffed the channel”, a fact that is now catching up with them.  Their latest results showed a post-Covid slowdown in demand coupled with supply-chain induced margin pressure. GDS Holdings Ltd. Sponsored ADR Class A (GDS) plunged in July, ending down -27.88%.  Shanghai-based data center specialist fell, along with many of China’s tech stocks.  The Chinese government famously began cracking down on tech companies, instituting measures ranging from limiting the amount of time spent on online games, to ordering food delivery companies to better protect workers.  Redfin Corporation (RDFN) fell -20.99% in the quarter.  This on-line realtor and home-buying company is suffering due to a slowdown in the heady housing market of 2020.  New interest in relocation and second homes is dwindling in 2021, along with a reduction in bidding wars among potential buyers.

The largest realized and unrealized losses for third quarter were Coupa Software, Inc. (COUP), C3.ai, Inc. Class A (AI) and Etsy, Inc. (ETSY).   Coupa Software, Inc. (COUP) stock was very volatile during the quarter, but finished Q3 down -16.38%.  At the last earnings release, the company reported strong, but slowing, sales growth as the pandemic-induced acceleration waned.  The company is seeing stiffer competition from SAP and others, while suffering from declining margins.  C3.ai, Inc. Class A (AI) continued a long slide through a quarterly loss of -25.89%.  The AI company’s growth could not sustain its valuation.  Its average contract value has been dropping, causing declining margins.  The company is losing ground to Palantir and other competitors.  Etsy, Inc. (ETSY) stock recovered through Q3, ending up slightly at 1.03%.  Etsy disappointed investors with weak guidance for Q3.  Some analysts lowered their forecasts at the time of the announcement.  Subsequently, Etsy stock is rising along with other tech and ecommerce stocks.

Ticker Security Description Portfolio Weight %
HSBC HSBC HOLDINGS PLC-SPONS ADR -3.39%
CHRW C.H. ROBINSON WORLDWIDE INC -2.99%
DY DYCOM INDUSTRIES INC -2.72%
LOGI LOGITECH INTERNATIONAL-REG -2.69%
SAIL SAILPOINT TECHNOLOGIES HOLDINGS -2.62%
NWL NEWELL BRANDS INC -2.53%
PTC PTC INC -2.29%
AYX ALTERYX INC – CLASS A -2.23%
LZB LA-Z-BOY INC -2.21%
BFAM BRIGHT HORIZONS FAMILY SOLUTIONS -2.13%

As of 09.30.2021. 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.