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Welcome to Nasdaq trade talks,

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where we meet with the top thought leaders and strategists in emerging technologies,

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digital assets and regulatory landscape, and capital markets.

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This segment is presented by Charles Schwab.

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I'm your host, Jill Malandrino,

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and joining us for this segment,

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we have Mackenzie Peterson,

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vice president of marketing at Advisorshares,

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as well as John Lewis,

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senior portfolio manager at Nasdaq. Dorsey Wright.

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We're here to discuss what relative strength is and how it cuts through the macro news.

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It's great to have the both of you with us.

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Mackenzie, welcome to the show.

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Give us a high level overview.

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What is relative strength and how do investors and

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portfolio managers use it to cut through?

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What promises to be a lot of news in the back half of the year?

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That's great. Well, Jill, thanks so much for having me on. Really, really appreciate it.

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Again. Uh, so at a high level,

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relative strength, I think most people are familiar, but it's sort of, you know,

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momentum investing provides sort of a framework

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for identifying sort of strength and leaders in

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your portfolio and being able to kind of lean into those areas and

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lean away from weakness when that changes.

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In terms of the lineup there.

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Um, like you mentioned, this year has been very hectic and chaotic.

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So I think relative strength really offers a way to kind of cut through the noise,

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cut through the headlines as we see them or the tweets or the truth social posts,

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and kind of give you a sense of where, you know,

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the real strength is and be able to kind of lean into those areas.

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So ultimately, that's it.

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John. So tell us how Nasdaq, Dorsey Wright,

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how do you apply it and how are advisors thinking about relative strength right now?

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Yeah. So what we do at Nasdaq,

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Dorsey Wright is really all centered around this theme of relative strength and momentum.

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We're only using price as the input into the decision making process.

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Essentially what we're looking to do is in any kind of strategy that we're running,

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any of our models, anything like that,

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we want to buy strength and sell weakness.

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So we are looking for things that have already shown

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the ability to outperform the market.

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The other things in the universe.

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And we want that trend to continue.

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And we just hold those positions until they become weak.

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John, are there pockets of relative strength that stick out now to you?

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Yeah, definitely. And so, you know,

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last year was really great with all the, the,

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the mega-cap technology that has continued somewhat.

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Not all the names are doing as well this year,

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but a lot are.

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And we've seen a big pickup in a number of areas, especially internationally.

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So we've seen that change from what we've seen the past couple years.

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Uh, developed markets are doing very well, especially in Europe.

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And we've seen that theme really kind of come to the fore so far this year.

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Mackenzie. Why international and why now and

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what's one way that investors can get exposure to it?

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Yeah of course. Well so I do think people have been focused.

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Investors have been focused on having some exposure to international in their portfolios.

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But for many years now it's been just sort of the US,

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the only game in town that sort of changed recently as we've seen some sort of shake up.

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So ultimately, I think there's a lot more attention lately towards international.

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I know, you know, with a weakening dollar,

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that's also kind of a boon for that side of the space.

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Um, so yeah, I think ultimately a lot of investors and

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advisors are kind of reevaluating their allocation,

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how they're getting access to it.

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And I think you can kind of diversify the way that

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you get access to those international names.

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So of course, I would highlight on our end ADR,

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the Advisorshares Dorsey Wright ADR ETF,

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which offers kind of an interesting and unique way

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to get access to some of these international names,

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kind of ultimately providing a very concentrated, focused approach.

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Um, but again, still driven by that relative strength,

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but kind of allows you to really target the strongest names internationally.

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Some of the names that you might not find in the broader indexes and kind of give you

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that really interesting exposure to the international side.

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So it's more of a high conviction concentrated portfolio

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versus a broad brush index as an example.

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Exactly. Yeah. Because I think there are a lot of names

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on the international side that are doing well.

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But I think if you kind of take the broad brush of all the names,

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you might not find as much performance or strength as you can find in

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those very specific individual spots or, or names. Ultimately.

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John, what's a signal based short strategy?

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Oh, a signal based short strategy is

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just kind of the opposite of what I mentioned earlier,

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where we're looking for strength and wanting that to continue.

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So on on the short side,

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we do the same thing.

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And what we're doing, what we're doing is looking to expose the strategy to the laggards.

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Right. The laggards are the are the names that have been underperforming.

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They've been very weak on a price momentum basis.

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And we want to short those names.

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And then when they become strong again we cover them and move on to something weaker.

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So it really is just a mirror image of what we're doing on the long side John.

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What's the time frame like.

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How long do you need to see performance.

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Um, switch.

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Right. You know, from poor to relatively outperforming.

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How long does it take until you,

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you know, change the model.

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Right. So it depends.

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So what we're looking at generally speaking momentum is

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kind of a 6 to 12 month time horizon in terms of the window where

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you measure uh the different indicators

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the changes will take place fairly quickly though,

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depending on how quickly the markets are moving.

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So one thing to mention any relative strength or momentum strategy is trend following.

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So we're never looking to get out in front of anything.

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We're always looking to have that performance kind of in the past.

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And then we we look to capitalize on that going forward.

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And in terms of holding periods we get asked that a lot.

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I think what you see is a lot of the trades don't work out.

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They don't really underperform by a lot or outperform by a lot.

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Those come out fairly quickly,

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3 to 6 months sort of thing.

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Where you make all your money is the small number of trades,

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those large outliers to the upside or the downside.

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And you can wind up holding those for several years in a momentum portfolio,

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as long as they remain strong on the long side or weak on the short side.

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And Mackenzie, what's a way for investors to get exposure to this type of strategy,

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and how is it different from your traditional inverse funds?

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Of course. Yeah. So I would of course,

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push the Advisorshares Dorsey Wright Short ETF, which John manages.

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Uh, DW is the ticker there.

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Um, like John mentioned again,

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it's trying to target just those weak names and

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trying to use the relative strength approach to find and target them.

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And then of course, when they're showing some positive strength,

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move them out of the portfolio.

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Um, those have been, you know,

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working very well so far this year.

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I was just reviewing over and as of quarter end in 2025,

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it's actually beating the S&P 500,

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which is surprising for some people.

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I think if you see that the S&P is up, you know,

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about 5.5% this year as of quarter end,

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you might think it's a short fund.

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So of course it should be down.

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But again, I think that comes down to the fact that it's targeting those weak names.

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So you're able to, you know,

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find some alpha on that side which is really important.

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And you mentioned, you know, comparing that to an inverse fund.

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Uh, a lot of people look to inverse funds to kind of manage some of the volatility.

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Uh, but ultimately with that approach,

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you do kind of take on shorting some of the good with the bad.

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Um, so again, I think something you have to manage short term day to day,

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less true for DWS.

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You can kind of dial up and dial down.

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And especially as we feel like we're kind of heading back into some of the chaos,

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I know the tariff stuff is peeking its head back up.

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A sleepy summer is definitely not what we're potentially in store for again,

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so it's a good way to for people to kind of look at a way to, you know,

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manage some of that in a way where they're not having to manage

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that same day exposure like you would for an inverse fund.

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And John, to wrap up here, what's next?

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What are some of the key signals that you're going to be looking

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for for the back half of 2025?

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Yeah, I think we're looking at probably a lot of

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volatility related to the news headlines and things like that.

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And I think the biggest thing for us is going to be having this kind of

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price based system very unemotional, very disciplined.

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It kind of cuts through all of that.

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So no matter what the headlines are,

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no matter what's going on at any one given time,

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we're letting the market and price tell us where we want the portfolio positioned,

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what we need to sell, what we need to buy.

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And it's just day after day after day and unemotional, systematic process.

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So I think for us,

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that's always the most important thing is to kind of keep

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our emotions and biases out of the equation and just focus on what's working.

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Yeah. And Mackenzie, to wrap up your thoughts for the back half of

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2025 and from a fundamental perspective, what you'll be looking for.

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Of course, I would just add on to a little bit of what John was saying.

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I feel like, you know, managing your emotions

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and managing your own biases is always important.

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But again, I think it feels especially important in

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2025 and kind of the current environment we're in.

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So again, I'm, you know, very proud of those strategies and the work

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that John has been doing as well as the Nasdaq Dorsey Wright team.

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Um, but ultimately, I think what we're looking at is kind of

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figuring out how to position a lot of advisors are,

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you know, getting a sense of of what they might be needing for the fall.

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So I think it's a good time to kind of review the tools

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that you have at hand to try to navigate.

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Maybe some of the volatility we have.

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Doesn't mean you have to be hyper reactive.

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Um, but again, I think it's a good time to kind of take a look and assess,

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um, you know, what we might need in in the fall ultimately.

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All right. We appreciate the insight.

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Thanks for joining us on trade talks.

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I'm Joe Malandrino, global markets reporter at Nasdaq.