AADR: September 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/etfs/aadr.

Strategy

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.

Performance

The third quarter was full of volatility across the globe as several new and existing concerns gripped global headlines. The main headlines continue to be fears of a slowing European economy and the continued US and China trade war. We also saw issues in the Middle East flair up this quarter as oil production in Saudi Arabia was attacked, causing a shock global energy markets. Additionally, both emerging and developed markets sold off in both the benchmark and the strategy, with emerging markets taking a larger performance hit. This was poorly timed for our portfolio as we continue to have an overweight in emerging markets which has been the main driver of performance during 2019. As the markets digest new information and favor new areas of the market, we will continue to see the strategy adapt and adjust the allocation.

Holdings

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. Currently, the portfolio consists of 38 securities with weights ranging from ~0.3% to ~4.9%, with the top 10 holdings comprising roughly 35% of the portfolio. Nice Ltd currently holds the largest allocation in the portfolio, replacing Intelsat in May which had held the top position for the majority of the year. The top holdings are currently split between emerging and developed markets, this is a departure from last year’s allocation which favored developed markets.

Top 10 Holdings

Ticker Security Description Portfolio Weight %
NICE NICE LTD 4.85%
GLPG GALAPAGOS NV-SPON ADR 4.34%
MELI MERCADOLIBRE INC 3.54%
EADSY AIRBUS SE – UNSP ADR 3.34%
AU ANGLOGOLD ASHANTI-SPON ADR 3.24%
LVMUY LVMH MOET HENNESSY-UNSP ADR 3.15%
ALLE ALLEGION PLC 3.12%
ARGX ARGENX SE – ADR 3.07%
ZTO ZTO EXPRESS CAYMAN INC-ADR 3.06%
INFY INFOSYS LTD-SP ADR 2.99%

As of 09.30.2019.

Geographic

The portfolio has continued to have an emerging markets overweight relative to the benchmark for the majority of the year. Currently emerging markets are ~46% of the portfolio relative to the ~14% in the benchmark, with a large portion of that exposure centered in Latin American which is a small allocation in the global benchmark. This quarter the extra exposure to emerging markets provided additional headwind to the portfolio as the developed markets exposure declined less than emerging. However, this has been an anomaly as the portfolios emerging market exposure has been responsible for the years outperformance. Looking into the next quarter we expect the portfolio to shift into the new leadership, as the markets shift in the face of ever-changing political and economic events.


As of 09.30.2019.


As of 09.30.2019.

Sector

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, with the portfolio allocating nothing to the sector. The performance drivers for the quarter were Healthcare, Industrials and Telecomm; these three sectors accounted for the positive performance in the portfolio this quarter which helped to reduce the downside volatility.


As of 09.30.2019.

 

Respectfully,

John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright ADR ETF (AADR) Portfolio Manager

 

Past Manager Commentary

Definitions:

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.