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.

Strategy

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.  

Performance

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.

Holdings

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%
IVZ INVESCO LTD -1.20%
UAL UNITED AIRLINES HOLDINGS INC -1.19%
ARMK ARAMARK -1.12%
HRB H&R BLOCK INC -1.11%

As of 9.30.2020

Allocation Changes

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.

Respectfully,

John G. Lewis
Nasdaq Dorsey Wright
AdvisorShares Dorsey Wright Short ETF (DWSH) 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. Short sales are transactions in which the Fund sells a security it does not own. To complete the transaction, the Fund must borrow the security to make delivery to the buyer. The Fund is then obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. If the underlying security goes down in price between the time the Fund sells the security and buys it back, the Fund will realize a gain on the transaction. Conversely, if the underlying security goes up in price during the period, the Fund will realize a loss on the transaction. Any such loss is increased by the amount of premium or interest the Fund must pay to the lender of the security. Likewise, any gain will be decreased by the amount of premium or interest the Fund must pay to the lender of the security. Because a short position loses value as the security’s price increases, the loss on a short sale is theoretically unlimited. Short sales involve leverage because the Fund borrows securities and then sells them, effectively leveraging its assets. The use of leverage may magnify gains or losses for the Fund. As with any fund, 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.