Years of experience have helped support actively managed ETFs break away from the pack.
“We’ve done very well. Now, all four ETFs are based on strategies that have been around for decades,” Dodd Kittsley, National Director, Davis Advisors, said at the Inside ETFs conference.
Kittsley was referring to the actively managed Davis Select U.S. Equity ETF (DUSA ), Davis Select Financial ETF (DFNL ), Davis Select International ETF (DINT ) and Davis Select Worldwide ETF (DWLD ) which are backed by Davis Advisors’ focuses on long-term opportunities and incorporate the money manager’s judgment experience, high conviction, low turnover, accountability, and alignment. The Davis team screens for fundamental characteristics, including cash flows assets and liabilities, and other criteria.
“Couple of characteristics you want to look for in an active manager. You want somebody who’s got skin the game – 49% of all mutual funds have zero dollars invested alongside their investors. You want a portfolio that is going to look nothing like the benchmark; otherwise, you should pay benchmark prices,” Kittsley added.
The management team looks to durability, adaptability, and resiliency of a company for substantial 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 real value by calculating owner earnings to arrive at the actual value of a company.
Davis Advisors’ management style primarily targets durable businesses with above-average margin returns, strong competitive advantages, and durability. Companies also have to show strong management that has 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. 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.
Active managers are also 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.
Watch Dodd Kittsley Talk Experienced With Actively Managed ETFs:
This article originally appeared on ETFTrends.com.