DWMC: 2nd Quarter 2021 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 2,000 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 fall below a preset threshold, it is removed from the portfolio and the portfolio reallocates to higher relative strength names.
The second quarter continued to be a favorable environment for smaller companies as investor look outside of mega cap stocks that have dominated equity markets for the past several years. This quarter was categorized by choppy markets and ever shifting trends, which caused the portfolio to much higher than normal turnover. Part of the reason why markets have been so choppy is it is so difficult to interpret data right now. We had artificially low numbers a year ago when the economy was shut down due to the pandemic. As things return to normal, economic activity is snapping back. What everyone is trying to determine is what these large recovery numbers mean long-term. Given the choppy trend we would expect the portfolio to underperform, however we saw outperformance of the strategy over the broad micro-cap market for the quarter with broad based support across the portfolio.
The portfolio is currently comprised of 165 companies that range in market cap from $108 million to $5,730 million. Traditionally, micro-cap companies are below $300 million 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, mid or large 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 12.6% of the overall portfolio.
Over the course of the quarter these top positions have continued to hold strength and that has allowed them to power the portfolio forward. The top 10 holdings account for almost half of this quarters return, with names like XPEL Danaos and Calix each contributing ~50 basis points (0.50%) to the portfolios return overall return. Overall a majority of the portfolio holdings over the quarter participated in the portfolio strong performance.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|KRNT||KORNIT DIGITAL LTD||1.25%|
|SGRY||SURGERY PARTNERS INC||1.24%|
|VSTO||VISTA OUTDOOR INC||1.15%|
|AVID||AVID TECHNOLOGY INC||1.13%|
|CDMO||AVID BIOSERVICES INC||1.06%|
As of 06.30.2021. Cash is not included.
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.
Over the quarter we saw massive changes in the portfolio, with half of the portfolio being sold. This change was seen across the portfolio with each sector losing and gaining new holdings. The largest changes occurred in Industrials which saw the largest uptick in the number of holdings and technology which saw the largest reduction. These changes corresponded with the portfolios performance as Industrials posted the largest sector gain along with Consumer Cyclicals, while Technology was negative for the quarter.
As of 06.30.2021.
As of 06.30.2021.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright Micro Cap ETF (DWMC) Portfolio Manager
Past Manager Commentary