As investors try to sift through an extended bull market to find nuggets of opportunities, many may want to consider an actively managed strategy with a proven track record, such as the Davis Advisors’ exchange traded funds, to potentially enhance returns.
“We are true, bottom up active advisors,” Danton Goei, Portfolio Manager for Davis Advisors, said on the recent webcast, Searching the Globe for Investment Opportunities.
Goei explained that at Davis Advisors they implement a number of screens to look for certain criteria when selecting a company.
For instance, the management team looks to durability, adaptability and resiliency of a company for strong competitive advantages, superior business models, attractive financials and superior free cash flows. They also select those with proven, capable management with a track record of good decisions, intelligent capital allocators and alignment of interests. Additionally, the team focuses on discount to true value by calculating owner earnings to arrive at the true value of a company.
After a multi-year bull run, U.S. equities are now trading at lofty valuations, so investors may want to consider options outside of this comfort zone.
“In a quest for growth of capital, clients shouldn’t limit their opportunity set,” Goei said. “Many of attractive investment opportunities exist outside of US borders.”
Click here to watch the webcast on-demand to earn 1 CE Credit
Goei argued that investors are leaving potential opportunities on the table when ignoring international markets and adhering to a U.S.-centric portfolio. There are almost nine times as many companies listed outside the U.S. – 4,331 companies are listed in the U.S., whereas 38,861 exist outside U.S. borders.
As of the end of 2015, the U.S. equities made up 42% of the world stock market by market capitalization, followed by international developed 35% and rising emerging markets 23%.
“Though still the majority, the U.S. has gotten smaller as rest of world has increased,” Goei said.
While investors may not easily and quickly access international markets through passive, index based fund options, Goei argued that active global managers may still provide alpha as active strategies outperformed the benchmark MSCI All Country World Index over longer periods – the percentage of global mangers that outperform the MSCI was 57% over the past 3 years, 72% over the last 5 years, 73% over the last 7 years and 67% over the past decade.
Investors interested in an active global strategy may consider ETF options, such as the Davis Select Worldwide ETF (NasdaqGM: DWLD), which is managed by Goei. DWLD focuses on long-term global opportunities that incorporate Davis Advisors’ judgement experience, high conviction, low turnover, accountability and alignment.
For instance, Davis Advisors have an overweight position in Safran S.A., a 100+ year old French multinational aerospace and engine component supplier. Goei argued that over the short-term, margin pressure from transition to next-gen narrowbody engines may weigh on the outlook. However, the company shows long-term opportunity through its next-gen narrowbodies over the next 15+ years and generate aftermarket for 25+ years.
Investors can also gain exposure to U.S. equities through Davis’ other active Davis Select U.S. Equity ETF (NasdaqGM: DUSA), along with targeted exposure to what Davis Advisors believes is an opportunity in the financial space through the Davis Select Financial ETF (NasdaqGM: DFNL).
Financial advisors who are interested in learning more about global opportunities can watch the webcast here on demand.