When it comes to investing styles, Davis argued that investors should be considering actively managed strategies, especially in an aging bull market when a more nimble manager may be better suited to navigate quickly changing conditions. Actively managed strategies have historically outperform during a more variable market condition, whereas passive products outperform in very strongly trending markets. Additionally, active managers have exhibited a strong track record for international stock picking, with 84% of large-cap international stock fund managers outperforming the benchmark MSCI ACWI ex US Index over the past 5 year period ended 2017.
Active managers are able to exploit market inefficiencies through time arbitrage; intangibles such as management, capital allocation or competitive moats; sector inefficiencies, accounting arbitrage; business bias versus profession; and geographic inefficiencies, like knowledge of foreign markets.
Investors may look to a time-tested active approach to potentially enhance returns. For example, the actively managed Davis Select International ETF (NasdaqGM: DINT) and the Davis Select Worldwide ETF (NasdaqGM: DWLD) are backed by Davis Advisors’ focuses on long-term opportunities and incorporate the money manager’s judgement experience, high conviction, low turnover, accountability and alignment. The Davis team screens for fundamental characteristics, including cash flows assets and liabilities, and other criteria.
DINT includes the 32 highest-conviction holdings or the best non-U.S. equity ideas among developed and emerging market picks that Davis has focused on. DWLD takes a more unconstrained approach as it includes both the best 36 U.S. and non-U.S. equity ideas.
For example, Davis has a high conviction regarding growth among global internet names. Consequently, DINT is benchmark agnostic and includes overweight positions in Alibaba Group 6.6% and Naspers 5.9%, among others. In contrast, the MSCI ACWI Ex U.S. Index only includes 1.0% in Alibaba and 0.5% in Naspers.
Financial advisors who are interested in learning more about global investment opportunities can watch the wabcast here on demand.