AdvisorShares has launched two new actively managed ETFs – the AdvisorShares Dorsey Wright Micro-Cap ETF (DWMC US) and the AdvisorShares Dorsey Wright Short ETF (DWSH US) – on Nasdaq Exchange.
‘Relative strength’, according to Dorsey Wright, compares the price performance, or momentum, between securities.
Nasdaq Dorsey Wright serves as the portfolio manager to both ETFs.
The funds’ investment approaches adhere to the Dorsey Wright core philosophy of ‘relative strength’ investing. Relative strength in this context compares the price performance, or momentum, between securities.
According to this philosophy, the absolute momentum of the individual security is not as important as the relative momentum between them.
The Dorsey Wright model determines whether momentum is increasing relative to another security and assigns a buy signal if it is. The securities are then ranked in descending order according to their cumulative number of buy signals.
DWMC applies this methodology to a universe of micro-cap common stocks (sub $1bn market cap) and preferred securities from US companies with sufficient liquidity. This includes the lower half of the Russell 2000 Index. The fund will invest in approximately 150 securities from the universe that are displaying the greatest relative strength.
Conversely, the short equity DWSH seeks to turn laggards into winners. DWSH identifies and short sells securities that demonstrate the highest relative weakness from an investment universe primarily comprised of large-cap US-traded equities. The portfolio will typically have 75-100 holdings that begin with a modified equal weighting.
At certain technical levels during severe market downturns, the strategy can allocate its short exposure more broadly to the domestic equity market – by shorting individual ETFs or futures contracts – seeking to enhance its total return. DWSH’s systematic and selective approach can serve as a hedge to long, domestic equity exposure, while offering the potential opportunity to add alpha to an investment portfolio especially during a bear market.
DWSH’s approach is currently a unique application of DWA’s relative strength strategy, at least in ETF form.
“We’re pleased to again partner with Dorsey Wright and deliver their proprietary micro-cap strategy and short equity strategy as fully-transparent, operationally efficient ETFs,” said Noah Hamman, chief executive officer of AdvisorShares.
“ETFs represent an expanding frontier of innovation and investment accessibility for financial advisors,” said Tom Dorsey , founder of Nasdaq Dorsey Wright. “As pioneers of technical analysis and relative strength investing, we’re pleased to again share our portfolio management expertise through AdvisorShares with these fully-transparent ETFs that advisors may use to potentially benefit their investment practice.”
“DWMC and DWSH represent Dorsey Wright firsts, where we are managing micro-cap equity and short equity investment strategies that follow our core relative strength philosophy,” added John Lewis, CMT, senior portfolio manager at Nasdaq Dorsey Wright and the portfolio manager of AADR, DWMC and DWSH. “We believe that our technical, systematic approach can apply successfully across a multitude of investment strategies and this includes DWMC and DWSH, which also provide the structural benefits of fully-transparent ETFs.”
Each ETF charges an expense ratio of 0.99% due to contractual fee waivers in place for at least one year from the date of each funds’ prospectuses. Their gross expense ratios are 1.12%.