DWSH: 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/dwsh.
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.
The DWSH portfolio performed exceptionally well since it was launched in July of 2018. Over the fourth quarter, the short strategy returned 21.59% (NAV) compared to the S&P 500, which was down -13.52%, and the Morningstar Bear Market category that was up 23.87%. This put DWSH as one of the top dedicated short ETFs in the market since inception. The strategy maintained its investment disciple over the year as it continued to find names that are showing low relative strength and systematically cutting those that have gained strength. While the short-term performance is wonderful, the system process is designed to work in multiple market environments.
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.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|ON||ON SEMICONDUCTOR CORP||-1.35%|
|MIC||MACQUARIE INFRASTRUCTURE COR||-1.31%|
|TOL||TOLL BROTHERS INC||-1.26%|
|GT||GOODYEAR TIRE & RUBBER CO||-1.22%|
|FND||FLOOR & DECOR HOLDINGS INC-A||-1.22%|
|MGM||MGM RESORTS INTERNATIONAL||-1.22%|
|AMAT||APPLIED MATERIALS INC||-1.21%|
As of 12.31.2018.
Currently, Consumer Cyclicals and Industrials are the largest sector holdings in the portfolio, with Utilities representing a very small allocation. This allocation has shifted from month to month as the market digests new information and leadership or laggards become further defined. The portfolio adjusted this month including new shorts in Telecommunications, which had previously not been represented in the portfolio. Consumer Non-cyclicals also saw a large shift this month as global equity markets sold off due to a variety of concerns including the US government shut down, continued trade issues and increasing fears of a slowing economy.
As of 12.31.2018.
The portfolio saw several shiftsthis month due to both market appreciation and net changes to the sector of the portfolio. Over the past month the net exposure to Basic Materials, Technology and Energy all saw meaningful increases, along with the new allocation to Telecommunications. While Consumer Non-Cyclicals saw the largest allocation decrease this month, decreasing almost 4% over the month, Industrials and Financials both saw net reductions as well.
As of 12.31.2018.
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.