DWSH: 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/dwsh.

Strategy

The AdvisorShares Dorsey Wright Short ETF (Ticker: DWSH) is built on the relative strength testing that Dorsey Wright has been doing for over almost two decades. Rather than investing in those companies that are exhibiting the strongest relative strength, we identify the bottom tier or laggards and short those stocks.  Shorting using relative strength is by no means a new idea. When reading academic literature on momentum from the past 40 years, the idea of buying the past winners and shorting the losers is often found to be a sensible allocation.

Our vision for utilizing the strategy is twofold. First, it can be used as a hedge against downside US equity volatility, helping to reduce the volatility of the portfolio by pairing DWSH with a traditional long portfolio. The second is using the strategy as an alpha bet during period of market distress. During periods of high dispersion among securities, there are well-defined winners and losers. Rather than buying a broad short of the whole market, we systematically invest in companies that are identified to be weak and have a greater chance, in our opinion, of dropping more than the other companies in the universe.  

Performance

The third quarter ended much like the year started, full of volatility and uncertainty. Over the course of the quarter we continued to see markets digest the ongoing issues around the trade wars and new uncertainty in the Middle East. This uncertainty helped to fuel the portfolios positive return over the quarter. DWSH returned 4.31% (NAV) which outperformed both the broad markets and the broad inverse markets for the quarter. Performance was broadly supported across a majority of the sectors and a majority of the short positions. Even in the face of positive performance, we have continued to see the strategy adapt to new trends in the market, while still shorting areas of the market such as retail that continue to disappoint the market.

Holdings

Currently the portfolio is comprised of 101 companies spread across the major macro sectors. This number will fluctuate over time as positions grow to a larger allocation of the portfolio and as securities are replaced in our sell process. As securities are removed from the portfolio, the new purchases will be allocated at roughly equal weight, depending on the cash level. Over the past several months we have seen several names continue to grow in our holdings as the markets continue to hold the companies in an unfavorable light. This quarter the top holdings did not represent the largest positive contributors to performance, instead we saw a number of our smaller allocations push the portfolio further.

Top 10 Holdings

Ticker Security Description Portfolio Weight %
WW WW INTERNATIONAL INC -2.24%
MIK MICHAELS COS INC/THE -1.74%
ADNT ADIENT PLC -1.63%
NWL NEWELL BRANDS INC -1.38%
PRGO PERRIGO CO PLC -1.33%
SNH SENIOR HOUSING PROP TRUST -1.28%
HUN HUNTSMAN CORP -1.18%
TSLA TESLA INC -1.14%
WBA WALGREENS BOOTS ALLIANCE INC -1.14%
NBL NOBLE ENERGY INC -1.13%

As of 09.30.2019.

The small cap exposure in the portfolio, which is currently the smallest allocation, had the largest positive contribution to the portfolio over the quarter. This was due to several small cap names in the portfolio being the top performing securities, while the remaining small cap names stayed fairly stable allowing for minimal performance drag. The mid cap exposure was a close second to small cap over the quarter, however, unlike small caps, mid-caps had several names that negatively impacted the portfolio.

Sector

Performance across the sectors was mostly positive this quarter, as all but two sectors were positive or flat. The leading sectors – Energy, Materials, Utilities and Technology – helped to drive the performance forward, even though they only accounted for ~33% of the entire portfolio.


As of 09.30.2019.

Allocation Changes

This allocation has shifted from month to month as the market digests new information and leadership or laggards become further defined. The portfolio made a large number of changes this quarter as the US markets process the risks that become ever more apparent. The notable changes this quarter was an increase in the number of Consumer Cyclical and Energy holdings, while closing out a number of profitable positions in Industrials.


As of 09.30.2019.

Respectfully,

John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright Wright Short ETF (DWSH) 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. Short sales are transactions in which the Fund sells a security it does not own. To complete the transaction, the Fund must borrow the security to make delivery to the buyer. The Fund is then obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. If the underlying security goes down in price between the time the Fund sells the security and buys it back, the Fund will realize a gain on the transaction. Conversely, if the underlying security goes up in price during the period, the Fund will realize a loss on the transaction. Any such loss is increased by the amount of premium or interest the Fund must pay to the lender of the security. Likewise, any gain will be decreased by the amount of premium or interest the Fund must pay to the lender of the security. Because a short position loses value as the security’s price increases, the loss on a short sale is theoretically unlimited. Short sales involve leverage because the Fund borrows securities and then sells them, effectively leveraging its assets. The use of leverage may magnify gains or losses for the Fund. As with any fund, 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.