DWEQ: 4th Quarter 2021 Portfolio Review
For the AdvisorShares Dorsey Wright Alpha Equal weight ETF (Ticker: 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 by using our systematic analysis to overweight to what we believe are 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 what we have identified as the top names in each sector.
Portfolio & Holdings
2021 was a tough year for the portfolio and momentum overall. In general, momentum benefits from persistent price trends, and although the market exhibited that trait, there was consistent volatility in sector leadership. New trends seemed to stall out as soon as they seemed promising (ex. Consumer Discretionary, Energy, and Health Care) while more consistent sectors in the allocation (ex. Technology) saw pullbacks at inopportune times leading to reduced relative performance. Q4 was an improvement on Q3 though with the portfolio lagging the S&P 500 by -1.88% in Q4 vs. -6.77% for Q3. Technology was the one consistent holding for the quarter which contributed 7.26% of the 9.07% overall gain. Consumer Discretionary was a persistent weak spot though, especially with the December correction we saw there. Avis Budget Group (CAR) was the best performing position in the portfolio for the quarter, gaining 115.99% due to the COVID-related rental car boom. The portfolio continues to hold Technology and Consumer Discretionary for Q1 2022 and has added Real Estate to the mix which was a positive contributor in 2021. Although this year was challenging, overall, we know momentum has a great long term track record and will identify sustainable trends in the future that deliver better performance.
|Ticker||Security Description||Portfolio Weight %|
|AMD||ADVANCED MICRO DEVICES||3.17%|
|APH||AMPHENOL CORP-CL A||2.77%|
|EPAM||EPAM SYSTEMS INC||2.77%|
|DPZ||DOMINO’S PIZZA INC||2.71%|
As of 12.31.2021.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright Alpha Equal Weight ETF (DWEQ) Portfolio Strategist
Past Manager Commentary