Many active managers may have been loath to craft an active ETF since the transparent nature of the funds would reveal a manager’s secret sauce. However, Davis does not seem to be worried about it.
“The fact ETFs have transparency suits our culture,” Davis said.
The active component may be a good way for investors to target value in the upcoming market after an extended bull market has left pushed valuations up in many segments.
“There will be a time when investors will want active management,” Davis said.
Goei explained how the Davis investment discipline is comprised of three parts: business, management and valuation. They focus on durable businesses with above average margin returns, strong competitive advantages and durability. Companies also have to show strong management that have been in place for over five years as long-term investors can be sure that these are ethical, honest people that will help the business last. Lastly, the management team will determine valuation or what’s the right price of the company, targeting long-term free cash flow of businesses, owner earnings and how durable the cash is available.
“We buy above average businesses at a below average price,” Davis added. “We adapt, use judgement and experience to make sound investment decisions.”
For more information on active strategies, visit our actively managed ETFs.