MINC: August 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/minc.
The rally in global risk markets continued in August with stocks higher and credit spreads tighter. Once again, government and central bank policies are offsetting the economic impact of the COVID pandemic. The combination of fiscal and monetary policy has restored confidence, which translates to better economic data and, in turn, supports risk asset prices. Credit spreads have good relative value. The world is awash with liquidity from both monetary and fiscal stimulus and we believe spread sectors in the fixed income market will benefit. US treasury yields are low, global negative yielding debt is close to $17 trillion and other risk assets, like US equities, appear fully valued. Sector, industry and issuer selection will remain critical in this environment.
During the month of August, the U.S. Treasury curve steepened as the 10-year Treasury yield rose 18 basis points and the 30-year Treasury yield was 28 basis points higher. Short maturities were relatively unchanged.
The underweight to U.S. Treasuries was a positive contributor to performance as U.S. Treasuries underperformed relative to most spread sectors during the month of August.
Issue selection within asset backed securities and non-agency residential mortgage backed securities were positive contributors to performance during the month. Stimulus programs have kept consumers in better shape than initially feared and the market awaits a second consumer stimulus package to help unemployed consumers stay current on their debt service. Additionally, historically low mortgage rates create continued strong demand for residential real estate.
Issue selection and allocation within corporate high yield and investment grade corporate bonds contributed to the positive performance for the fund during the month as spread sectors continued to outperform U.S. Treasuries.
There were no significant underperformers during the month of August.
During the month, we reduced exposure to asset backed securities and cash. Sale proceeds were primarily invested non-agency residential mortgage backed securities and corporate high yield securities.
|Security Description||Portfolio Weight %|
|US TREASURY N/B 1.75 6/15/2022||3.27%|
|US TREASURY N/B 0.125 5/31/2022||1.90%|
|US TREASURY N/B 2.25 3/31/2021||1.53%|
|ISHARES IBOXX HIGH YLD CORP||1.19%|
|BX 2018-GW B FRN 5/15/2035||1.14%|
|US TREASURY N/B 0.5 3/31/2025||0.79%|
|MORGAN STANLEY FRN 10/24/2023||0.78%|
|SOFI 2017-C A2B 2.63 7/25/2040||0.77%|
|GCAT 2019-NQM1 A1 STEP-CPN 2/25/2059||0.75%|
|NRZT 2016-3A A1 FRN 9/25/2056||0.73%|
As of 8.31.2020. Cash not included.
As always, we believe it is important to stay diversified, have granular positions, and emphasize liquid investments. The coronavirus, like other events that trigger volatility in the market, can affect valuations and create opportunities that we can take advantage of in the course of implementing our multi-sector relative value approach. We highlight the importance of credit selection and positioning in the current environment. Given the widening in spreads late in the first quarter of 2020, valuations had cheapened substantially and we continue to identify opportunities in spread sectors, including those within non-investment grade sectors that we have added to and may continue to add to in the portfolios. Even with the recovery since the end of March, valuations look attractive in many spread sectors that we believe offer some of the best total return and yield opportunities in fixed income. Some of the specific sectors where we are finding the best relative value opportunities are corporate high yield, investment grade corporates, EM debt, out-of-index/off-the-run ABS, and non-agency RMBS.