DWEQ: 4th Quarter 2022 Portfolio Review
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 a simple idea: buy the stocks our analysis identifies as 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 (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
Q4 was a great quarter for U.S. Equities as the S&P 500 rose +7.56%. Unfortunately, DWEQ lagged with a return of +2.20%. Most of the lag came from being in 100% cash at the beginning of the quarter (due to the sharp selloff after the August top). Once the market bottomed in mid-October, we were able to redeploy assets quickly, but markets typically see explosive moves off bottoms and this one was no exception making it hard to redeploy assets quickly enough. This kind of action characterized the year as the ETF underperformed the S&P 500 for the year (-30.99% vs. -18.11%). Momentum strategies tend to lag during periods of change like this as previous leadership makes way for new leadership. Once new trends assert themselves momentum tends to recover and make up for losses incurred in the transition period. Already since reinvesting assets in mid-October we’ve seen more stability of sector trends as we’ve stayed invested in Energy, Utilities, and Health Care.
|Ticker||Security Description||Portfolio Weight %|
|PCG||P G & E CORP||2.75%|
|AWK||AMERICAN WATER WORKS CO INC||2.70%|
|TMO||THERMO FISHER SCIENTIFIC INC||2.69%|
|LLY||ELI LILLY & CO||2.68%|
|UTHR||UNITED THERAPEUTICS CORP||2.68%|
|SRPT||SAREPTA THERAPEUTICS INC||2.67%|
|HALO||HALOZYME THERAPEUTICS INC||2.66%|
|UNH||UNITEDHEALTH GROUP INC||2.65%|
As of 12.31.2022.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright Alpha Equal Weight ETF (DWEQ) Portfolio Strategist
Past Manager Commentary
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. Investing Involves risk including possible loss of principal. The Advisor’s judgment about the markets, the economy, or companies may not anticipate actual market movements, economic conditions or company performance, and these factors may affect the return on your investment. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual issuers, industries or the stock market as a whole. The Fund may experience relatively high portfolio turnover, which may result in increased transaction costs and performance that is lower than expected and potentially greater tax exposure. 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.