AdvisorShares Dorsey Wright FSM All Cap World ETF (DWAW)

DWAW operates at one layer of abstraction above the typical fund. Instead of owning stocks directly, it owns other exchange-traded funds — making it a “fund of funds.” Its managers at AdvisorShares use a relative-strength methodology to select which ETFs to own and how much weight to give each, with an aim to span U.S. and international equity markets across all market capitalizations.

The fund-of-funds architecture

The fund-of-funds structure is rare in retail investing and often misunderstood. A conventional ETF owns a basket of stocks or bonds. DWAW owns a basket of baskets — it holds 10 to 15 other ETFs (mostly iShares products from BlackRock) and allocates capital across them. The benefit is simplification: instead of owning 1,000 individual stocks, an investor buys one fund that owns 10 other funds, each of which owns 100 stocks. The downside is layered fees: DWAW itself charges 1.28 percent, and each underlying ETF charges its own fee (typically 0.05 to 0.25 percent), so total costs compound.

AdvisorShares uses this structure to implement a global diversification strategy filtered through relative strength. The manager screens all investable ETFs in their universe — iShares factor funds, geographic region funds, sector funds — and selects those showing the strongest recent momentum. The result is a globally diversified portfolio that dynamically rotates toward whatever segments (U.S. large-cap, emerging markets, developed-market value, etc.) are rising fastest.

The global angle and geographic rotation

DWAW’s prospectus permits holdings in U.S. equities of any cap size, developed-market equities (Europe, Japan, Australia, Canada), and emerging-market equities (Asia, Latin America). In practice, the fund’s allocation shifts based on what is performing. When U.S. equities are leading, the fund holds more U.S. exposure. When emerging markets are in favor, the fund shifts capital there. This dynamic geographic rotation is intended to capture the strongest performers wherever they emerge around the world.

The geographic dimension adds complexity. Currency fluctuations matter — when the U.S. dollar strengthens, foreign returns suffer for dollar-based investors, and the fund’s emerging-market exposure can deliver losses even if foreign stocks are rising. The fund does not appear to use currency hedging, so investors inherit full currency risk alongside equity risk.

The relative-strength methodology applied to funds

The Dorsey Wright relative-strength system, which AdvisorShares applies here, is the same momentum-based approach used in other Dorsey Wright products. It measures how ETFs have performed relative to their peers over a rolling window and selects the strongest performers. For a fund of funds, this means selecting ETFs whose asset classes have been on winning streaks.

The approach has merit during extended bull markets, when capital rotates from one winner to the next in a discernible pattern. It has far less merit during chaotic periods when momentum breaks down, reversals occur rapidly, or correlations spike and the strategy becomes whipsawed repeatedly. During the early stages of a crash, relative strength can lead the fund to hold the assets that are crashing hardest, just as everyone else is fleeing them.

Costs and suitability

The fund’s total expense ratio of around 1.28 percent is substantial. For a dollar invested, the fund costs 1.28 cents per year, plus the underlying ETFs’ fees, which add another 0.05 to 0.25 percent on average — total cost of capital is roughly 1.50 percent or more. Over 20 years, this compounds significantly and eats into returns.

DWAW is best suited to investors who want professional active management with global diversification and are willing to pay for it, or to those using the fund as a tactical satellite in a larger portfolio. It is least suitable for cost-conscious passive investors, or for those building a long-term retirement portfolio where compound fees matter enormously. The fund’s complexity also makes it less transparent than owning a small basket of broad global index ETFs directly; an investor who wants to know exactly what they own at any moment may find DWAW’s layered structure cumbersome.

Research and transparency

A prospective investor should obtain the fund’s fact sheet and prospectus from AdvisorShares and examine the current holdings — which ETFs the fund is holding and in what proportions. The holdings shift as the relative strength methodology rebalances, so a snapshot today may look quite different in six months. The fund’s annual shareholder report details the realized relative strength performance and any tracking error relative to a benchmark. For those drawn to the momentum-based global diversification idea, these documents are essential reading.