HDGE: 3rd Quarter 2024 Portfolio Review
Performance
For the third quarter of 2024, the AdvisorShares Ranger Equity Bear ETF (HDGE) returned -9.51% (NAV) while the S&P 500 returned -9.72%.
Top Holdings
| Ticker | Security Description | Portfolio Weight % |
| OZK | BANK OZK | -2.62% |
| MAR | MARRIOTT INTERNATIONAL -CL A | -2.47% |
| TEAM | ATLASSIAN CORP-CL A | -2.42% |
| KSS | KOHLS CORP | -2.42% |
| CVS | CVS HEALTH CORP | -2.40% |
| WK | WORKIVA INC | -2.29% |
| DKNG | DRAFTKINGS INC-CL A | -2.09% |
| MCW | MISTER CAR WASH INC | -1.99% |
| SABR | SABRE CORP | -1.96% |
| CCCS | CCC INTELLIGENT SOLUTIONS HO | -1.94% |
As of 9.30.2024. Cash not included. Subject to change.
Markets Review
The fund continues to maintain an aggressive short position. Three factors in the current market suggest that the move to the downside will be exacerbated when the tide turns. Those factors are: 1) Overvaluation; 2) Excessive leverage; and 3) Poor Breadth. A summary of each factor is presented below.
Overvaluation – Cyclical price/earnings ratios have risen sharply and are well outside the bounds of “normal” levels.
Excessive Leverage – Investor credit balances have exploded, and many speculators are leaning in one direction. Prior bear markets have brought the disparity back into balance. Such an expansion in leverage greatly increases the downside risk as the market moves down. These are weak holders forced to sell by margin departments—often at the worst time.
Market Breadth – There has been deterioration underneath the major stocks in this recent move. One such indicator that measures this condition is called the Titanic Syndrome. Here’s how it’s measured, courtesy of SentimentTrader.com:
Bill Omaha created the Titanic Syndrome in the 1960s. It highlights a technical market condition when stocks have recently been at a high, and then there is a sudden jump in new 52-week lows versus highs on the Nasdaq. For our purposes, we use the following conditions: 1) The Nasdaq 100 Index (NDX) closed at a 52-week high at some point in the past seven sessions, and 2) New 52-week lows outnumber 52-week highs on the Nasdaq. It is a warning sign that typically precedes trouble over the next 1-3 months.
NDX = Nasdaq 100 Index
Another breadth indicator is the HiLo Logic Index. Here’s how it works, again, courtesy of SentimenTrader.com
The HiLo Logic Index was created by Norman Fosback in 1979. Intended to observe “split” market conditions, it looks for times when there are both a large number of 52-week highs AND 52-week lows among securities on the exchange. When there are a lot of both, the market is severely split between winners and losers, and it tends to be a negative for stocks. In other words, a high reading suggests some “churning” in the market rather than a broad, uniform advance. When there is a very low number, then the market is heavily one-sided, which tends to be a positive for stocks.
NDX = Nasdaq 100 Index
Given these conditions and recent warning signs, we expect to maintain an aggressive short position in smaller / medium-sized “growth” stocks.
Respectfully,
Brad Lamensdorf Jon DelVecchio
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Co-Portfolio Managers
Past 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.
The Dow Jones Industrial Average (DJIA) is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The DJIA is one of the oldest and most commonly followed equity indexes.
The Nasdaq 100 Index is a stock index of the 100 largest companies by modified market capitalization trading on Nasdaq exchanges, excluding companies in the financial sector.
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 or summary 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.