AADR

AdvisorShares Dorsey Wright ADR ETF

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.

May 2018 Portfolio Manager Review


Strategy Overview

The AdvisorShares Dorsey Wright ADR ETF (Ticker: AADR) uses relative strength to allocate towards the strongest performing American Depositary Receipts (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 its sell threshold then 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 over- or underweight regions and markets to concentrate on areas of strength, often pushing the portfolio to vary dramatically from international benchmarks.

May 2018 Overview

The strategy closed the month on a negative note as AADR was down -1.08% (NAV) in May, bringing the trailing 1-year return to +22.59% (NAV). Though the strategy was down for the month as leadership adjusts to new trends, it continues to outperform the benchmark over longer time periods.

Holdings

The portfolio continues to be allocated to securities that we believe to display favorable relative strength characteristics. At any given time, the portfolio will be comprised of 30-40 U.S.-traded ADRs from our universe of 300-450 ADRs.  The top holdings have continued to be comprised of the same stocks for almost an entire year, with a few dropping and adding along with the changes in trend. Historically the portfolio will derive the majority of its returns from a few high relative strength names that remain in the portfolio for a long period. China Lodging, Endenor and TAL Education have all continued to be the largest holdings in the portfolio as well as large contributors of return over the past year.  Several small positions fell in the portfolios ranking system below the sell threshold and were removed from the portfolio this month. The holdings were mostly small, short-term holdings that had small gains or losses since they came into the portfolio over the past year.

Top 10 Holdings by Size

China Lodging Group Ltd. Sponsored ADR

6.44%

TAL Education Group Sponsored ADR Class A

6.07%

Edenor SA Sponsored ADR Class B

4.74%

New Oriental Education & Technology Group Inc. Sponsored ADR

4.70%

Sociedad Quimica Y Minera De Chile S.A. Sponsored ADR Pfd Class B

3.90%

Stora Enso Oyj Sponsored ADR Class R

3.39%

Ecopetrol SA Sponsored ADR

3.36%

Noah Holdings Ltd. Sponsored ADR Class A

3.35%

Intelsat S.A.

3.23%

STMicroelectronics NV ADR RegS

3.12%

As of 5/31/2018. Holdings subject to change.

The portfolio’s constituents posted large gains and losses for the month as the portfolio’s largest holding, China Lodging, posted the largest double-digit return, while Tal Education posted the second worst return.  The individual returns mostly offset each other, as the portfolio was able to stay ahead of the benchmark for the month but not out of negative territory. As the portfolio and broader international market continue to price in political and social headline risks as well as other unknowns, we expect the strength to continue to shift as new clear trends emerge.   

Geographic

The largest positive contribution to performance this month came from Developed Markets; however, Emerging Markets were responsible for the largest individual contributors to performance for the month. Emerging Markets represents 52% of the portfolio, which is a significant difference from the index (MSCI ACWI ex-US TR) which currently has roughly 18% in Emerging Markets. The majority underperformance this month was caused by the fund’s holdings in Latin America, due largely to the headline risk that has hit the region over the last few months. Historically Latin America is one of the largest sources of return for the portfolio. This month Asia ex-Japan was the largest positive contributor to the portfolio, largely led by China Lodging.   

  

The portfolio continues a yearlong trend of being heavily allocated to Latin American, with the majority of the allocation to Argentina, Brazil and Chile. This is also the largest difference between the index and AADR with the index holding only 2.07% in Latin America while AADR has a sizable but shrinking 23.03% allocation. This difference decreased this month as the portfolio has removed exposure to Argentina in favor of Developed Market companies.  Asian holdings which account for 24.84% of the portfolio caused a drag this month as trade war fears continues to grip the market – AADR’s allocation is still below the index’s 38.79% Asian allocation. This may further change with the continued inclusion of Chinese A shares into the index and a continually shifting global market place.

Sector

The buy/sell process of the strategy starts with a look at the strongest sectors within the universe, overweighting strength, and underweighting or eliminating relative weakness. The portfolio shifted sector allocations this month out of the more defensive sector Telecom, repositioning into Technology. The growth sector allocation to Technology and Consumer Cyclicals drove the majority of the strategy’s positive returns for the month along with small contributions from Consumer Non-Cyclicals and Healthcare. The remaining sectors contributed negative performance, with the allocation to Financials causing the largest portfolio drag for the month.

Looking at AADR’s sector holdings versus the index also provides another view of the differentiation the strategy provides.  The largest allocation in the index has continued to be Financials, while AADR currently has an allocation that favors Technology, Consumer Cyclicals and Non-Cyclicals.   

Respectfuly,

John G. Lewis
AdvisorShares Dorsey Wright ADR ETF (AADR) Portfolio Manager

 


April 2018 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.

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.
 
Definitions: 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.