DWMC: April 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/dwmc.
The AdvisorShares Dorsey Wright Micro-Cap ETF (DWMC) uses relative strength to allocate towards areas of strength in the micro-cap market. The portfolio is systematically managed and reviewed on a daily basis using the Dorsey Wright relative strength ranks. The strategy starts with the smallest 2,000 companies that trade on a US exchange; the securities are then screened for size and liquidity. The companies are each given a relative strength score and the portfolio allocates to approximately 150 – 200 companies that are in the top quartile of the rankings. Securities included are roughly equal- weighted based on the available cash at the time of purchase. This universe and the portfolio are ranked and evaluated for changes on a daily basis. Once a company’s rank fall below a preset threshold, it is removed from the portfolio and the portfolio reallocates to higher relative strength names.
2020 has continued to be a record year. So far this year we have seen unemployment across the globe rise to record levels (the U.S. unemployment rivals the great depression), equity markets sold off at a record speed which pushed the US market into a bear market and oil moved into negative territory as demand has deteriorated. Since the depths of the market sell off at the end of March, the equity market just as quickly pulled itself out of a bear market, also in record time. This rebound was strong across U.S. equities and the portfolio was able to capitalize on this rebound. Although the fund and Russell Micro Cap Index are down year to date, in April, we saw strong gains in the portfolio, especially in high growth areas such as Technology and Health Care.
The portfolio is currently comprised of 154 companies that range in market cap from 135mm to 5,100mm. Traditionally, micro-cap companies are below 300mm in total market capitalization. Once a security is included in the portfolio, we will not sell it unless it falls significantly out of favor in our ranks. This means that at times, we may own companies that are more traditionally defined as small or mid cap stocks. This allows the portfolio to fully capitalize on securities that are exhibiting strong momentum characteristics. Currently, our top 10 holdings are comprised of companies that have appreciated to a larger allocation over time in the portfolio; the top 10 holdings comprise 19% of the overall portfolio.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|KOD||KODIAK SCIENCES INC||2.68%|
|CWST||CASELLA WASTE SYSTEMS INC-A||2.31%|
|EVER||EVERQUOTE INC – CLASS A||1.65%|
|APPF||APPFOLIO INC – A||1.50%|
|KNSL||KINSALE CAPITAL GROUP INC||1.43%|
As of 04.30.2020.
The strategy is positioned to overweight or underweight sector allocations dependent on the relative strength of the investable universe and the portfolio allocation. The sector weight is entirely determined by the strength of the individual names in the portfolio and those that are selected based on the strategies technical buy process. Currently DWMC shifted the largest sector allocation to Healthcare at almost 30% of the portfolio, followed by two smaller by meaningful positions in Industrials at 20% and Technology at 22%. Healthcare and Technology in the current market have continued to show strength and often comprises a large portion of the micro-cap universe, while Utilities, which has a small 1% allocation, tends to be dominated by mid and large cap companies.
As of 04.30.2020.
Over the past quarter we have continued to see markets adapt to new leadership and shed the performance that drove the markets at the start of the year. This capitulation has continued to show in the portfolio as our process continues to adapt to changes in the markets. This month was a continued realization of the trend changes we saw last month, as a large number of changes were made to the portfolio. Healthcare and Technology both saw the largest increases in holdings and allocation this month as both sectors held up well, while Financials and Consumer Cyclicals both saw a noticeable decline.
As of 04.30.2020.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright Micro Cap ETF (DWMC) Portfolio Manager
Past Manager Commentary