AADR: June 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.
After one of the worst quarters in the history of equity markets, the second quarter provided one of the largest gains in the strategies history. Across the portfolios country and sector holdings we saw strong upward trends that allowed the portfolio to outperform the benchmark and move towards being nearly flat for the year. Selective allocations in China, South Africa and Argentina were all major sources of positive performance this quarter.
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 35 securities with weights ranging from ~2% to ~6%, with the top 10 holdings comprising roughly 46.2% of the portfolio. The top holdings are currently split between emerging and developed markets, this is a departure from 2018’s allocation which was mostly composed of developed markets.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|ARGX||ARGENX SE – ADR||5.63%|
|NICE||NICE LTD – SPON ADR||5.45%|
|GFI||GOLD FIELDS LTD-SPONS ADR||5.07%|
|GLPG||GALAPAGOS NV-SPON ADR||4.76%|
|AU||ANGLOGOLD ASHANTI-SPON ADR||4.67%|
|ZTO||ZTO EXPRESS CAYMAN INC-ADR||4.27%|
|TAL||TAL EDUCATION GROUP- ADR||3.75%|
|ASML||ASML HOLDING NV-NY REG SHS||3.67%|
|AZN||ASTRAZENECA PLC-SPONS ADR||3.06%|
As of 6.30.2020.
The portfolio has continued to have an emerging markets overweight relative to the benchmark for the majority of the year. This month saw a large shift in the emerging markets weight, with the current allocation of ~33% of the portfolio relative to the ~25% in the benchmark but below this year high of over 40% allocation; a large portion of that exposure centered in Asia Pacific which is a smaller allocation in the global benchmark.
As of 6.30.2020.
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. This month saw a broad based rally across the portfolio as almost every sector posted positive returns. The benchmark was also able to capitalize on the upswing, however thanks to a combination of the concentrated allocations of AADR and security selection the portfolio was able to out pace the benchmark.
As of 6.30.2020.