SURE: 4th Quarter 2022 Portfolio 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/sure.
Portfolio Review
While 2022 was a turbulent year for the global equity market, the AdvisorShares Insider Advantage ETF (ticker symbol: SURE) – which debuted under its new strategy on September 1, 2022 – got off to a good start. It was up 11.65% in Q4 2022, beating the S&P 500’s return of 7.56% by a nice margin.
Share count reduction, achieved by stock repurchases among most public companies, is an important element of the SURE strategy. In 2022, new stock buyback capacity authorized by U.S. public companies surpassed $1.1 trillion. It was not only the highest annual amount historically, but also a strong vote of confidence by corporate insiders against the backdrop of a bear market. It is evident that public companies are committed to using stock buybacks as the main channel to enhance shareholder return as new buybacks exceeded the $1 trillion mark in the last two consecutive years. In comparison, the current size of the U.S. equity ETF market is about $4 trillion. That means in the past two years, the purchasing power of new buyback programs equals that of 50% of the existing U.S. equity ETFs, if they were executed to the full extent.
Source: Qubed Capital, LLC. As of 12.31.2022.
SURE seeks to help investors take advantage of the tailwind from surging stock repurchases. It is evident by looking at the asset allocation in SURE and seeing how it is different from a traditional stock index. The energy sector accounts for 18% of SURE while it is only 5% in the S&P 500. SURE is overweighted by us for a good reason. New buyback programs announced by the energy sector totaled $114 billion last year, more than triple the size in 2021. In the twenty years prior to 2022, buybacks announced by energy companies in the U.S. averaged merely $25 billion a year.
On the other hand, new buyback programs announced by technology companies plunged by 20% to $355 billion in 2022 from a record $443 billion in 2021. As a result, information technology is only the fifth largest sector in SURE, accounting for 11% of the portfolio. In the S&P 500 Index, Information Technology is still the largest sector with a weight of 26%, after a year of declining values.
Source: Qubed Capital, LLC. As of 12.31.2022.
Top Holdings
| Ticker | Security Description | Portfoio Weight % |
| CVX | CHEVRON CORP | 1.11% |
| AMG | AFFILIATED MANAGERS GROUP | 1.11% |
| AA | ALCOA CORP | 1.11% |
| MPC | MARATHON PETROLEUM CORP | 1.11% |
| XOM | EXXON MOBIL CORP | 1.10% |
| HCA | HCA HEALTHCARE INC | 1.10% |
| RCII | RENT-A-CENTER INC | 1.10% |
| LMT | LOCKHEED MARTIN CORP | 1.08% |
| VLO | VALERO ENERGY CORP | 1.08% |
| BOKF | BOK FINANCIAL CORPORATION | 1.08% |
As of 12.31.2022. Subject to change.
Outlook
The stock market has had a good start so far in 2023. As the earnings season kicks off, we may get a better sense if large buybacks are here to stay in the new year. Executives at JPMorgan and Wells Fargo, which had suspended share repurchases in the second half of last year, said that they expected to resume buybacks this quarter. Bank of New York Mellon, which saw its stocks pulling back dramatically in 2022, authorized a new $5 billion buyback program last week.
While it can be easy to get wrapped up in the day-to-day price actions, we have reason to believe that investors should see good opportunity to build up long-term positions in 2023 as equity valuations have fallen and the Fed tightening cycle is closer to its end.
Respectfully,
Minyi Chen
Qubed Capital, LLC
AdvisorShares Insider Advantage ETF (SURE) Portfolio Strategist
Past Commentary
Coming next quarter.
– A buyback (or repurchase) occurs when a company repurchases its own shares from the marketplace, reducing the number of shares outstanding.
– An insider is an officer, director, executive, entity, or individual that owns more than 10% of a publicly traded company’s shares.
– Insider buying is the legal purchase of shares in a firm by a corporate insider that is not based on non-public, material information and follows the U.S. Securities and Exchange Commission’s rules and reporting requirements.
*On September 1, 2022, the AdvisorShares DoubleLine Value Equity ETF (the “Predecessor Fund”) was renamed the AdvisorShares Insider Advantage ETF. The Predecessor Fund had different portfolio managers and investment strategy than the AdvisorShares Insider Advantage ETF. Performance prior to September 1, 2022 reflects the Fund’s performance prior to the change in manager and investment strategy and may not be indicative of the Fund’s performance under the new manager and revised investment strategy. Performance since September 1, 2022 reflects actual AdvisorShares Insider Advantage ETF performance.
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 the Fund’s website at www.AdvisorShares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, Distributor.
The Fund’s investment focus follows a core philosophy that corporate insiders know their companies best. The Advisor believes that insider buying and stock buyback programs not only show that corporate insiders see relative value in investing in their own company’s equity securities, but also create favorable market conditions by reducing public equity float (i.e., the share supply available to investors on the public secondary market). The Advisor allocates the Fund’s portfolio using research from a disciplined and quantitative proprietary model, the U.S. Insiders Edge Model, developed by Qubed Capital, LLC. In utilizing the model, the Advisor seeks to remove emotion from day-to-day decision-making by following a systematic process.
The Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve its investment objective by primarily investing in a portfolio of U.S. traded companies selected from a universe of the largest 3,000 U.S. equity securities based on market capitalization. When models and data prove to be incorrect or incomplete, any decisions made in reliance thereon expose the Fund to potential risks. In addition, the use of predictive models has inherent risk.
The views in this commentary are those of the portfolio manager/strategist 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.