AADR: 2nd Quarter 2021 Portfolio Manager Review
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.
The second quarter of 2021 has largely been a continuation of what we saw in the first quarter of the year. Market trends continue to be choppy, resulting in higher than average turnover in the portfolio as global markets attempt to establish new leadership in the changing Covid landscape. Even in the face of this choppiness the portfolio was able to outpace the benchmark for the quarter and the year. Choppy or trendless periods are often difficult for the strategy, so it is encouraging that it has been able to keep pace with broad markets for the month.
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 36 securities with weights ranging from ~1% to ~6% with the top 10 holdings comprising roughly 39% of the portfolio. Unlike 2020, which saw outsized returns from the top of the holdings list, this quarter the middle of the portfolio was responsible for the bulk of the positive returns, while the top three names caused the portfolio to lag the benchmark.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|ASML||ASML HOLDING NV-NY REG SHS||5.52%|
|LVMUY||LVMH MOET HENNESSY-UNSP ADR||4.16%|
|HIMX||HIMAX TECHNOLOGIES INC-ADR||3.80%|
|CX||CEMEX SAB-SPONS ADR PART CER||3.22%|
|ERJ||EMBRAER SA-SPON ADR||3.06%|
|PKX||POSCO- SPON ADR||2.85%|
As of 06.30.2021.
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. Emerging markets is one of the areas that we see this difference, with the portfolio 17% higher than the benchmark. This is largely due to the portfolio’s higher allocations in Latin American countries such as Brazil, Chile, and Mexico. South America tends to be a smaller allocation in the benchmark while the portfolio often holds a double-digit exposure. This quarter the Developed Market exposure was responsible for the majority of the portfolios returns. Germany was the largest single contributor in developed markets and the rest of the portfolio and was responsible for nearly a third of the quarters return.
As of 06.30.20201.
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 portfolios continues to be actively allocated to sectors in a materially different way than the benchmark. Notably the portfolio has a nearly 20% overweight to Materials and over 7% underweight to financials. This quarter however it was sectors with a small difference that drove the portfolio, as Health Care, industrials and Information Technology drove the quarters return. If we continue to see the markets maintain its choppiness over the course of the summer, we can expect the sector weights and holding to change along with the new trends.
As of 06.30.2021.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright ADR ETF (AADR) Portfolio Manager
Past Manager Commentary