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.
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%.
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.
|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.