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.

Strategy

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.

Performance

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.

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 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%
MELI MERCADOLIBRE INC 6.21%
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.

Geography

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.

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 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.

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.