DWSH: 3rd 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.
The theme for the third quarter was strong sectors delivering strong results. The leaders had a good quarter, posting a double-digit return in some cases while the laggards were down or flat. July and August were a struggle for the portfolio as markets rallied to new highs as investors has a case of “fear of missing out.” That changed in September as the market promptly reversed course and dropped as economic uncertainty took hold of investors. This drop and strong performance earlier in the quarter helped to reduce the portfolios drawdown, while the simple inverse portfolio was down nearly double digits.
Currently the portfolio is comprised of 105 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 month we continued to see the portfolio respond to the resurgence in U.S. equity markets. This resulted in several new positions being added to the portfolio as previous laggards reversed course.
Top 10 Holdings
|Ticker||Security Description||Portfolio Weight %|
|FHN||FIRST HORIZON NATIONAL CORP||-1.89%|
|SAGE||SAGE THERAPEUTICS INC||-1.54%|
|VIAC||VIACOMCBS INC – CLASS B||-1.47%|
|MHK||MOHAWK INDUSTRIES INC||-1.27%|
|RGA||REINSURANCE GROUP OF AMERICA||-1.24%|
|RCL||ROYAL CARIBBEAN CRUISES LTD||-1.23%|
|UAL||UNITED AIRLINES HOLDINGS INC||-1.19%|
|HRB||H&R BLOCK INC||-1.11%|
As of 9.30.2020
The portfolio is continually reevaluated so that it is well positioned to capture current market trends. In the current markets we have seen the portfolio continually make changes along with the changes in sentiment in the market. The portfolio saw several shifts over the past month, with major changes happening in Consumer Cyclicals. As the markets continue to digest new information around Covid-19 and the recession that it has caused, the portfolio will continue to position itself appropriately.
As of 9.30.2020.