AADR: 4th Quarter 2021 Portfolio 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 AdvisorShares Dorsey Wright ADR ETF’s (AADR) strategy uses relative strength to allocate towards the strongest performing ADR’s 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 securities rank fall 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 over or underweight regions and markets to concentrate on areas of strength, often pushing the portfolio to vary dramatically from international benchmarks.
International equities provided a tale of two markets in 2021. On the one hand, the MSCI EAFE TR Index, a popular proxy for Developed Markets, posted respectable returns of 11.78%, while the MSCI Emerging Markets TR Index was down -2.22%. This stood in contrast to 2020’s performance where we saw Emerging Markets outperform Developed Markets by over 10%. This type of trend reversal typically doesn’t bode well for momentum strategies, but AADR was able to hold its own and end the year up 6.76% vs. 7.82% for the MSCI All Country World ex-US TR Index. Q4 saw performance marginally below the MSCI All Country World ex-US Index (1.63% vs. 1.82%) and performance was again mostly dominated by Developed Markets with the United Kingdom providing 1.79% of the return. One bright spot in the Emerging Markets for the quarter was India which added 1.01%. Unfortunately, this was roughly cancelled out by dismal performance in Chinese equities which have since rotated completely out of the portfolio.
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 37 securities with weights ranging from ~1% to ~6.0% with the top 10 holdings comprising roughly 39% of the portfolio. Bicycle Therapeutics was the best performing stock for the quarter (+46.36%), closely followed by Indian stock Tata Motors (+43.2%) and these performances helped mitigate some of the declines seen in other areas.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|ASML||ASML HOLDING NV-NY REG SHS||6.42%|
|LVMUY||LVMH MOET HENNESSY-UNSP ADR||4.52%|
|TTM||TATA MOTORS LTD-SPON ADR||3.79%|
|ERJ||EMBRAER SA-SPON ADR||3.72%|
|BCYC||BICYCLE THERAPEUTICS PLC-ADR||3.60%|
|TX||TERNIUM SA-SPONSORED ADR||3.12%|
|NXPI||NXP SEMICONDUCTORS NV||3.08%|
|IBN||ICICI BANK LTD-SPON ADR||2.96%|
As of 12.31.2021.
The portfolio’s process of focusing on sectors and the strength of holdings allows the portfolio to look much different than the broad market benchmark. The current allocation though is much closer to the benchmark’s allocation when comparing Developed vs. Emerging Market Exposure. This is largely due to the positive relative performance of Developed Markets over the last year as mentioned before as the strategy seeks to rotate into strength. The portfolio currently stands at 65% Developed vs. 35% Emerging (up from 52% Developed vs. 47% Emerging split at the beginning of Q4 2021). The country allocations, though, are substantially different. As can be seen below, AADR holds no exposure to Japan, China, Canada, Taiwan, or Australia which are all substantial weights in the benchmark.
As of 12.31.20201.
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 continues to be actively allocated to sectors in a materially different way than the benchmark. Notably, the portfolio is most overweight in Health Care, Industrials, and Energy while most underweight in Consumer Staples, Information Technology, Utilities and Financials.
As of 12.31.2021.