October 2018 Portfolio Manager Review
The AdvisorShares Dorsey Wright Short ETF (Ticker: DWSH) is built on the relative strength testing that Dorsey Wright has been doing for over almost two decades. Rather than investing in those companies that are exhibiting the strongest relative strength, we identify the bottom tier or laggards and short those stocks. Shorting using relative strength is by no means a new idea. When reading academic literature on momentum from the past 40 years, the idea of buying the past winners and shorting the losers is often found to be a sensible allocation.
Our vision for utilizing the strategy is twofold. First, it can be used as a hedge against downside US equity volatility, helping to reduce the volatility of the portfolio by pairing DWSH with a traditional long portfolio. The second is using the strategy as an alpha bet during period of market distress. During periods of high dispersion among securities, there are well-defined winners and losers. Rather than buying a broad short of the whole market, we systematically invest in companies that are identified to be weak and have a greater chance, in our opinion, of dropping more than the other companies in the universe.
Currently, the portfolio is comprised of 100 companies spread across the major macro sectors. This number will fluctuate over time as positions grow to a larger allocation of the portfolio and as securities are replaced in our sell process. As securities are removed from the portfolio, the new purchases will be allocated at roughly equal weight, depending on the cash level.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight|
|PM||PHILIP MORRIS INTERNATIONAL||-1.35%|
|CPB||CAMPBELL SOUP CO||-1.27%|
|GIS||GENERAL MILLS INC||-1.22%|
|HCSG||HEALTHCARE SERVICES GROUP||-1.20%|
|NEM||NEWMONT MINING CORP||-1.17%|
|CAH||CARDINAL HEALTH INC||-1.13%|
|GE||GENERAL ELECTRIC CO||-1.13%|
|CCK||CROWN HOLDINGS INC||-1.13%|
Currently, Consumer Cyclicals and Industrials are the largest sector holdings in the portfolio, with Telecomm not currently represented. This allocation has the potential to shift dramatically from month to month as the market digests new information and leaders or laggards become further defined. The portfolios positive return for the month was bolstered by allocations to the largest sectors Industrials, Consumer Cyclicals and Financials. The rest of the sectors posted positive gains for the month helping to drive the strategies positive performance in the face of down trending equity markets.
The portfolio saw several shift this month due to both market appreciation and net changes to the sectors of the portfolio. Over the past month the net exposure to Basic Materials, Financials and Consumer Cyclicals saw a meaningful increase. While Utilities saw the largest allocation decrease this month, Energy and Industrials both saw net reductions.
AdvisorShares Dorsey Wright Short ETF (DWSH) Portfolio Manager