DWEQ: 4th Quarter 2020 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/dweq.
Nasdaq Dorsey Wright has been a trusted partner for advisors since the 1980’s when the original team faxed Point and Figure charts from a small office in Richmond, Virginia. In the 90’s we began to implement our research into managed portfolios, later we introduced Mutual Funds, structured products and ETF’s. All of our strategies are based on simple idea, buy the winners and let them run. We systematically manage all of our portfolios to a set of rules that allows us to be objective and remove the emotion. It does not matter how a particular analysts feels about a stock (positive or negative), we follow our strict buy and sell process. This has, in our opinion been a hallmark of our success across a variety of asset classes.
For the AdvisorShares Dorsey Wright Alpha Equal Weight ETF (DWEQ), we continue to deploy investment ideas that have shown value over time. The first idea is that sectors showing strong momentum will often outpace the broad market and the sectors that show less favorable momentum. This is achieved through overweighting to strong companies to capture upward momentum, as well as removing or reducing allocations to trouble areas. Prime examples are reducing or removing energy exposure during the oil sell off of 2015 or overweighting technology over the past decade. The second idea is that being overly diversified dilutes momentum returns by forcing the portfolio to own names that are not as strong. This is implemented by reducing the total number of portfolio holdings to a manageable number.
Combining both of these ideas gives us a portfolio of names that are equally weighted in the three sectors that are showing the strongest momentum. The roughly 50 names in the portfolio are equally weighted and are rebalanced every time the portfolio makes a change. This pushes the portfolio to hold the top names in each sector.
Portfolio & Holdings
2020 will be a year that is burned in our collective consciousness as one of trials and triumphs. In 2020 we saw a record decline in the global markets that ended the longest U.S. bull market in history as Covid began to devastate the globe. We also saw one of the sharpest rebounds off of the bottom in history, and by the end of the year we had made several new highs in U.S. Equity markets. While not all markets responded in such a resound way, equities as a whole had a strong year.
Strong sector and security drove the portfolio to outpace the broad market benchmark in the second half of the year, as strong trends and momentum continued to show its strength. This was a welcome departure from the first half of the year which saw the strategy lag the market. The strategy was designed to raise cash to help buffer downside volatility, however with the sharp rebound in equity prices that had never been seen before, the portfolio lagged as it reinvested cash. In the end the strong performance in Information Technology, Communication Services and Health Care drove the portfolio to a strong H2 and Q4. Information Technology was responsible for a majority of the positive returns for the second half of the year, while Utilities was the largest detracting sector in the first half. Overall strong support from names like Carvana and Snap Inc, drove the portfolio higher along with the other WFH tech names that benefited from the pandemic, while pre-pandemic winners like Wyndham Destinations could not retain their luster.
Overall the sector allocations where fairly static in the second half of this year, as the second half saw little shifts in the underlying sectors but no major changes on the top level. Going into 2021, we believe portfolio is well positioned to continue its outperformance verse the market, but after a year like 2020 we know that only time will tell how the markets will react.
|Ticker||Security Description||Portfolio Weight %|
|MPWR||MONOLITHIC POWER SYSTEMS INC||2.74%|
|NKE||NIKE INC -CL B||2.73%|
|PAYC||PAYCOM SOFTWARE INC||2.68%|
|CZR||CAESARS ENTERTAINMENT INC||2.61%|
|GNRC||GENERAC HOLDINGS INC||2.59%|
As of 12.31.2020.