Welcome to Nasdaq trade talks,
where we meet with the top thought leaders and strategists in emerging technologies,
digital assets and regulatory landscape, and capital markets.
This segment is presented by Charles Schwab.
I'm your host, Jill Malandrino,
and joining us for this segment,
we have Mackenzie Peterson,
vice president of marketing at Advisorshares,
as well as John Lewis,
senior portfolio manager at Nasdaq. Dorsey Wright.
We're here to discuss what relative strength is and how it cuts through the macro news.
It's great to have the both of you with us.
Mackenzie, welcome to the show.
Give us a high level overview.
What is relative strength and how do investors and
portfolio managers use it to cut through?
What promises to be a lot of news in the back half of the year?
That's great. Well, Jill, thanks so much for having me on. Really, really appreciate it.
Again. Uh, so at a high level,
relative strength, I think most people are familiar, but it's sort of, you know,
momentum investing provides sort of a framework
for identifying sort of strength and leaders in
your portfolio and being able to kind of lean into those areas and
lean away from weakness when that changes.
In terms of the lineup there.
Um, like you mentioned, this year has been very hectic and chaotic.
So I think relative strength really offers a way to kind of cut through the noise,
cut through the headlines as we see them or the tweets or the truth social posts,
and kind of give you a sense of where, you know,
the real strength is and be able to kind of lean into those areas.
So ultimately, that's it.
John. So tell us how Nasdaq, Dorsey Wright,
how do you apply it and how are advisors thinking about relative strength right now?
Yeah. So what we do at Nasdaq,
Dorsey Wright is really all centered around this theme of relative strength and momentum.
We're only using price as the input into the decision making process.
Essentially what we're looking to do is in any kind of strategy that we're running,
any of our models, anything like that,
we want to buy strength and sell weakness.
So we are looking for things that have already shown
the ability to outperform the market.
The other things in the universe.
And we want that trend to continue.
And we just hold those positions until they become weak.
John, are there pockets of relative strength that stick out now to you?
Yeah, definitely. And so, you know,
last year was really great with all the, the,
the mega-cap technology that has continued somewhat.
Not all the names are doing as well this year,
but a lot are.
And we've seen a big pickup in a number of areas, especially internationally.
So we've seen that change from what we've seen the past couple years.
Uh, developed markets are doing very well, especially in Europe.
And we've seen that theme really kind of come to the fore so far this year.
Mackenzie. Why international and why now and
what's one way that investors can get exposure to it?
Yeah of course. Well so I do think people have been focused.
Investors have been focused on having some exposure to international in their portfolios.
But for many years now it's been just sort of the US,
the only game in town that sort of changed recently as we've seen some sort of shake up.
So ultimately, I think there's a lot more attention lately towards international.
I know, you know, with a weakening dollar,
that's also kind of a boon for that side of the space.
Um, so yeah, I think ultimately a lot of investors and
advisors are kind of reevaluating their allocation,
how they're getting access to it.
And I think you can kind of diversify the way that
you get access to those international names.
So of course, I would highlight on our end ADR,
the Advisorshares Dorsey Wright ADR ETF,
which offers kind of an interesting and unique way
to get access to some of these international names,
kind of ultimately providing a very concentrated, focused approach.
Um, but again, still driven by that relative strength,
but kind of allows you to really target the strongest names internationally.
Some of the names that you might not find in the broader indexes and kind of give you
that really interesting exposure to the international side.
So it's more of a high conviction concentrated portfolio
versus a broad brush index as an example.
Exactly. Yeah. Because I think there are a lot of names
on the international side that are doing well.
But I think if you kind of take the broad brush of all the names,
you might not find as much performance or strength as you can find in
those very specific individual spots or, or names. Ultimately.
John, what's a signal based short strategy?
Oh, a signal based short strategy is
just kind of the opposite of what I mentioned earlier,
where we're looking for strength and wanting that to continue.
So on on the short side,
we do the same thing.
And what we're doing, what we're doing is looking to expose the strategy to the laggards.
Right. The laggards are the are the names that have been underperforming.
They've been very weak on a price momentum basis.
And we want to short those names.
And then when they become strong again we cover them and move on to something weaker.
So it really is just a mirror image of what we're doing on the long side John.
What's the time frame like.
How long do you need to see performance.
Um, switch.
Right. You know, from poor to relatively outperforming.
How long does it take until you,
you know, change the model.
Right. So it depends.
So what we're looking at generally speaking momentum is
kind of a 6 to 12 month time horizon in terms of the window where
you measure uh the different indicators
the changes will take place fairly quickly though,
depending on how quickly the markets are moving.
So one thing to mention any relative strength or momentum strategy is trend following.
So we're never looking to get out in front of anything.
We're always looking to have that performance kind of in the past.
And then we we look to capitalize on that going forward.
And in terms of holding periods we get asked that a lot.
I think what you see is a lot of the trades don't work out.
They don't really underperform by a lot or outperform by a lot.
Those come out fairly quickly,
3 to 6 months sort of thing.
Where you make all your money is the small number of trades,
those large outliers to the upside or the downside.
And you can wind up holding those for several years in a momentum portfolio,
as long as they remain strong on the long side or weak on the short side.
And Mackenzie, what's a way for investors to get exposure to this type of strategy,
and how is it different from your traditional inverse funds?
Of course. Yeah. So I would of course,
push the Advisorshares Dorsey Wright Short ETF, which John manages.
Uh, DW is the ticker there.
Um, like John mentioned again,
it's trying to target just those weak names and
trying to use the relative strength approach to find and target them.
And then of course, when they're showing some positive strength,
move them out of the portfolio.
Um, those have been, you know,
working very well so far this year.
I was just reviewing over and as of quarter end in 2025,
it's actually beating the S&P 500,
which is surprising for some people.
I think if you see that the S&P is up, you know,
about 5.5% this year as of quarter end,
you might think it's a short fund.
So of course it should be down.
But again, I think that comes down to the fact that it's targeting those weak names.
So you're able to, you know,
find some alpha on that side which is really important.
And you mentioned, you know, comparing that to an inverse fund.
Uh, a lot of people look to inverse funds to kind of manage some of the volatility.
Uh, but ultimately with that approach,
you do kind of take on shorting some of the good with the bad.
Um, so again, I think something you have to manage short term day to day,
less true for DWS.
You can kind of dial up and dial down.
And especially as we feel like we're kind of heading back into some of the chaos,
I know the tariff stuff is peeking its head back up.
A sleepy summer is definitely not what we're potentially in store for again,
so it's a good way to for people to kind of look at a way to, you know,
manage some of that in a way where they're not having to manage
that same day exposure like you would for an inverse fund.
And John, to wrap up here, what's next?
What are some of the key signals that you're going to be looking
for for the back half of 2025?
Yeah, I think we're looking at probably a lot of
volatility related to the news headlines and things like that.
And I think the biggest thing for us is going to be having this kind of
price based system very unemotional, very disciplined.
It kind of cuts through all of that.
So no matter what the headlines are,
no matter what's going on at any one given time,
we're letting the market and price tell us where we want the portfolio positioned,
what we need to sell, what we need to buy.
And it's just day after day after day and unemotional, systematic process.
So I think for us,
that's always the most important thing is to kind of keep
our emotions and biases out of the equation and just focus on what's working.
Yeah. And Mackenzie, to wrap up your thoughts for the back half of
2025 and from a fundamental perspective, what you'll be looking for.
Of course, I would just add on to a little bit of what John was saying.
I feel like, you know, managing your emotions
and managing your own biases is always important.
But again, I think it feels especially important in
2025 and kind of the current environment we're in.
So again, I'm, you know, very proud of those strategies and the work
that John has been doing as well as the Nasdaq Dorsey Wright team.
Um, but ultimately, I think what we're looking at is kind of
figuring out how to position a lot of advisors are,
you know, getting a sense of of what they might be needing for the fall.
So I think it's a good time to kind of review the tools
that you have at hand to try to navigate.
Maybe some of the volatility we have.
Doesn't mean you have to be hyper reactive.
Um, but again, I think it's a good time to kind of take a look and assess,
um, you know, what we might need in in the fall ultimately.
All right. We appreciate the insight.
Thanks for joining us on trade talks.
I'm Joe Malandrino, global markets reporter at Nasdaq.