Weakness in AdvisorShares Dorsey Wright ADR ETF's People and Process Pillar ratings limits this strategy to a Morningstar Medalist Rating of Negative. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-highest quintile among peers.  

 The strategy's portfolio management team completely turned over less than a year ago, raising concerns. This, along with other weaknesses, drives the strategy's Below Average People Pillar. The strategy gets a Below Average Process Pillar rating.  High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And momentum exposure is rooted in holding stocks currently on a winning streak. The strategy's parent organization still has a way to go to reach the industry standard, evidenced by portfolio managers with limited tenures at the firm and below-average portfolio manager retention. As a result, the firm obtains a Low Parent Pillar rating.

Analyst Rating

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Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. AdvisorShares Dorsey Wright ADR ETF earns a Below Average Process Pillar rating. 

The process benefits from the fund's excellent long-term risk-adjusted performance. This can be seen in its ten-year alpha calculated relative to the category average, which suggests that the managers have shown skill in their allocation of risk. However, the rating is limited by the parent firm's five-year retention rate of 15%, which suggests it could do more to hold onto its portfolio managers. The parent firm's five-year risk-adjusted success ratio of 50% also holds the process back. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

 This strategy skews toward smaller, more undervalued companies than its average peer in the Foreign Large Growth Morningstar Category. Analyzing additional factors, this strategy has held more highly liquid stocks compared to Morningstar Category Peers in the past few years. More-liquid assets are easier to buy and sell without adversely moving their prices and tend to provide some ballast during market selloffs. They also are easier to sell to meet redemptions if a host of investors decide to leave the fund in a short period of time. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has had more exposure to high-momentum stocks over its peers in recent years. Momentum is based on the premise that stocks that have recently outperformed will continue to outperform, and those that have underperformed will stay behind. Compared with category peers, the strategy also had more exposure to the Momentum factor in the most recent month. Additionally, the managers have consistently taken on more risk, demonstrated by higher volatility exposure than peers. Such exposure tends to pay off when markets are hot and to be costly when they are not. In this month, the strategy also had more exposure to the Volatility factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in financial services and energy relative to the category average by 9.6 and 7.8 percentage points, respectively. The sectors with low exposure compared to category peers are technology and consumer cyclical, underweight the average by 7.0 and 4.9 percentage points of assets, respectively. The strategy owns 40 securities and is quite concentrated. More concretely, 38.2% of the strategy's assets are housed within the top 10 holdings, as opposed to the category’s 18.0% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 101% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Below Average

Process

The fund earns a Below Average People Pillar rating. This strategy has seen its entire listed management team change within the past three years. Even though this strategy dates back to July 2010, it's difficult to analyze the new team until they spend more time on the strategy.

People

AdvisorShares fails to meet industry-standard stewardship qualities, culminating in a Low Parent Pillar rating. Longest-tenured managers have four years of average asset-weighted tenure, which is slim compared with peer firms. In isolation, this doesn't bode well as the current managers have limited experience running strategies. Manager turnover at AdvisorShares over the past five years has been higher than at peer asset management firms, a possible signal that company culture is a bit unstable. The firm’s risk-adjusted performance is a bright spot for investors. Across all open-end and exchange-traded funds, its average five-year Morningstar Rating is 3.8 stars.

Parent

AdvisorShares Dorsey Wright ADR ETF

AADR is an actively managed ETF that aims to outperform the international markets outside the US by holding ADRs with high relative strength.

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