HOLD: 4th Quarter 2020 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/hold.

Performance

​During the final quarter of 2020, the AdvisorShares Core Reserves (NYSE Arca: HOLD) returned 0.33% vs 0.02% on the 1-3 Month T-bill Index. The most recent dividend was 8.8 cents per share, for a Bloomberg indicated yield of 1.07%. The Bloomberg Barclays US Corporate 1-3 Year Average OAS was 23 basis-points tighter on the quarter, ending at 0.35%.

Attribution

Within the corporate sector, Industrials represent the largest subsector at 36%. During the quarter they returned 0.53%. Some of the better performers included the QVC 2023’s, NGPL PipeCo 2022’s, and Plains All American Pipeline 2022’s, which returned 2.24%, 1.51%, and 1.50%. Among the poorer performing positions were the Dell 2021’s and the Buckeye 2021’s which returned -1.36% and -0.81%.

Financial Institutions tracked the Industrial sector, returning 0.40%. Some of the better performing positions within the sector includes OneMain Finance 2021’s, Aviation Capital 2021’s, and Molina Healthcare 2022’s, which returned 2.11%, 2.01%, and 1.04%.

Within the securitized sector, ABS spreads are now tighter than pre-Covid levels as accounts look for short dated, high quality assets. Asset-backed securities represent 14% of the fund, and returned 0.20% on the quarter.

Top Holdings

Security Description Price $ Portfolio Weight %
US TREASURY FRN FRN 4/30/2022 100.09 5.25%
US TREASURY N/B 1.375 4/30/2021 100.41 4.68%
AMERICAN EXPRESS CO FRN 5/20/2022 100.65 2.85%
WELLS FARGO & COMPANY 3.069 1/24/2023  102.87 2.81%
AIR LEASE CORP 3.5 1/15/2022  102.93 2.52%
BANK OF AMERICA CORP 3.499 5/17/2022 101.19 2.46%
VZOT 2019-A A1A 2.93 9/20/2023  101.96 2.29%
PLAINS ALL AMER PIPELINE 3.65 6/1/2022  103.00 2.14%
EDISON INTERNATIONAL 2.4 9/15/2022  102.27 2.09%

As of 12.31.2020. Excludes cash and money markets.

Portfolio Characteristics Yield-to-Worst Coupon Maturity (Yrs) Effective Duration
as of 12.31.2020 0.660 2.682 1.630 0.750

 

As of 12.31.2020.

Source: Sage Advisory Services; All data as of 9.30.2020.Credit quality ratings are primarily sourced from Moody’s but in the event that Moody’s has not assigned a rating the Fund will use Standard & Poor’s (the “S&P”). If these ratings are in conflict the most conservative rating will be used. If none of the major rating agencies have assigned a rating the Fund will assign a rating of NR (non-rated security). The ratings represent their (Moody’s and S &P) opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The credit ratings are published rankings based on detailed financial analyses by a credit bureau specifically as it relates the bond issue’s ability to meet debt obligations. The highest rating is Aaa, and the lowest is D. Securities with credit ratings of Bbb and above are considered investment grade.

Recent Headlines / Looking Ahead

The last quarter of 2020 can be described as a risk-on environment that has driven spreads across most asset classes to historic tights. While there are many factors at play, the largest is the Fed. Their commitment to financial stability has increased their balance sheet by over $3 Trillion since the beginning of the pandemic and inflated all asset prices along the way. As we look ahead to 2021 there are a couple items worth noting. With the blue wave finally materializing in the Georgia senate runoff race, Treasury rates have begun to rise with the market anticipating larger budget deficits in the coming months. This will set a new higher range for interest rates, put further pressure on the dollar, and increase inflation expectations. While the Fed would like to keep rates somewhat compressed, they have already committed to letting inflation run hot. After a decade of underwhelming inflation, it will be important to monitor how this unfolds. As has already been mentioned, the Fed has been the primary driver of returns and liquidity over the past decade, and this year even more-so. However, while the Fed giveth, it can also taketh away. While it is still very early to anticipate the Fed reducing its balance sheet, it will be crucial for portfolio positioning, as was seen in late 2018. While some predict this will not materialize until 2022 or even later, there is a possibility this could be a late 2021 event. There are some expectations that the Fed will telegraph their intentions well in advance in the hopes of avoiding any wild taper tantrums. While it is certainly impossible to predict how 2021 will unfold, let’s hope it proves to be a calmer ride than 2020.

Respectfully,

Sage Advisory Services
AdvisorShares Sage Core Reserves ETF (HOLD) Portfolio Manager

 

DEFINITIONS:

  • basis point is one hundredth of a percentage point (0.01%).
  • Coupon is the interest rate stated on a bond when it’s issued. The coupon is typically paid semi-annually.
  • Credit spread is the spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating.
  • Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.
  • The Fed Funds rate is the interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. The rate may vary from depository institution to depository institution and from day to day.
  • London Interbank Offered Rate (LIBOR) is an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers’ Association. The LIBOR is derived from a filtered average of the world’s most creditworthy banks’ interbank deposit rates for larger loans with maturities between overnight and one full year.
  • The option adjusted spread (OAS) is a measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is adjusted to take into account an embedded option. Typically, an analyst would use the Treasury securities yield for the risk-free rate. The spread is added to the fixed-income security price to make the risk-free bond price the same as the bond.
  • Spread is the difference between the bid and the ask price of a security or asset.
  • A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.
  • Yield-to-worst is the lowest potential yield that can be received on a bond without the issuer actually defaulting. The yield to worst is calculated by making worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including prepayment, call or sinking fund, are used by the issuer. This metric is used to evaluate the worst-case scenario for yield to help investors manage risks and ensure that specific income requirements will still be met even in the worst scenarios.

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. Diversification and sector asset allocation do not guarantee a profit, nor do they eliminate the risk of loss of principal. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The Fund’s investment in fixed income securities will change in value in response to interest rate changes and other factors, such as the perception of the issuer’s creditworthiness. Fixed income securities with longer maturities are subject to greater price shifts as a result of interest rate changes than fixed income securities with shorter maturities. The Fund’s investments in high-yield securities or “junk bonds” are subject to a greater risk of loss of income and principal than higher grade debt securities. In addition the Fund is subject to leveraging risk which tends to exaggerate the effect of any increase or decrease in the value of the portfolio securities. The Fund is also subject to liquidity risk, issuer risk, foreign currency and investment risk, prepayment risk and trading risk. See prospectus for details regarding specific risks.

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 to change.

The views in this material were those of the Portfolio Manager and may not reflect his views on the date this material is distributed or anytime thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.