DWMC: December 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/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.
Since the portfolio launched in July, the markets have not been conducive to small and micro-cap investing. The portfolio has continued to execute on its process along the way however, continuing to push the portfolio to areas of strength even in the declining market. Over the year, this has shifted the portfolio from a largely growth focused allocation in Technology and Healthcare, incorporating Utilities and more defensive sectors as the market has evolved. The Utilities allocation that entered the portfolio later in the year was the source of positive attribution over the year, while Healthcare was the largest allocation and largest source of portfolio drag. However when developing the strategy and in running our other momentum portfolios, we have found that being disciplined to the process is what works over time.
The portfolio is currently comprised of 163 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 over 14% of the overall portfolio.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|ERI||ELDORADO RESORTS INC||1.77%|
|CWST||CASELLA WASTE SYSTEMS INC-A||1.55%|
|LOXO||LOXO ONCOLOGY INC||1.55%|
|TRHC||TABULA RASA HEALTHCARE INC||1.29%|
|STAA||STAAR SURGICAL CO||1.12%|
|GLUU||GLU MOBILE INC||1.05%|
As of 12.31.2018.
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 strategy’s technical buy process. Currently, DWMC continues to have a large sector allocation to Healthcare at 24.7% of the portfolio, followed by two smaller but meaningful positions in Industrials (16.3%) and Financials (14.3%). In the current market, Healthcare has 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.
As of 12.31.2018.
The portfolio saw changes this month through both large market moves and portfolio reallocations. The largest change this month was a large drop in Consumer Cyclicals which decreased over 2% this month. The allocation was distributed among several sectors with Technology receiving the bulk of the allocation.
As of 12.31.2018.
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.