MENV: 1st Quarter 2022 Portfolio Review

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AdvisorShares North Square McKee ESG Core Bond ETF (symbol: MENV) returned -5.57% in the first quarter of 2022, outperforming Bloomberg Aggregate index by 36 basis points.  Market interest rates rose precipitously as expectations for the Federal Funds rate at the end of this year tripled from approximately 80 basis points at the beginning of the quarter to 2.40% on March 31st.

Driven by a continued rise in inflation, the rapid escalation of market interest rates and volatility were clearly the most prominent factors impacting performance in the first three months of the year.  Hawkish commentary from the Federal Reserve contributed to a significant flattening of the yield curve.  Market losses accelerated in March as war in Ukraine fueled further commodity price inflation. 

The MOVE index, a measure of market volatility and indicative of the change in callable agency spreads, returned to levels not seen since the onset of COVID in early 2020.  Corporate yield spreads, on the other hand, widened 24 basis points or less than 10% of the peak to trough range over the past two years. 

Despite callable bond spreads widening out significantly at the end of the quarter, the best performing securities in the portfolio were found in the agency sector.  With the agency universe experiencing a full cycle of volatility in just three months, spreads on callable bonds first tightened 25-40 basis points into reduced supply and lower volatility in January through mid-February.   However, with the peak in market uncertainty and a heavy supply calendar in March, these same securities widened again by 40 to 100 basis points.  Our portfolio was able to outperform in this environment due to tactical trading; we sold as spreads tightened in early February and subsequently bought back (and increased positions) at much higher spreads throughout March.  CDs and the shortest maturity securitized holdings also performed well, adding yield with little downward price movement. 

The corporate and mortgage sectors were a drag on performance, as yield spreads widened in response to the elevated inflation outlook and increasingly hawkish comments from the Fed.   

Top Holdings

Security Description Price $ Portfolio Weight %
US TREASURY N/B 1.875 4/30/2022      100.13 5.87%
WELLS FARGO & COMPANY 3.45 2/13/2023      101.16 3.08%
US TREASURY N/B 0.125 6/30/2022        99.89 3.03%
CRED SUIS GP FUN LTD 3.8 9/15/2022      101.05 2.89%
BANK OF AMERICA CORP 3.004 12/20/2023      100.32 2.73%
MORGAN STANLEY 4.875 11/1/2022      101.73 2.55%
US TREASURY N/B 0.125 3/31/2023        98.47 2.55%
AMERICAN EXPRESS CO FRN 5/20/2022      100.02 2.30%
ATHENE GLOBAL FUNDING FRN 1/7/2025        98.44 2.21%

As of 03.31.2022. Cash is excluded.


Excessive fiscal and monetary policy support, supply and labor shortages, and the onset of war in Ukraine combined to drive inflation well above expected and acceptable levels, spurring progressively more strident commentary from members of the FOMC.  With short-term market interest rates now discounting a more aggressive central bank response, especially in the May and June meetings, we expect to see market volatility level off in the second quarter before receding in the summer months.  Market interest rates should continue to move higher, though not at the breakneck speed witnessed in the first quarter.  Financial conditions should continue to tighten, due to higher Treasury and mortgage rates, modestly wider credit spreads, and lower equity prices.  This will slow the demand side of the economy while the supply side continues to cure.  The Fed hopes to engineer a growth recession, maintaining modestly positive gains in economic output, while reining in inflation.  From the current year-over-year reading of nearly 8%, consumer price inflation is expected to recede to 4.5% by yearend and 2.5% in 2023. 

From a relative value standpoint, fixed rate callable and step-up coupon callable agencies remain our top choice in this environment, coupled with short maturity securitized assets.  Agency holdings now represent 27% of portfolio market value, up from 18.5% at the beginning of the year.  Short maturity securitized product is also attractive as wider spreads significantly increase the likelihood of outperforming equal duration Treasuries going forward.  Finally, our quality bias in credit should continue to benefit performance as corporate earnings margins are pressured by the cost and availability of labor and other inputs. 


CS McKee
AdvisorShares North Square McKee ESG Core Bond ETF (MENV) Portfolio Manager

On November 1, 2021, the AdvisorShares FolioBeyond Smart Core Bond ETF’s (FWDB) was renamed to the AdvisorShares North Square McKee ESG Core Bond ETF (MENV) and its objective and strategies and manager changed. The primary changes to the Fund’s principal investment strategies were that (1) the Fund will no longer be a fund of funds, but instead will invest in fixed income securities directly, and (2) the Fund’s portfolio is now managed with a view to environmental, social, and corporate governance (ESG) factors. (3) The fund is now sub-advised by CS Mckee


  • basis point is one hundredth of a percentage point (0.01%).
  • 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.
  • Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.


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 Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

Fixed Income Securities Risk. The market value of fixed income investments in which the Fund may invest may change in response to interest rate changes and other factors. During periods of falling interest rates, the value of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the value of fixed income securities generally decline. Mortgage-Backed and Asset-Backed Securities Risk. The Fund could lose money if the issuer or guarantor of a debt instrument in which the Fund invests becomes unwilling or unable to make timely principal and/or interest payments, or to otherwise meet its obligations.

The impairment of the value of collateral underlying a mortgage-backed or asset-backed security (for example, due to non-payment of loans) may result in a reduction in the value of such security. In addition, early payoffs in the loans may result in the Fund receiving less income than originally anticipated.

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.