AADR: 3rd Quarter 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.
Equity markets both domestically and abroad rose again this quarter, spurred by improving economic indicators and the reopening of businesses across the globe. This recover was impacted in September as seemingly over night investor confidence stalled after reach all time highs in the U.S. While September was negative, over all the quarter was positive thanks to a strong start. The strategy over the quarter was able to add over 4% to the year to date return bringing it back into positive territory, while the benchmark remains negative for the year.
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 34 securities with weights ranging from ~2% to ~6%, with the top 10 holdings comprising roughly 45% of the portfolio.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|GFI||GOLD FIELDS LTD-SPONS ADR||6.37%|
|NICE||NICE LTD – SPON ADR||6.29%|
|ARGX||ARGENX SE – ADR||5.64%|
|AU||ANGLOGOLD ASHANTI-SPON ADR||4.01%|
|TAL||TAL EDUCATION GROUP- ADR||4.01%|
|ASML||ASML HOLDING NV-NY REG SHS||3.54%|
|ZTO||ZTO EXPRESS CAYMAN INC-ADR||3.34%|
|RDY||DR. REDDY’S LABORATORIES-ADR||3.04%|
|AZN||ASTRAZENECA PLC-SPONS ADR||3.04%|
As of 9.30.2020.
The portfolio continues to be allocated much differently geographically than the benchmark thanks to the selective nature of the investment process. The portfolio has an emerging market allocation that is nearly twice the weight of the benchmark and has historically been one of the driving factors behind its outperformance. Over the last quarter we saw the portfolio balance its returns between both developed and emerging markets. Looking at individual countries we see South Africa and Israel providing the majority of the portfolios positive returns for the quarter even though they only account for 22% of the portfolio.
As of 9.30.2020.
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. The outperformance this quarter is largely due to the strategy’s ability to over or underweight sectors, as the index was held back by its overweight in Financials and the strategy was able to capitalize on its overweight’s in Materials, Consumer Cyclicals and Healthcare.
As of 9.30.2020.