DWMC: June 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. Over the course of the second quarter Healthcare and Technology propelled the strategy forward and was able to gain almost 30%.
The portfolio is currently comprised of 157 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 18.48% of the overall portfolio.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|KOD||KODIAK SCIENCES INC||2.34%|
|CWST||CASELLA WASTE SYSTEMS INC-A||2.28%|
|EVER||EVERQUOTE INC – CLASS A||2.17%|
|APPF||APPFOLIO INC – A||1.96%|
|KNSL||KINSALE CAPITAL GROUP INC||1.80%|
|MRSN||MERSANA THERAPEUTICS INC||1.40%|
As of 6.30.2020.
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 30% of the portfolio, followed by two smaller by meaningful positions in Industrials at 16% 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 6.30.2020.
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. Over the past quarter we have continued to see the markets process the changes caused by Covid-19 and the ensuing shifts caused by the economic slowdown. Industrials and Consumer Cyclicals saw the largest changes over the quarter with Consumer Cyclicals gaining approximately 3% in the portfolio and Industrials losing approximately 3%. This is not surprising given the slow down in manufacturing and the uptick in some areas of consumer spending as people shifted tastes.
As of 6.30.2020.