HOLD: 3rd 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 quarter ending September 30th, the AdvisorShares Core Reserves (NYSE Arca: HOLD) returned 0.63% vs 0.03% on the 1-3 Month T-bill Index. HOLD paid out income of 7.39 cents per share, for a Bloomberg indicated yield of 0.90%. The Bloomberg Barclays US Corporate 1-3 Year Average OAS was 0.15% tighter on the quarter, ending at 0.58%.
Within the corporate sector, Industrials had the best performance during the quarter, returning 1.05%. This sector represents roughly 33% of the overall fund. Some of the better performing positions include the QVC 2023’s, Occidental Petroleum 2021’s, and the Delta Airlines 2020’s, which returned 4.75%, 2.66%, and 2.36%. These were some of the more volatile names affected from the Covid-19 pandemic, and these returns reflect the spread tightening resulting from an improving economic outlook.
Financials, which represent 22% of the fund, returned 0.58% during the same time-period. The top two performers were the Aviation Capital Group 2021’s, and Air lease 2022’s which returned 3.42%, 2.71%. These air lessors have benefited from air traffic increasing off the lows. Among the poorer performing positions within the sector were the Capital One 2022’s, and the Wells Fargo 2023’s, which returned -0.05% and -0.06%.
Asset-backed securities followed the risk-on trend during the quarter, returning 28 basis-points. A significant portion of the asset-class is rated AAA, and the last 7 months have offered an opportunity to see how well it behaves during a significant economic downturn. ABS appears to have weathered the storm, with the underlying collateral performing well in most cases, and investors driving spreads below pre-pandemic levels.
During the third quarter of 2020 there were 4 creation units, with the market value of the fund now being $111 million. HOLD had $9.860 million in maturities and structured product paydowns. This represents a turnover of nearly 9%, based on quarter-end fund values.
|Security Description||Price $||Portfolio Weight %|
|US TREASURY N/B 1.125 2/28/2021||100.43||5.09%|
|US TREASURY N/B 1.25 3/31/2021||100.58||5.09%|
|US TREASURY FRN FRN 4/30/2022||100.11||4.91%|
|US TREASURY N/B 1.375 4/30/2021||100.74||3.39%|
|BANK OF AMERICA CORP 3.499 5/17/2022||101.89||2.58%|
|EDISON INTERNATIONAL 2.4 9/15/2022||102.01||2.22%|
|AMXCA 2017-6 A 2.04 5/15/2023||100.07||2.03%|
|CCCIT 2018-A1 A1 2.49 1/20/2023||100.69||1.98%|
|GOLDMAN SACHS GROUP INC 2.6 12/27/2020||100.52||1.93%|
|VZOT 2019-A A1A 2.93 9/20/2023||102.51||1.82%|
As of 9.30.2020. Excludes cash and money markets.
|Portfolio Characteristics||Yield-to-Worst||Coupon||Maturity (Yrs)||Effective Duration|
|as of 9.30.2020||0.420||2.689||1.280||0.680|
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
During the third quarter the economic recover sustained its progress as Covid-19 cases continued to decrease in much of the country. The markets reflected this, with corporate spreads 15 basis-points tighter and the S&P 500 up over 8%. While there is certainly concern regarding a resurgence of the virus as the winter months approach, the consensus is that the worst is behind us.
There are a couple of items worth noting as we head into the fourth quarter. As was noted in the last commentary, the Treasury curve has begun to steepen, and this trend has continued into the first two week of the quarter. With inflation expectations increasing and significant government spending continuing, increasing rates seem likely. However, this is not to suggest that rates will jump hundreds of basis-points in the near-term. Rates will likely remain very low, especially at the front-end of the curve. However, the curve may continue to steepen slightly throughout the quarter.