AADR: November 2018 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.
The strategy closed the month on a negative note as AADR was down -4.73% (NAV) in the month of November, bringing the trailing 1-year return to -19.88% (NAV). Though the strategy was down for the month and leadership continues to adjust to new trends, AADR continues to outperform the benchmark over longer periods. AADR remains in the top quartile in Morningstar’s peer rankings for the trailing five-year timeframe.
The portfolio continues to be allocated to securities that we believe 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. Over the past several months, we have continued to see the portfolio adapt to new global leadership as trade and geopolitical tensions have continued to change the face of global markets. While we continue to see several names at the top of our holdings over the past year, our ranks have continued to adjust to new leadership trends across the globe causing the top holdings to alter dramatically from this time last year. The portfolio holdings did not see any changes this month, as new trends have helped to slow changes. However with numerous political events hitting the news headlines, the portfolio may start to see changes next month. Outside of two holding that came into the portfolio in 2017, the portfolio is now comprised of companies that have been added in 2018. This amazing transition is an example of the rapid change that we have seen this year in international markets.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|EC||ECOPETROL SA-SPONSORED ADR||3.78%|
|CEO||CNOOC LTD-SPON ADR||3.61%|
|GLPG||GALAPAGOS NV-SPON ADR||3.09%|
|EADSY||AIRBUS SE – UNSP ADR||2.97%|
|AER||AERCAP HOLDINGS NV||2.82%|
Allocations across the board dropped this month as both developed and emerging markets could not escape the market wide sell off. The portfolio’s allocation to developed markets experienced the largest drop this month, as Europe sold off. This year Emerging Markets have been under continued pressure led by deteriorating conditions in Latin America and increased Chinese US tensions causing the portfolio to increase its allocation in developed markets. Talend SA (Ticker: TLND) and Ecopetrol SA (Ticker: EC) posted the largest losses this month as technology continued to experience problems and the energy selloff spread across the market. Argenx (Ticker:ARGX), a Belgium healthcare company, was the top performing security for the month, posting the second best return last month, followed by NICE Ltd (Ticker: NICE), one of our older holdings.
Developed markets saw the largest negative performance contribution this month, as broad based selling around the global markets hit developed and emerging market countries almost equally. Developed markets have taken a large position in the portfolio over the course of the year, reducing emerging markets exposure to 21% of the portfolio, which has fallen into line with the index (MSCI ACWI ex US TR) which currently has roughly 19% in Emerging Markets. The allocation to Emerging Markets has continued to drop over the past 6 months from roughly 60% to the current 21% allocation. The majority of underperformance this month was caused by the fund’s holdings in the Israel. Belgium was close in line with the performance contribution this month even though it held the top performing security.
As of 11/30/2018.
One of the most notable changes for the year has been the increased allocation to the Europe region. Historically, Europe tends to be an underweight in the index. After the increased shift this year, however, Europe is now an overweight in AADR by over 15%. Asian region holdings, which accounted for 10.89% of AADR’s portfolio, caused a drag as trade war fears continue to grip the market. AADR’s Asian holdings allocation were still below the indexes 36.47% allocation. This may further change with the continued pressure that geopolitical issues are having on global markets.
As of 11/30/2018.
The buy/sell process of AADR’s strategy starts with a look at the strongest sectors within the universe, overweighting strength and underweighting or eliminating relative weakness. The portfolio continued to adjust in November as new leadership trends were refined within the portfolio – net exposure to Technology increased this month while Healthcare and Materials both saw net decreases. Technology posted the largest negative contribution to the portfolio in November, closely followed by Energy and Basic Materials. Healthcare and Consumer Non-Cyclicals had the best returns for the month, posting slightly positive returns.
Looking at AADR’s sector holdings versus the index also provides another view of the differentiation that the strategy provides. The largest allocation in the index continued to be Financials, while AADR had an allocation that favored Technology, Energy and Healthcare.
As of 11/30/2018.
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.