HOLD: 3rd Quarter 2021 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 third quarter of 2021, the AdvisorShares Core Reserves (NYSE Arca: HOLD) returned 0.06% vs 0.01% on the 1-3 month T-bill Index. The most recent dividend was 4.9 cents per share, for an indicated yield of 0.60%. The Bloomberg US Corporate 1-3 Year Average OAS was 1 basis-point wider on the quarter, ending at 32 basis-points.

Attribution

While all corporate credit had positive return during the quarter, the Industrials sector had the best performance, returning 24 basis-points (0.24%).

Some of the better performing names included ADT 2022’s, United Airlines 2022’s, and Delta Airlines 2022’s, which returned 1.27%, 0.67% and 0.39%, repsectively. The worst performing name in that sector was QVC 2023’s which returned -0.06%.

Financial institutions, which make up about 26% of the fund’s holdings, returned 13 basis-points (0.13%) during the quarter. Some of the better performing positions included AirCastle 2023’s, Host Hotels 2023’s, and Humana 2022’s, which returned 0.47%, 0.31%, and 0.222%, respectively. There were no significant outliers to the downside.

Asset-Backed Securities (ABS), which make up 13% of the fund’s holdings, returned 0.04%. While ABS spreads were only marginally weaker during the time period, spreads have compressed so much that returns are limited.

Top Holdings

Security Description Price $ Portfolio Weight %
US TREASURY N/B 0.125 6/30/2022     100.03 6.43%
US TREASURY N/B 1.125 2/28/2022     100.44 5.89%
US TREASURY N/B 1.375 1/31/2022     100.44 3.98%
US TREASURY N/B 1.875 4/30/2022     101.05 3.73%
WELLS FARGO & COMPANY 3.45 2/13/2023     104.10 2.95%
CRED SUIS GP FUN LTD 3.8 9/15/2022     103.29 2.75%
BANK OF AMERICA CORP 3.004 12/20/2023     103.08 2.61%
MORGAN STANLEY 4.875 11/1/2022     104.77 2.44%
CENTERPOINT ENERGY RES FRN 3/2/2023     100.02 2.31%
AMERICAN EXPRESS CO FRN 5/20/2022     100.34 2.14%

As of 09.30.202. Cash is excluded.

Portfolio Characteristics Maturity (Yrs) Effective Duration
as of 09.30.2021 1.780 0.650

 

As of 09.30.2021.

Source: Sage Advisory Services. 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 most recent Federal Reserve meeting confirmed the consensus opinion, that Fed taper is near at hand. The market is now expecting tapering to begin in either November or December of 2021 and end in mid-2022. These expectations caused Treasury rates to jump significantly, with the 5 year Treasury now at 97 basis-points (0.97%), up 20 basis-points on the month. The 10 year Treasury followed a similar pattern, up 18 basis-points, while long-end of the curve only increased by 11 basis-points. This sudden jump in rates has caused risk-assets to stall, with credit marginally weaker. Equities did not respond well either, down nearly 5% on the month. As we look ahead, it would seem that inflation is becoming a hot topic once again. Supply chain issues continue to cause problems, from shipping ports to local stores. Coinciding with this, commodity prices continue to increase, specifically natural gas and crude oil. How transitory it is remains to be seen, but it could add further pressure to already-rising interest rates.

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%).
  • The Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index is designed to measure the performance of public obligations of the U.S. Treasury that have a remaining maturity of greater than or equal to 1 month and less than 3 months. This index includes all publicly issued zero coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and at least 1 month, are rated investment-grade, and have $300 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non-convertible. Excluded from this index are certain special issues, such as flower bonds, targeted investor notes, state and local government series bonds, inflation protected public obligations of the U.S. Treasury, commonly known as “TIPS,” and coupon issues that have been stripped from bonds included in the Index. This index is market capitalization weighted.
  • The Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index is designed to measure the performance of the short term U.S. corporate bond market. This index includes publicly issued U.S. dollar denominated corporate issues that have a remaining maturity of greater than or equal to 1 year and less than 3 years, are rated investment grade and have $300 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars, fixed rate and nonconvertible. This index includes only corporate sectors. The corporate sectors are Industrial, Utility, and Financial Institutions, which include both U.S. and non-U.S. corporations. The following instruments are excluded from this index: structured notes with embedded swaps or other special features; private placements; floating rate securities; and Eurobonds. This index is market capitalization weighted.
  • Bloomberg indicated yield is the most recently announced dividend amount, annualized based on the payment frequency, then divided by the last price.
  • 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.