AADR: February 2019 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/fund/aadr.
The strategy uses relative strength to allocate towards the strongest performing ADRs in the Developed and Emerging Markets. The strategy starts with a top down approach, first ranking each sector based on its relative strength scores and then setting the weighting of each sector. Holdings are scored daily based on an in-house momentum score which compares each security to the peers in the universe. If a security’s rank falls below our sell threshold it is removed. The strategy is not constrained to holding a set allocation to Emerging or Developed Markets, rather the process identifies areas of strength across the globe regardless of geographical location. This allows the portfolio to overweight or underweight regions and markets to concentrate on areas of strength, often pushing the portfolio to vary dramatically from international benchmarks.
After a hard 4th quarter and one of the worst Decembers on record, January provided a late holiday present to international markets. In February, AADR was up for the second month in a row, posting a 4.21% (NAV) gain for the month, helping to gain back some of the ground that was lost during 2018. The performance gains were broad based this month with a majority of the holdings contributing positively to the performance, and those that decline had a small negative impact. Typically, after the strategy goes through a period of underperformance and restructuring the portfolio is able to make up lost ground..
The portfolio continues to be allocated to securities that we believe to display favorable relative strength characteristics. At any given time the portfolio will be comprised of 30-40 US traded ADR’s from our universe of 300-450 ADR’s. So far this year, we have continued to see turnover in the portfolio as the holdings adjust to the constant changes in international markets. Currently, the portfolio consists of 36 securities with weights ranging from ~2% to ~5%, with the top 10 holdings comprising roughly 35% of the portfolio. Intelstat continues to hold the largest weight in the portfolio at 5.22%, Instelstate has held the top position for several months as the security has continued to perform well even in the negative trending market of 2018.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|ARGX||ARGENX SE – ADR||3.71%|
|CEO||CNOOC LTD-SPON ADR||3.57%|
|EADSY||AIRBUS SE – UNSP ADR||3.42%|
|ZTO||ZTO EXPRESS CAYMAN INC-ADR||2.95%|
|INFY||INFOSYS LTD-SP ADR||2.92%|
|GLPG||GALAPAGOS NV-SPON ADR||2.87%|
|ERIC||ERICSSON (LM) TEL-SP ADR||2.85%|
As of 02.28.2019.
Developed and Emerging both has significant positive contributions to the portfolio this month. Developed markets provided the largest source of return due to the large weight in the portfolio. Emerging markets however had a higher overall return, lead by Latin America which has recently had an increased allocation in the portfolio.
As of 02.28.2019.
Regional allocation has also changed significantly over the past year, as Latin American holdings were liquidated in favor of more developed economies. At its high, Latin America was 50%+ of the portfolio and was the main source of return for the portfolio for several years. Currently, that allocation represents 22% of the portfolio, which is less than the historical average but higher than the benchmark. Europe has also seen an equally substantial change over the past year, increasing from a 2018 low of 5% to more than 35% of the current portfolio.
As of 02.28.2019.
The buy/sell process of the strategy starts with a look at the strongest sectors within the universe, overweighting strength and underweighting or eliminating relative weakness. The portfolio has continually had an underweight to financials relative to the benchmark over the past several years and this month the trend continued. The portfolio saw the largest source of return in Non-Cyclicals, industrials and Healthcare this month, with those three sectors representing over 60% of the portfolios return.
As of 02.28.2019.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright ADR ETF (AADR) Portfolio Manager
An American Depositary Receipt (ADR) is a negotiable U.S. Security that generally represents a company’s publicly traded equity or debt. Depositary Receipts are created when a broker purchases a non-U.S. company’s shares on its home stock market and delivers the shares to the depositary’s local custodian bank, and then instructs the depositary bank to issue Depositary Receipts.
The MSCI All Country World Ex-U.S. Index is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
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 www.advisorshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.
There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. Emerging Markets, which consist of countries or markets with low to middle income economics can be subject to greater social, economic, regulatory and political uncertainties and can be extremely volatile. Other Fund risks include concentration risk, foreign securities and currency risk, ADRs which may be less liquid, large-cap risk, early closing risk, counterparty risk and trading risk, which can increase Fund expenses and may decrease Fund performance. The Fund is, also, subject to the same risks associated with the underlying ETFs, which can result in higher volatility. This Fund may not be suitable for all investors. See prospectus for detail regarding risk.
Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times.
Holdings and allocations are subject to risks and to change.
The views in this commentary are those of the portfolio manager 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.