AADR: August 2020 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/aadr.
The strategy uses relative strength to allocate towards the strongest performing 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 our sell threshold 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 overweight or underweight regions and markets to concentrate on areas of strength, often pushing the portfolio to vary dramatically from international benchmarks.
The second half of 2020 has sprung forward as one of the fastest rebounds in the market over the past few decades. International equity markets once again put up impressive numbers alongside U.S. markets as investors seem to be more concerned with FOMO than COVID. The broad-based benchmark was up over 4% this month lead by allocations in Asia and Western Europe. The portfolio did not hold up will this month as the previous leaders seemed to switch over night, in favor of other areas of the market. This is not a concern however as the strategy continues to have nearly a double-digit lead ahead of the broad market for the year.
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 US traded ADR’s from our universe of 300-450 ADR’s. Currently the portfolio consists of 34 securities with weights ranging from ~2% to ~7%, with the top 10 holdings comprising roughly 46% of the portfolio.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|GFI||GOLD FIELDS LTD-SPONS ADR||6.75%|
|NICE||NICE LTD – SPON ADR||6.20%|
|ARGX||ARGENX SE – ADR||4.78%|
|AU||ANGLOGOLD ASHANTI-SPON ADR||4.44%|
|TAL||TAL EDUCATION GROUP- ADR||3.94%|
|ZTO||ZTO EXPRESS CAYMAN INC-ADR||3.56%|
|ASML||ASML HOLDING NV-NY REG SHS||3.54%|
|AZN||ASTRAZENECA PLC-SPONS ADR||3.01%|
As of 8.31.2020.
The portfolio continues to be allocated much differently geographically than the benchmark thanks to the selective nature of the investment process. The portfolio has an emerging market allocation that is nearly twice the weight of the benchmark and has historically been one of the driving factors behind its outperformance.
As of 8.31.2020.
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 has continually had an underweight to financials relative to the benchmark over the past several years and this month the trend continued, with the portfolio allocating nothing to the sector. The portfolio was slightly negative this month as Technologies impressive contribution to the portfolio was not enough to offset a majority of the sectors posting some type of loss. This fly’s in the face of the past several months which has seen broad based support across the portfolio.
As of 8.31.2020.