AADR: 1st Quarter 2022 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.

Strategy

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.

Performance

Q1 2022 was rough for International Equities as geopolitical tensions returned to center stage.  Russia’s invasion of Ukraine, unfortunately, was not a localized event as it increased risks to energy security across Europe and beyond.  Luckily, the portfolio only held one Russian security during the quarter which was exited shortly after the invasion.  Overall, the portfolio came in a bit below the performance of the MSCI All Country World ex-US TR Index (-7.12% vs. -5.44%) but was roughly in line with the MSCI EAFE Index (-5.91% / a popular benchmark for Developed Market securities).  As you would expect, the biggest laggards in the portfolio came from European exposure, particularly the Netherlands (-2.38%), Russia (-2.18%), UK (-1.91%), Ireland (-1.56%), and Germany (-1.42%), while the biggest winners came from Emerging Markets holdings such as Greece (+2.42%) and South Africa (+1.18%).  This is interesting as Emerging Markets lagged Developed Markets for the quarter by -1.11%.  What we find is that our exposure to specific countries in this segment allowed us to minimize what would have otherwise been a larger divergence with the benchmark.

Holdings

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 ~1.5% to ~6.3% with the top 10 holdings comprising roughly 40% of the portfolio.  Sasol Ltd. was the best performing stock for the quarter (+47.44%), closely followed by Tenaris (+44.15%).  Gazprom was the worst performing stock for the quarter (-93.71%) given the invasion, but as it only had a 2% weighting in the portfolio, it did not detract from performance as much as it could have.

Top 10 Holdings

Ticker Security Description Portfolio Weight %
DAC DANAOS CORP 6.30%
ASML ASML HOLDING NV-NY REG SHS 5.82%
LVMUY LVMH MOET HENNESSY-UNSP ADR 4.16%
SSL SASOL LTD-SPONSORED ADR 3.97%
TTM TATA MOTORS LTD-SPON ADR 3.56%
TX TERNIUM SA-SPONSORED ADR 3.53%
TS TENARIS SA-ADR 3.42%
NVO NOVO-NORDISK A/S-SPONS ADR 3.15%
EQNR EQUINOR ASA-SPON ADR 3.09%
IBN ICICI BANK LTD-SPON ADR 3.05%

As of 03.31.2022. 

Geography

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 67% Developed vs. 33% Emerging.  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.  Instead, we have excess allocations to countries like the Netherlands, Greece, the United Kingdom, and Brazil many of which would never have large allocations in a passive benchmark.

As of 03.31.20202.

Sector

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 Industrials, Energy, and Materials (highlighting the increased relative strength of commodities) while most underweight in Consumer Staples, Information Technology, and Consumer Discretionary (the latter two of which have seen their share of trouble in Q1).

As of 03.31.2022.

Respectfully,

John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright ADR ETF (AADR) Portfolio Manager

 

Past Manager Commentary

Definitions:

An American Depositary Receipt (ADR) is a negotiable U.S. Security that generally represents a company’s publicly traded equity or debt. Depositary Receipts are created when a broker purchases a non-U.S. company’s shares on its home stock market and delivers the shares to the depositary’s local custodian bank, and then instructs the depositary bank to issue Depositary Receipts.

The MSCI All Country World Ex-U.S. Index is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.


Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.advisorshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. Emerging Markets, which consist of countries or markets with low to middle income economics can be subject to greater social, economic, regulatory and political uncertainties and can be extremely volatile. Other Fund risks include concentration risk, foreign securities and currency risk, ADRs which may be less liquid, large-cap risk, early closing risk, counterparty risk and trading risk, which can increase Fund expenses and may decrease Fund performance. The Fund is, also, subject to the same risks associated with the underlying ETFs, which can result in higher volatility. This Fund may not be suitable for all investors. See prospectus for detail regarding risk.

Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times.

Holdings and allocations are subject to risks and to change.

The views in this commentary are those of the portfolio manager and may not reflect his views on the date this material is distributed or anytime thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.