DWSH: 4th Quarter 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/dwsh.
The AdvisorShares Dorsey Wright Short ETF (DWSH) is built on the relative strength testing that Dorsey Wright has been doing for over almost two decades. Rather than investing in those companies that are exhibiting the strongest relative strength however, we identify the bottom tier or laggards and short them. Shorting using relative strength is by no means a new idea, when reading academic literature on momentum from the past 40 years, the idea of buying the past winners and shorting the losers is often found to be a sensible allocation.
Our vision for utilizing the strategy is twofold. First, is using DWSH as a hedge against downside US equity volatility, helping to reduce the volatility of the portfolio by pairing DWSH with a traditional long portfolio. The second is using DWSH as an alpha bet during period of market distress. During period of high dispersion among securities, there are well-defined winners and losers. Rather than buying a broad short of the whole market, we systematically invest in companies that are identified to be weak and have a greater chance in our opinion of dropping more than the other companies drop in the universe.
2020 will be a year that is burned in our collective consciousness as one of trials and triumphs. In 2020 we saw a record decline in the global markets that ended the longest U.S. bull market in history as Covid began to devastate the globe. We also saw one of the sharpest rebounds off of the bottom in history, and by the end of the year we had made several new highs in U.S. Equity markets. While not all markets responded in such a resound way, equities as a whole had a strong year.
This rally was problematic for the strategy as the rising tide lifted many boats, include those we had shorted due to their weak momentum. The last quarter of the year was difficult for bears, as equities continued to push to new highs amid a fevered buying spree across the market. In the end the portfolio had few places to turn as trends that had worked earlier in the year crumbled in the face of buying mayhem.
Currently the portfolio is comprised of 100 companies spread across the major macro sectors. This number will fluctuate over time as positions grow to a larger allocation of the portfolio and as securities are replaced in our sell process. As securities are removed from the portfolio, the new purchases will be allocated at roughly equal weight, depending on the cash level. Over the past quarter we continued to see the portfolio respond to the resurgence in U.S. equity markets. This resulted in a large drop in Consumer Cyclicals exposure and a large move into consumer Healthcare.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|BTU||PEABODY ENERGY CORP||-1.86%|
|CNK||CINEMARK HOLDINGS INC||-1.46%|
|SPR||SPIRIT AEROSYSTEMS HOLD-CL A||-1.38%|
|AGIO||AGIOS PHARMACEUTICALS INC||-1.36%|
|PTEN||PATTERSON-UTI ENERGY INC||-1.24%|
|CLB||CORE LABORATORIES N.V.||-1.18%|
|NCLH||NORWEGIAN CRUISE LINE HOLDIN||-1.16%|
As of 12.31.2020
The portfolio has continued to adapt to changes in the market, as the leaders and laggards continue to respond to an ever-extending bull market that has broken multiple highs over the course of the quarter. Several changes were made but the largest was over the past month which saw a large reduction in the number and weight of the Consumer Cyclical shorts, while Healthcare dramatically increased its portfolio weight.
As of 12.31.2020.