DWMC: 4th Quarter 2021 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/dwmc.

Strategy

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.

Performance

DWMC ended the year on a high note, logging a 4.69% Q4 return vs. -2.66% for the benchmark, the Russell Micro Cap Index. The surge was led by allocations to Consumer Discretionary, Financials, and Industrials. This caps off a year where DWMC climbed 35.59% and outperformed its benchmark which returned 19.34%. Our research suggests this was the largest degree of outperformance for the strategy since 2013 and we’re optimistic we can continue riding this wave of positive momentum into 2022.

Holdings

​The portfolio is currently comprised of 157 companies that range in market cap from $57 million to $5,887 million. Traditionally, micro-cap companies are below $300 million 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, mid, or large 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 13.9% of the overall portfolio.

Throughout the quarter, the positions in the top half of the weights made positive contributions to the return, while those in the bottom half posted negative contributions. The top 2 deciles (roughly 40 stocks in this case) added a combined 6.33% to the overall quarterly performance. This is a good sign for the portfolio as positions with higher weights tend to be those with good momentum (as they’ve grown from equal weight to their current weighting).

​​Top 10 Holdings

Ticker Security Description Portfolio Weight %
CALX CALIX INC 2.32%
KRNT KORNIT DIGITAL LTD 1.48%
SPLP STEEL PARTNERS HOLDINGS LP 1.42%
CAMT CAMTEK LTD 1.36%
DAC DANAOS CORP 1.33%
VRTV VERITIV CORP 1.27%
ATLC ATLANTICUS HOLDINGS CORP 1.24%
IDT IDT CORP-CLASS B 1.22%
AMR ALPHA METALLURGICAL RESOURCE 1.17%
ASPN ASPEN AEROGELS INC 1.14%

As of 12.31.2021. Cash is not included.

Sector

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.

The portfolio again saw a significant number of changes this quarter. Many of these came from Health Care as it was the biggest laggard in the portfolio for the quarter. Health Care is underweighted relative to the benchmark though so it didn’t hurt as much as it otherwise could have. The portfolio focused its buying in Industrials, Information Technology, Financials, and Consumer Discretionary which were all positive contributors in Q4. Consumer Discretionary, in particular, accounted for 2.2% of the overall gain (nearly half of the total) and is overweighted in the portfolio. Industrials and Materials are other significant overweights, with Health Care remaining the most significant underweight by far.

As of 12.31.2021.

Respectfully,

John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright Micro Cap ETF (DWMC) Portfolio Manager

 


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. The Fund is subject to a number of risks that may affect the value of its shares, including the possible loss of principal. Stock prices of microcap companies are significantly more volatile, and more vulnerable to adverse business and economic developments, than those of larger companies. Micro-cap stocks may also be thinly traded, making it difficult for the Fund to buy and sell them. There is no guarantee that the Fund will achieve its investment objective. 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.