AADR: 1st Quarter 2022 Portfolio Review
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.
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 %|
|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%|
|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.
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.
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.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright ADR ETF (AADR) Portfolio Manager
Past Manager Commentary