SURE: 1st Quarter 2023 Portfolio Review
Portfolio Review
As we look back on the first quarter of 2023, it is clear that economic uncertainty and inflation remain major risks this year. The rally in stock prices extended in the first quarter, but the falling of two regional banks brought back the sour mood in March. While the crisis triggered by Silicon Valley Bank was solved without major damage to the banking industry in general, it nevertheless shook the faith in local and regional banks. The recent turmoil in First Republic Bank is evidence that such a risk may continue to linger before the Fed stops raising interest rates higher.
On that note, it is useful to point out that the SURE portfolio has zero exposure to the banking industry. Our exposure to the financial sector is concentrated in the financial services and capital markets industry. In addition, we have an underweight in the financial sector – 9.8% compared to 14.2% for the S&P 500 Index.
The energy sector was brought down in the first quarter together with the banks, as investors worried a higher chance of recession would dampen consumer demand. Oil prices, for example, plunged 20% during a span of two weeks in March. However, we continue to hold our overweight positions in energy companies, because the profit boom in the sector is extending in 2023 even as oil prices flounder around $76. Exxon and Chevron both posted hefty profits for four straight quarters. The ample cash on hand allows them to continue to reward shareholders with stock buybacks and dividends, two important elements in our stock selection model.
Top Holdings
| Ticker | Security Description | Portfolio Weight % |
| AAPL | APPLE INC | 1.20% |
| CALM | CAL-MAINE FOODS INC | 1.15% |
| HCA | HCA HEALTHCARE INC | 1.15% |
| VLO | VALERO ENERGY CORP | 1.14% |
| EXP | EAGLE MATERIALS INC | 1.13% |
| GPI | GROUP 1 AUTOMOTIVE INC | 1.13% |
| BYD | BOYD GAMING CORP | 1.12% |
| AMAT | APPLIED MATERIALS INC | 1.12% |
| DLB | DOLBY LABORATORIES INC-CL A | 1.11% |
| WIRE | ENCORE WIRE CORP | 1.11% |
As of 03.31.2023. Subject to change.
Outlook
New stock buyback programs announced in April added $92 billion in repurchase capacity by U.S. public companies, on top of $305 billion announced in the first quarter. The current trend is on par with the pace we have seen in the past two years. We believe companies that are doing well in the current market environment, energy companies for example, will be able to continue to generate positive free cash flow to support repurchase and dividend payment.
Source: Qubed Capital, LLC. As of 04.27.2023.
A new trend we want to keep paying close attention to is the resurrection of technology companies. Since we added Apple in SURE, it has been one of the top performing companies in the portfolio. After losing nearly 35% in 2022, tech companies are enjoying a strong rebound this year. Investors’ optimism can be justified by the series of cost-cutting initiatives and the more reasonable valuation we saw in the past six months. Alphabet’s $70 billion increase to its share buyback authorization in April is the second largest this year. Total new buyback authorization by tech companies already exceeded $170 billion in the first four months this year, after a 22% decline in 2022. If the momentum can sustain, we should see more technology names being added to SURE later this year.
Source: Qubed Capital, LLC. As of 04.27.2023.
Respectfully,
Minyi Chen
Qubed Capital, LLC
AdvisorShares Insider Advantage ETF (SURE) Portfolio Strategist
– 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.