The exchange traded fund industry is filled with index-based products, but indexing is not always exciting. There are not a lot of personalities in the ETF business, but the industry just got a rockstar.
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Christopher Davis, Portfolio Manager and Chairman of Davis Funds, who is also one of the mutual fund industry's most decorated managers and highly ranked among active fund players by Morningstar, has stepped into the ETF business with three new actively managed ETF offerings.
Davis' entry into the ETF space may be a way for the business to build on innovation, address clients' growing desire for the new fund structure and craft an ETF wrapper that brings their own discipline to market in another form.
"We are providing an investment solution that has not been widely available: proven active management in a traditional ETF," Davis said. "There’s a false dichotomy that’s been established in investors’ minds that somehow an ETF has to be passive. Clearly, there are advantages to an ETF structure, but we think that there are also deep advantages to experienced active management. And our goal is to try to combine these together."
The ETF industry continues to expand and the actively managed segment still remains a small part of the business. However, with more prominent names entering the space, active ETFs could begin to expand and shine.
"There is an unmet need in today’s marketplace for compelling actively-managed equity solutions in a traditional ETF format," Davis said. "So we are offering ETFs to give investors greater access and freedom of choice. We have heard from clients a desire to access our strategies in an ETF format. Investors want experienced active management and a proven investment discipline combined with the benefits of traditional ETFs, including low costs, tax efficiency, intra-day liquidity and transparency."
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Many have extolled the cheap costs and transparent nature of ETFs, but the transparent nature of ETFs has caused many active managers to balk at launching their own ETFs for fear of revealing their secret sauce. Nevertheless, Davis is confident that their active ETFs could help investors better understand what they are getting themselves into.
"There’s also a sense at our firm that transparency is a virtue. We think it’s appropriate that clients understand what we’re investing in," Davis added. "We think offering that transparency to our clients is part of our culture and we think that’s also well suited to the world of a traditional ETF."
On Thursday, David Advisors launched the Davis Select U.S. Equity ETF (NasdaqGM: DUSA), Davis Select Financial ETF (NasdaqGM: DFNL), and Davis Select Worldwide ETF (NasdaqGM: DWLD). DUSA has a 0.60% expense ratio, DFNL has a 0.65% expense ratio and DWLD has a 0.65% expense ratio.
DUSA will be managed by Christopher Davis and Danton Goei, a portfolio manager for the Davis Large Cap Value Portfolios and a member of the research team. Davis will also manage DFNL while Goei will manage DWLD.
Davis Advisors conducts extensive research to try to identify businesses that possess characteristics that they believe foster the creation of long-term value, like proven management, durable franchise and business model, and sustainable competitive advantages, along with targeting in those that are trading at discounts to their intrinsic value. According to the prospectus sheet, the Davis team will also identify fundamental characteristics, including cash flows assets and liabilities, and other criteria.
DUSA will track a portfolio of high-conviction U.S. large-cap stocks. The portfolio will include between 15 and 35 companies varying over time, with 21 components currently in the portfolio. Top holdings include Berkshire Hathaway 9.5%, Alphabet 7.3% and Amazon 7.3%. The portfolio leans towards financials at 38.4%, followed by industrials 15.4% and energy 14.2%.
DFNL includes the best-of-breed financial companies. The portfolio will include between 15 and 35 companies, it currently holds 24 positions. Top holdings include Markel Corp 6.7%, Capital One Financial 6.1% and Loews Corp 6.1%, with a focus on diversified financials, insurers and banks.
Lastly, DWLD includes global exposure. The ETF currently has 41 positions, including top picks like Alphabet 6.5%, Encana 5.7% and Amazon 4.8%. The portfolio includes a large 57.4% position in U.S. companies, along with 29.8% emerging markets and 12.9% developed countries.
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