DWMC: 4th Quarter 2022 Portfolio Review
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.
Microcaps underperformed the S&P 500 for the quarter (+4.72% vs. 7.56%), but DWMC was able to beat them both with a +14.95% return. Most of the outperformance came from overweights towards Energy, Financials, and Industrials as holdings like Nine Energy Services Inc. (NINE) and KLX Energy Services (KLXE) posted spectacular returns. The portfolio’s allocation to Energy increased by over 3% this quarter counterbalanced by a reduction in Financials exposure by -3.63%. Nevertheless, Financials are the highest weighted sector in the portfolio with a 27.45% weighting.
The portfolio is currently comprised of 160 companies that range in market cap from 108mm to 2,333mm. 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, 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 ~16% of the overall portfolio.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|AMR||ALPHA METALLURGICAL RESOURCE||3.37%|
|PBT||PERMIAN BASIN ROYALTY TRUST||1.96%|
|SPLP||STEEL PARTNERS HOLDINGS LP||1.74%|
|NINE||NINE ENERGY SERVICE INC||1.49%|
|HDSN||HUDSON TECHNOLOGIES INC||1.43%|
|SJT||SAN JUAN BASIN ROYALTY TR||1.20%|
|RELL||RICHARDSON ELEC LTD||1.17%|
|KLXE||KLX ENERGY SERVICES HOLDING||1.17%|
|ASC||ARDMORE SHIPPING CORP||1.15%|
As of 12.31.2022. Cash is not included.
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 is currently most overweighted towards Energy, Industrials, and Financials as value-oriented sectors continue to outperform. Significant underweights include Health Care and Technology.
As of 12.31.2022.
John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright Micro Cap ETF (DWMC) Portfolio Manager
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. 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.