AADR: March 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 global markets continued to be focused on the Corona virus or Covid-19 this quarter, increasing uncertainty among investors and causing one of the largest sell offs in recent history. This uncertainty around consumer spending, global supply chains and worry that the virus will continue to spread caused markets to enter a bear market and has caused a global recession.
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 ~5%, with the top 10 holdings comprising roughly 40% of the portfolio. Galapagos NV is currently the largest allocation in the portfolio thanks largely to strong returns in 2019. 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 %|
|GLPG||GALAPAGOS NV-SPON ADR||6.20%|
|NICE||NICE LTD – SPON ADR||5.43%|
|ARGX||ARGENX SE – ADR||4.32%|
|ZTO||ZTO EXPRESS CAYMAN INC-ADR||4.04%|
|TAL||TAL EDUCATION GROUP- ADR||3.83%|
|AU||ANGLOGOLD ASHANTI-SPON ADR||3.45%|
|ASML||ASML HOLDING NV-NY REG SHS||3.42%|
|AZN||ASTRAZENECA PLC-SPONS ADR||3.39%|
|GFI||GOLD FIELDS LTD-SPONS ADR||3.36%|
As of 03.31.2020.
The portfolio has continued to have an emerging markets overweight relative to the benchmark for the majority of the year. Currently emerging markets are ~38% of the portfolio relative to the ~18% in the benchmark, with a large portion of that exposure centered in Latin American which is a small allocation in the global benchmark. This quarter the portfolio saw a larger drag from the emerging markets exposure than developed markets, as emerging markets saw a deep sell offs across the globes.
As of 03.31.2020.
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. This quarter no areas of the market were immune to the market drop, as countries across the globe saw markets drop. The portfolio however had several securities that were able to produce positive contributions to the portfolio and stabilize the downward pressure. Overall a number of our holdings however held up better than the broad markets and allowed us to stay in line with the index this quarter
As of 03.31.2020.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright ADR ETF (AADR) Portfolio Manager
Past Manager Commentary