Deep industry experience and a sound approach earn Davis Financial Above Average People and Process ratings.  
Veteran manager Christopher Davis isn’t the only Davis team member with financials expertise. His more than 30 years of covering banks and the like includes a decade mentoring Pierce Crosbie, who has specialized in financials since joining Davis in 2008 and became a comanager here at year-end 2018. Davis and Crosbie also draw on non-U.S. financials specialist Sobby Arora, whose nearly two decades of experience includes a stint managing the financials sleeve of Federated International Leaders FGFAX before joining Davis as an analyst in late 2017.
This depth gives the team the courage to differ from consensus and stick with its picks when building the strategy’s concentrated, roughly 30-stock portfolio. The team's focus on stocks trading at discounts to their intrinsic value estimates had moved it into many non-U.S. names. Venturing overseas has long been a feature here, but since Sobby Arora joined the firm, the strategy's weight abroad has increased and put distance between it and the 20-plus actively managed rivals within the financials Morningstar Category that lack a global mandate. Indeed, among this custom peer group, the strategy’s 26% non-U.S. stake as of June 2023 was among the largest. 
That positioning was a headwind as non-U.S. financials trailed their domestic counterparts, but the managers’ patience paid off recently. Many non-U.S. holdings were top contributors in the trailing one-year period through September 2023, particularly Danske Bank and Julius Baer, which gained 95% and 52%, respectively. Savvy stock-picking has produced a compelling record over the long term as well. Since the MSCI US IMI Financials 25/50 Index’s late-2002 inception, the A shares’ 7.4% annualized gain through September 2023 beat the index and category norm by 2.3 and 1.7 percentage points, respectively. The fund’s relative resilience in market drawdowns helped power those results. Indeed, the strategy held up relatively well in 2022 amid rapid interest-rate hikes. 
Overall, the strategy remains a strong option in its category, but investors might need patience to get the most out of it.

Analyst Rating

A solid option for financials exposure.

Analyst

Eric Schultz

Capital One

Berkshire Hathaway Inc. - Ordinary Shares - Class B

JPMorgan Chase & Co

Wells Fargo

Markel

Chubb

Fifth Third Bancorp

Bank of New York Mellon

American Express

U.S. Bancorp

This strategy earns an Above Average Process rating for its sound approach to selecting financials stocks.
Industry veteran Christopher Davis and comanager Pierce Crosbie have a value mindset. Their view of bargains goes beyond challenged companies at cheap prices, however. It also includes good, well-managed businesses at fair prices, which explains the presence of stocks with competitive advantages and fuller valuations.
Davis and Crosbie look for firms run by owner-operators and appraise them based on owner earnings, or cash flow adjusted for reinvestments in the business, depreciation, stock options, and other items. They prefer companies with defensible edges, high switching costs, and trusted brands, run by executives who know how to protect and extend them. They will also buy stocks whose prospects are clouded by controversy but size those positions cautiously. They’re apt to hold on to their picks, with annual portfolio turnover seldom exceeding 20%, which is modest compared with most peers.
The mutual fund version of this strategy has dabbled in shares of relatively illiquid private companies, with exposure peaking at 11.2% at year-end 2011. Unlike other Davis strategies, however, exposure has ranged from less than 2% to nonexistent since late 2012.

Above Average

Process

This strategy's Above Average People rating reflects Davis Advisors' intergenerational expertise in financials stocks.
Davis Advisors' penchant for financial stocks traces to Shelby C. Davis. Beginning in 1944, he parlayed regulatory expertise in insurers into a stellar investing career in which he proved to be an early shareholder in Hank Greenberg's American International Group AIG and Warren Buffett's Berkshire Hathaway BRK.B. Son Shelby M.C. Davis left the Bank of New York to start Davis Advisors in 1969 and manage flagship Davis New York Venture NYVTX, which invested heavily in banks throughout his almost 30-year tenure. Grandson Christopher Davis now has his own career of 30-plus years, which includes serving as a key part of this strategy's open-end vehicle since its 1991 inception, initially as comanager with his father and later with Kenneth Feinberg, who left the firm in late 2013.
Beginning in 2014, Christopher Davis had sole charge of the open-end fund and was the only named manager of its ETF sibling at its 2017 launch. That changed at year-end 2018 when Pierce Crosbie joined both as a comanager. Crosbie has specialized in financials stocks since joining the firm in 2008. He and Davis also draw on analyst Sobby Arora, who has focused on non-U.S. financials for much of his roughly two decades in the industry. Prior to joining Davis, he managed the financials sleeve of Federated Hermes International Leaders.

People

Davis Advisors has built an investor-friendly backbone, which underscores its Above Average Parent rating.

The Davis family has provided stability to this U.S. equity-oriented asset manager for more than 50 years. Christopher Davis, CEO and portfolio manager, is a third-generation investor at the firm, and his family has significant investments in its strategies. An experienced 10-person investment team supports him. Portfolio managers invest alongside fundholders, with a large portion of their pay tied to beating their benchmarks over five-year periods; some of that reward is invested in fund shares.

These attributes don’t mean the firm is perfect. Although the investment team has stabilized, it experienced heightened turnover between 2014 and 2021. Disappointing performance since the 2007-09 global financial crisis exposed weakness in the team’s high-conviction approach. Bold forays into markets such as China and other concentrated bets highlight an old-fashioned approach to risk—considering it primarily when picking stocks rather than when building portfolios.

The team’s expertise in financials remains a bright spot, and these stocks often comprise a significant portion of its portfolios. Davis offers an apt number of strategies, and fees remain competitive, even as assets under management dropped to USD 20 billion from USD 100 billion in the mid-2000s.

Parent

Davis Select Financial ETF

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