AADR: 4th Quarter 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.
2020 will be a year that is burned in our collective consciousness as one of trials and triumphs. In 2020 we saw a record decline in the global markets that ended the longest U.S. bull market in history as Covid began to devastate the globe. We also saw one of the sharpest rebounds off of the bottom in history, and by the end of the year we had made several new highs in U.S. Equity markets. While not all markets responded in such a resound way, equities as a whole had a strong year.
The strategy was able to capitalize in the pockets of strength around the globe, allowing it to outpace the broad market for the year. This was largely due to strong companies that were able to continue their trend of strong momentum through the crisis and into the recovery.
Equity markets both domestically and abroad rose again this quarter, spurred by improving economic indicators and the reopening of businesses across the globe. This recover was impacted in September as seemingly over night investor confidence stalled after reach all time highs in the U.S. While September was negative, over all the quarter was positive thanks to a strong start. The strategy over the quarter was able to add over 4% to the year to date return bringing it back into positive territory, while the benchmark remains negative 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 ~7.0% with the top 10 holdings comprising roughly 43.77% of the portfolio. Over the past year, we have continued to see several names continue to lead the portfolio, particularly Nice and argenx SE. Both of these names have been among the top names for the year, and thanks to strong performance they were responsible for a large portion of this year’s positive return.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|NICE||NICE LTD – SPON ADR||7.14%|
|ARGX||ARGENX SE – ADR||5.75%|
|GFI||GOLD FIELDS LTD-SPONS ADR||4.37%|
|ASML||ASML HOLDING NV-NY REG SHS||4.25%|
|LVMUY||LVMH MOET HENNESSY-UNSP ADR||3.59%|
|TAL||TAL EDUCATION GROUP- ADR||3.43%|
|VNET||21VIANET GROUP INC-ADR||3.18%|
As of 12.31.2020.
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. Selective country allocation is a bi-product of our investment process, however se often see trend emerge from our allocations. The trend this year was a large exposure across developed markets, which have continued to lead the portfolio from a performance and weighting. This was largely due to an overweight in developed markets along with strong security selection.
As of 12.31.2020.
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 year the trend continued, with the portfolio allocating under 5% to the sector at the end of the year and averaging just over 1% for the past 12 months. Largely sector returns were positive, with Industrials being the largest outlier and the largest drag on performance for the year. While Consumer Discretionary and Technology powered the positive returns for the year.
As of 12.31.2020.