HOLD: May 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 month of May, the AdvisorShares Core Reserves (NYSE Arca: HOLD) returned 0.73% vs 0.01% on the 1-3 month T-bill Index. The fund paid out income of 11.86 cents per share, for a Bloomberg indicated yield of 1.44%. The Bloomberg Barclays US Corporate 1-3 Year Average OAS was 48 basis-points tighter on the month, ending at 1.03%.

Attribution

Industrials, which represent over 40% of the portfolio, were the best performing corporate sub-sector, and returned 94 basis-points on the month. This sector benefited from the rally in oil during the month. Some of the better performing positions include Occidental Petroleum 2021’s, Delta Air Lines 2020’s, and Sabine Pass 2020’s, which returned 3.0%, 2.90%, and 2.41%.

Financials, which represent 20% of the portfolio, returned 79 basis-points on the month. Some of the better performing positions include the Air Lease 2021’s, International Lease Finance 2020’s, and HSBC 2022’s, which returned 2.17%, 1.81%, and 1.23%. Among the poorer performing names was the Wells Fargo 2020’s, which returned -.09%.

Asset-backed securities followed a similar pattern of positive performance and returned 36 basis-points on the month. This sector benefited from better than expected collateral performance as well as increased demand for short-term, high-quality paper.

Portfolio Activity

During the month of May, there were 3,583m in maturities and structured product paydowns. Some of the larger corporate purchases include the Bank of America 2022’s, Wells Fargo 2020’s, and Gilead Sciences 2020’s.

Recent Headlines / Looking Ahead

The month of May took a risk-on tone that drove nearly all risk-assets tighter, including corporates, ABS, and CMBS. Equities, as measured by the S&P 500 Index, also rallied to the tune of 4.76%. This was due to several factors, the most relevant of all being the Federal Reserve. With the Fed buying significant amounts of debt, including agency MBS, Treasuries, and even corporates, there has been too little supply to match the large inflows into investment grade bond funds. This is in spite of a record amount of corporate new issuance in the first half of 2020. Whether these spread levels hold is yet to be seen and will depend in part on the pace of the economic recovery. There are still over 20 million people unemployed, and the weight of the global pandemic still weighs heavily upon our consumer-based economy. The coming weeks will likely provide a great deal of insight as states and businesses re-open.

Top Holdings

CRED SUIS GP FUN LTD 3.125 12/10/2020$101.171.98%

Security Description Price $ Portfolio Weight %
US TREASURY N/B 1.25 3/31/2021 $100.88 5.77%
US TREASURY N/B 1.125 2/28/2021 $100.70 5.77%
US TREASURY N/B 1.375 4/30/2021 $101.08 3.85%
BANK OF AMERICA CORP 3.499 5/17/2022 $102.43 2.94%
EDISON INTERNATIONAL 2.4 9/15/2022 $100.76 2.48%
OCCIDENTAL PETROLEUM COR 2.6 8/13/2021 $96.80 2.23%
AMXCA 2017-6 A 2.04 5/15/2023 $100.63 2.20%
US TREASURY FRN FRN 4/30/2022 $100.05 1.99%
US TREASURY N/B 1.75 10/31/2020 $100.64 1.99%
CRED SUIS GP FUN LTD 3.125 12/10/2020 $101.17 1.98%

As of 05.31.2020. Excludes cash and money markets.

Portfolio Characteristics Yield-to-Worst Coupon Maturity (Yrs) Effective Duration
as of 05.31.2020 1.8100 2.860 1.290 0.790

 

Source: Sage Advisory Services; All data as of 05.31.2020.

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.

 

Respectfully,

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

 

Past Commentary

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.