DWMC: 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/dwmc
The AdvisorShares Dorsey Wright Micro-Cap ETF (DWMC) uses relative strength to allocate towards areas of strength in the micro-cap market. The portfolio is systematically managed and reviewed on a daily basis using the Dorsey Wright relative strength ranks. The strategy starts with the smallest 2000 companies that trade on a US exchange; the securities are then screened for size and liquidity. The companies are each given a relative strength score and the portfolio allocates to approximately 150 – 200 companies that are in the top quartile of the rankings. Securities included are roughly equal-weighted based on the available cash at the time of purchase. This universe and the portfolio are ranked and evaluated for changes on a daily basis. Once a company’s rank falls below a preset threshold, it is removed from the portfolio and the portfolio reallocates to higher relative strength names.
The third quarter was rough for micro-caps as the market favored larger companies. The portfolio declined this quarter at a faster rate than the index, with a majority of the sectors posting negative returns. However, this quarter was an anomaly for the year, as the strategy continues to have a solid performance lead over the benchmark. Looking into the next quarter, the portfolios changes have put it into a strong position to take advantage of the market after a turbulent September.
The portfolio is currently comprised of 160 companies that range in market cap from 135mm to 5,100mm. Traditionally, micro-cap companies are below 300mm in total market capitalization. Once a security is included in the portfolio, we will not sell it unless it falls significantly out of favor in our ranks. This means that at times, we may own companies that are more traditionally defined as small or mid cap stocks. This allows the portfolio to fully capitalize on securities that are exhibiting strong momentum characteristics. Currently, our top 10 holdings are comprised of companies that have appreciated to a larger allocation over time in the portfolio; the top 10 holdings comprise 14% of the overall portfolio.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|CWST||CASELLA WASTE SYSTEMS INC-A||2.09%|
|ERI||ELDORADO RESORTS INC||1.74%|
|KNSL||KINSALE CAPITAL GROUP INC||1.37%|
|APPF||APPFOLIO INC – A||1.22%|
|AXSM||AXSOME THERAPEUTICS INC||1.01%|
As of 09.30.2019. Excludes cash positions.
The strategy is positioned to overweight or underweight sector allocations dependent on the relative strength of the investable universe and the portfolio allocation. The sector weight is entirely determined by the strength of the individual names in the portfolio and those that are selected based on the strategies technical buy process. Currently DWMC continues to have a large sector allocation to Financials at 23% of the portfolio, followed by two smaller by meaningful positions in Industrials 22% and Healthcare 18%. Healthcare and Technology in the current market have continued to show strength and often comprises a large portion of the micro-cap universe, while Utilities, which has a small 1% allocation, tends to be dominated by mid and large cap companies.
Last quarter we saw Materials and Utilities drive the majority of the portfolios positive return, this was largely due to a broad sector rally rather than a few names like we saw in August. The remaining sectors had a disappointing quarter, posting negative returns in the face of a troubled market.
As of 09.30.2019.
As the markets reconstituted and found new leaders after a difficult 2018 fourth quarter, the portfolio made a large number of changes since the start of this year. The portfolio saw a large number of changes this quarter as the US equity markets continue to find even footing in the turbulent equity markets. The majority of the changes this quarter were centered in the largest sector, Healthcare. While Healthcare had the highest level of turnover this quarter, the number of buys and sells netted out to even, though the total allocation shrank over the quarter. The largest change in the sector exposure was to Financials, which went from the middle of the sector exposure to the largest sector allocation. This change largely happened during September, which saw a spike in the total allocation to the sector.
As of 09.30.2019.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright Micro-Cap ETF (DWMC) Portfolio Manager
Past Manager Commentary
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.
The Fund is subject to a number of risks that may affect the value of its shares, including the possible loss of principal. Stock prices of microcap companies are significantly more volatile, and more vulnerable to adverse business and economic developments, than those of larger companies. Micro-cap stocks may also be thinly traded, making it difficult for the Fund to buy and sell them. There is no guarantee that the Fund will achieve its investment objective.
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.