MINC: July 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.
Policy support from monetary and fiscal authorities and attractive valuations proved a powerful mix during the second quarter with the trend continuing in July as most risk assets rallied. The Federal Reserve maintained its dovish stance and reinforced its commitment to monetary policy support. Fiscal policy is likely to follow suit although politics make the process cumbersome. Risk tone remained firm as high yield was the top performing sector for the month and the sector’s return turned positive for the year. Parts of the economy have reopened, however, spikes in new COVID-19 cases, particularly in the South, have resulted in some delays and setbacks to broader efforts to that process. We expect this pause will be temporary but are monitoring closely.
During the month of July, the U.S. Treasury curve modestly flattened as the 10-year Treasury yield declined 13 basis points and the 30-year Treasury yield was 22 basis points(0.22%) lower.
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 July.
Issue selection and allocation within corporate high yield bonds contributed to the positive performance for the fund during the month. During the last week in July, the high yield market hit a fresh post-crisis high with strong performance. The index is now back to a positive total return for the year, with quality continuing to outperform.
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 as furloughed employees returned to work. For many, stay-at-home orders have dramatically increased the intrinsic value of residential real estate. In addition, subscription levels have far exceeded pre-COVID-19 levels as investors have cash that needs to get to work.
The Fund’s underweight to investment grade corporates relative to the benchmark slightly detracted from performance as investment grade corporate bonds performed well the month of July.
During the month, we reduced exposure to investment grade corporate bonds and cash. Sale proceeds were primarily invested in asset backed securities and U.S. Treasuries.
|Security Description||Portfolio Weight %|
|US TREASURY N/B 1.75 6/15/2022||3.28%|
|JP MORGAN USD GOVT MONEY MARKET INSTL||2.84%|
|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||1.20%|
|BX 2018-GW B FRN 5/15/2035||1.13%|
|SOFI 2017-C A2B 2.63 7/25/2040||0.82%|
|US TREASURY N/B 0.5 3/31/2025||0.79%|
|FN MA3692 3.5 7/1/2049||0.79%|
|MORGAN STANLEY FRN 10/24/2023||0.78%|
As of 7.31.2020. 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.
Newfleet Asset Management
AdvisorShares Newfleet Multi-Sector Income ETF (MINC) Portfolio Manager
Past Manager Commentary