Key Takeaways

  • In the first half of 2023, Davis Select Worldwide ETF modestly outperformed the MSCI ACWI (All Country World Index).
  • Principle positive contributors to performance included large-cap U.S. tech and semiconductor stocks, while weakness in our Chinese holdings and in certain financials detracted from results.
  • Current levels of inflation and interest rates are close to long-term averages, suggesting economic normalization. Companies with a history of profitable growth, proven business models and reasonable valuations look attractive once more.

The average annual total returns for Davis Select Worldwide ETF for periods ending June 30, 2023, are: NAV Return, 1 year, 20.03%; 5 years, 3.58%; Inception (1/11/17), 7.07%; Market Price Return, 1 year, 20.16%; 5 years, 3.54%; Inception, 7.08%. The performance presented represents past performance and is not a guarantee of future results. Investment return and principal value will vary so that, when redeemed, an investor’s shares may be worth more or less than their original cost. For the Fund’s most recent month end performance, visit or call 800-279-0279. Current performance may be lower or higher than the performance quoted. NAV prices are used to calculate market price performance prior to the date when the Fund was first publicly traded. Market performance is determined using the closing price at 4:00 pm Eastern time, when the NAV is typically calculated. Market performance does not represent the returns you would receive if you traded shares at other times. The total annual operating expense ratio as of the most recent prospectus was 0.63%. The total annual operating expense ratio may vary in future years.

This material includes candid statements and observations regarding investment strategies, individual securities, and economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. All fund performance discussed within this material are at NAV and are as of 6/30/23 unless otherwise noted. This is not a recommendation to buy, sell or hold any specific security. Past performance is not a guarantee of future results. There is no guarantee that the Fund performance will be positive as equity markets are volatile and an investor may lose money.

Portfolio Review:

Strength in Tech, Weakness in Asia

For the first six months of 2023, Davis Select Worldwide ETF returned 15.25% compared with 13.93% for the MSCI ACWI for an outperformance of 1.32%.

Performance Contributors

The largest contributor to performance in the first six months of 2023 was Meta Platforms (formerly known as Facebook and a company that we highlighted in our last shareholder letter). In 2023, Meta’s base business of Facebook and Instagram was healthy. The number of users and user time spent on the platform both increased, while management declared 2023 the “year of efficiency” and cut about 25% of the workforce. As Meta’s top and bottom lines grew faster than expected, the stock rose 138% in the first six months of 2023.

Amazon was another significant contributor, rising 55% in the first half of 2023 on similar business dynamics to Meta. The base retail and cloud computing businesses proved very resilient despite economic uncertainty. Management focused on cost-cutting after both capital expenditure and the Amazon workforce saw a rapid increase as demand jumped during the COVID pandemic. Davis Select Worldwide ETF had added to both its Meta and Amazon positions in 2022 as valuations became too cheap, given the quality of the businesses and their positive long-term outlook.

Semiconductor manufacturers Applied Materials and Samsung were up 49% and 27%, respectively, in the first six months of 2023 as investors started to look beyond post-COVID weakness and focus on the strong long-term outlook for semiconductors. Owens Corning rose 55% in the first half. The company benefited from steady growth in residential construction due to a lack of housing supply and, notably, the growing importance of energy efficiency, which drove up demand (and prices) in its insulation business.

Danske Bank is Denmark’s largest bank and our second largest position for the fund. While it was a difficult start to the year for financials as a whole (as we will discuss further in this letter), it was a strong start to the year for Danske, which gained 23% in the first half. We have owned Danske Bank for almost five years on the basis that its then valuation (6x owner earnings and 0.7x book value at purchase) was too low, given the strength of its franchise and the health of the Danish economy. Uncertainty surrounding an investigation into compliance lapses at its Estonian subsidiary was lifted in December 2022 when an agreement with regulators was announced. Since then, operating results have been solid, with increases in net interest income and low credit losses leading to healthy earnings growth.

Danske Bank now trades at a very attractive 6.5x expected 2023 owner earnings and 0.9x book value, leaving ample room for multiple expansion going forward, in our view. Furthermore, on July 21 this year, the bank declared a first-half dividend payout that will result in a 4.4% dividend yield for the half year, so we believe it is reasonable to expect an annual dividend yield exceeding 8% at the current stock price.

Performance Detractors

Detractors from performance included the Chinese internet companies and Meituan, which were down -38% and -30%, respectively, in the first half of 2023. Investors reacted to slower-than-expected economic recovery post-COVID (which we will discuss later) and competition from Bytedance as it seeks to grow its e-commerce and restaurant marketing businesses in China. Both and Meituan, however, had strong earnings growth in the first quarter of 2023, and retain strong competitive advantages as economic growth resumes post-COVID.

Financials were also a headwind in first-half performance. Singapore bank DBS fell 4% while Wells Fargo rose 5%, and insurers AIA and Ping An were down -8% and -1%, respectively. The regional bank troubles in the U.S. damaged market sentiment and led investors to discount the shares of large U.S. banks and even international banks as well. As we discuss later, we believe the large banks in the U.S. are healthy, and can even benefit from the challenges faced by their smaller competitors. In Asia, for example, investors have been focused on the near-term impact of weaker economic growth in China. However, if you take a step back, we believe the long-term outlook is very bright for financial companies set to benefit from the growth of life and health insurance markets in Asia, and especially China.

Healthcare companies Viatris and Cigna Group also detracted from performance in the first half of 2023, down -8% and -15%, respectively. Viatris, while an out-of-favor pharmaceutical business with low to no growth, remains extremely attractively priced at 4x owner earnings (an eye-catching 25% earnings yield) as it continues to de-lever the balance sheet and make small bolt-on acquisitions. Cigna, our largest contributor in 2022, when it gained 47%, is down 15% year-to-date in 2023. Investors are worrying about medical costs spiking up in the post-COVID period, and the threat of legislation targeting the profits of pharmacy benefit managers (PBM), neither of which has occurred yet. For a healthcare franchise with a strong market position and economies of scale trading at 11x earnings, Cigna remains attractive.

Market Perspective:

Normalizing Inflation and Interest Rates

In 2023, the U.S. Federal Reserve continued to raise interest rates to subdue inflation. It is easy to forget that as recently as the first quarter of 2022, the Fed was pursuing a zero interest rate policy. But starting in March 2022, the Fed raised the Fed Funds rate seven times during 2022, taking it from 0% to 4.50%. Inflation, as measured by the Consumer Price Index (CPI), peaked in June 2022 at 9.1%, and although the rate increases helped, remained elevated at 6.5% by December 2022. This year the Fed has raised rates another four times, bringing the Fed Funds rate to a 5.25–5.50% target range. Inflation has cooperated so far, falling to 3.0% in the latest June reading. If inflation can continue to fall towards the Fed’s target of 2%, then the expectations that we are very close to the end of this cycle of interest rate increases could prove to be true.

The current levels of 3.0% inflation with a 5.5% Fed Funds rate and a 7.4% rate on 30-year mortgages (as of July 2023) are close to the long-term averages. Many of the more surprising features of the markets seen over the last several years, including high valuations on unprofitable growth companies, highly leveraged private equity deals, and venture capital funded startups aggressively competing with established incumbents in numerous industries, are likely to fade away as the era of free money is behind us. Companies with a history of profitable growth and proven business models trading at reasonable valuations are increasingly looking attractive once more.

While designed to counteract the effect of rising inflation, raising the Fed Funds rate by over 500 basis points in little over a year has caused the value of fixed rate bonds to fall. For Silicon Valley Bank (SVB), Signature Bank and First Republic Bank—three U.S. regional banks—this caused so much distress that they failed or were taken over by larger banks. The bank runs and subsequent failure of these regional banks led investors to punish the entire banking sector, even impacting the valuations of the largest U.S. banks and even some international ones.

“In the months since the Fed takeover or acquisition of these regional banks, the banking system, including our portfolio banks, has been stable.”

Silicon Valley Bank’s failure precipitated the regional bank troubles, but SVB is a very different bank than other banks and certainly bears little resemblance to the banks we have chosen to invest in. Its undiversified deposit base coupled with large investments in long-term, fixed rate bonds made for a combustible situation. When SVB’s recapitalization failed, and several private equity firms and startups decided at the same time that they preferred the safety of the larger banks, the Federal Reserve had to intervene. In the months since the Fed takeover or acquisition of these three regional banks, the banking system, including our portfolio banks, has been stable as bank balance sheets and earnings have remained healthy.

We believe our approach of focusing on the largest well-run banks has been the correct one. In fact, looking back, a document entitled “A Brief History of Deposit Insurance in the United States” written by the Federal Deposit Insurance Corporation (FDIC) in September 1998 highlights how size can lead to lower risks when it comes to banking:

“The consolidation of banks serving different product and geographic markets can diversify risk and decrease earnings volatility, thereby decreasing the likelihood of failure. Regional recessions and sectoral downturns contributed to many of the bank and thrift failures in the late 1980s and early 1990s. Many of the institutions that failed or were troubled tended to have either geographic or product concentrations. Broader diversification of risk through mergers of institutions serving different markets can moderate the effects of economic downturns on these institutions.”

As Mark Twain supposedly said, “History does not repeat itself, but it often rhymes.” Moreover, recent trends, such as the growing importance of technology in banking in such areas as mobile banking, cybersecurity and artificial intelligence, are further increasing the importance of scale.

Inflation in the U.S. declined from 6.5% to 3.0% in the first half of 2023, and in Europe from 8.6% to 5.3%, generating optimism that even higher interest rates and a recession might be avoided. There remain, however, continued risks of higher inflation in the future, including sticky wage hikes, the building of redundancy in global supply chains, and a prolonged Ukraine-Russia war.

It is difficult to predict future inflation levels, and we expect, as long-term investors, that all of our portfolio companies will eventually have to operate in a recession, so we focus on owning companies with durable competitive advantages that give them pricing power. Meta and Alphabet, for example, pass on their higher costs in higher advertising rates. Applied Materials and Samsung can raise their prices because they make critical semiconductor products for a wide range of industries. Banks historically have earned higher net interest income in higher interest environments such as the current one as compared to the anomalous zero interest rate environment of the last dozen years.

“The weaker rebound [in China] has been due in part to a sluggish global economy which has impacted Chinese exports, but the Chinese consumer has also been surprisingly timid.”

Another set of portfolio companies that have strong balance sheets, durable competitive advantages and promising long-term outlooks are certain Chinese consumer-facing companies. Their promising fundamentals and attractive valuations, however, have been overshadowed by concerns about the macro environment and China’s regulatory crackdown on the high-tech consumer companies.

We believe China can be an attractive market to invest in. It is a very large and growing economy and the government has a tremendous record over the past four decades of generating economic growth. It is also home to a number of world-class companies with some of the very best management teams we have met anywhere. Due mainly to macroeconomic and geopolitical concerns, the MSCI China Index is currently trading at a Forward P/E ratio of 11.1x compared to the S&P 500 Index’s P/E ratio of 20.2x, which is a substantial 45% discount.

In November of last year, the Chinese government suddenly lifted its much-criticized COVID restrictions, leading to a jump in economic activity. After a strong start to the year, the economic rebound, however, has not met expectations. In part, the weaker rebound has been due to a sluggish global economy which has impacted Chinese exports, but the Chinese consumer has also been surprisingly timid. After Chinese New Year, retail sales grew 10.6% year-over-year in March and then leapt 18.4% in April. However in May, retail sales growth slowed to 12.7% and in June it fell to 3.1%. This has caught the government’s attention and they have clearly signaled that the measures taken earlier in the year, including a 10bps cut in interest rates and a 50bps lowering of the required reserve ratio for banks, were insufficient.1

On July 24, 2023, China’s top government body, the 24-member Politburo chaired by President Xi Jinping, met and addressed the weaker-than-expected economic recovery, which was candidly characterized as a process of “wave-like development and torturous process.” The policy-setting session was supportive of the economy and of private enterprise and clearly aimed to bolster the real estate sector. It also for the first time mentioned “making the capital market more active and boosting investor confidence,” suggesting China’s government is acknowledging the need to reassure investors. Following the Politburo meeting, the chairman of the National Development Reform Commission, Vice Chairman Li Chunlin, commented, “We’ve noticed that the growth momentum of some consumption categories is still not solid yet, and some residents have relatively weak confidence to spend. This requires further policy support.”

The strength of the actual policies to be implemented remain to be seen, but it is clear that the government is focused on boosting economic growth. The Politburo continued to signal that it expects to meet its 5% GDP growth target for the year. We anticipate that the Chinese consumer-facing companies in our portfolio will benefit from the economic stimulus as well as the government’s focus on making domestic consumer demand the engine of the economy. These holdings include Tencent (the world’s largest video game company and parent of WeChat messaging service, owned in the portfolio via Naspers and Prosus), Ping An Insurance (the world’s second-largest life and health insurer), Meituan (food delivery leader), (e-commerce) and DiDi Global (ride-sharing leader).

Many of our Chinese holdings have also benefited from the end of the regulatory reforms China started in 2021. Over the past several months the government has signaled its support for these platform companies and brought an end to the actions and investigations that had hurt investor sentiment. Recent positive government actions have included resuming new video game approvals, allowing DiDi to return to app stores, and ending the investigations into fintech companies Ant Group and TenPay. The government has also signaled support for the resumption of initial public offerings.

Notes on Holdings:

Prosus, Formula One


The Prosus/Naspers complex (from now on referred to as Prosus) remains our favorite way of investing in the Chinese internet conglomerate Tencent. Prosus’ $106 billion stake in Tencent currently makes up approximately 81% of Prosus’ net asset value (NAV), making our conviction in Tencent’s moat, growth prospects and management team the core of our investment thesis in Prosus. Tencent, best known for operating the ubiquitous mobile messaging super app WeChat, has market-leading positions in China across its social media, video game and payments/fintech businesses.

In addition, Tencent has earlier-stage efforts in cloud computing and enterprise software, industries that are still immature in China, but have attractive long-term growth potential, in our opinion. Tencent is trading at 16x our 2024 estimate of owner earnings, which is attractive as we believe earnings will grow 20%+ per year over the next few years. Given our positive outlook on Tencent and Prosus’ other major assets, most of which are high-quality internet businesses (e.g., online classifieds and food delivery marketplace platforms) with strong competitive positions and robust growth prospects, we would expect meaningful underlying expansion in Prosus’ NAV over time.

What makes Prosus particularly attractive, in our view, is that it currently trades at approximately a 30% discount to its NAV. While this discount has proven stubborn throughout our holding period, we are increasingly confident that management’s multipronged efforts to address the discount will create significant value over time. We applaud the company’s open-ended program of selling Tencent shares at the market price and using the proceeds to repurchase its own shares. Given that Prosus’ own shares primarily represent ownership in Tencent shares, but at a discounted price, carrying out this exercise increases Prosus’ NAV per share for every Tencent share sold and Prosus share repurchased. The larger the discount the more accretive these actions are to NAV per share. As an illustrative example, selling 15% of the company’s stake in Tencent and using the proceeds to repurchase shares in Prosus would result in a 7% increase in NAV per share at the current discount.

On top of this, any additional narrowing of the discount through corporate actions, some of which management has discussed publicly (e.g., simplifying its corporate structure, publicly listing underappreciated assets, etc.), would further enhance our returns beyond what we could earn from owning Tencent shares outright. We believe Prosus’ management team has the means and demonstrated determination to create and protect value for shareholders, and expect that their efforts will reward patient shareholders over the long term.

Formula One/Liberty Media

Formula One (F1) is a tracking stock within the Liberty Media conglomerate for the commercial rights of the Formula One world championship. This is the premier motor racing league that holds grand prix across the world and today has hundreds of millions of viewers.

Since acquiring F1 in 2017, Liberty Media has been diligently making improvements to realize the full commercial potential of this unique asset. Most visibly, it was instrumental in creating the hit Netflix documentary “Drive to Survive,” which has reportedly positioned F1 in the cultural zeitgeist and brought millions of new fans to the sport. The company is also improving the monetization of media rights, expanding the sponsorship portfolio, and scaling the direct-to-consumer streaming and hospitality services. It has added races to the calendar and entered the largest media market in the world—the U.S.—with three blockbuster races in the 24-race annual calendar. Management has also pushed technical and financial changes to improve competitiveness among the teams, create a more exciting sport, and raise F1’s brand value.

F1 should be able to grow profits at low double-digit rates over the next few years as various global media rights reprice and new agreements favorably impact the race economics between F1 and the teams. The long-term nature of media contracts creates a consistent and growing revenue stream, making F1 an attractive business to own in these uncertain times. The long-term growth opportunity, resilient business model, and its unique asset value as one of the few publicly traded sports leagues, make it attractive at just under 20x estimated 2024 owner earnings. The key risks would be the limited ability to reinvest in the business and uncertainty as to the longevity and monetization of the new fan base.


Fast Earnings Growth at a Discount

In our last letter we spoke about how market corrections are unfortunately common but also create investment opportunities. We wrote how historically in the years following a 20% decline, for example, the S&P 500 Index has on average had a robust positive return of 23.9%.2 The year 2023 is not over yet but after last year’s -18.11% decline, the S&P 500 Index through July 31 has returned 20.65%. This, of course, does not work like clockwork, and there is quite a bit of variability, but it is why we advocate for long-term investing. Staying the course through the inevitable downturns and letting the power of compounding work for you over time is the goal. As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it...he who doesn’t...pays it.”3

A valid question then is “what to do now that the market is up 20%?” By design, the 35 holdings in Davis Select Worldwide ETF look very different from the market and, we believe, present a superior investment outlook. We base this view on the careful selection of these 35 companies amongst the nearly 3,000 companies in the MSCI ACWI based on the quality of the business, the ability of the management team, and the attractive valuation. Davis Select Worldwide ETF holdings have grown earnings per share faster than the index over the past five years, yet trade at a remarkable 39% discount on a P/E basis.4 We believe the combination of faster growth and a substantial valuation discount should be positive for future returns.

We understand that in uncertain times such as these, it is more important than ever to be able to entrust your savings to an experienced and reliable investment manager with a strong long-term record. Over the 50 years since the firm’s founding,5 the Davis Investment Discipline has demonstrated an ability to generate above-average returns, based on in-depth fundamental analysis, a long-term investment horizon and a strong value discipline. While the times have changed, these fundamental principles are timeless and proven. Above all, we never forget that we are stewards of our clients’ savings and that our most important job is growing the value of the funds entrusted to us.

With more than $2 billion of our own money invested alongside that of our clients, we are on this journey together.6 This alignment with our clients is an uncommon advantage in our industry; our conviction in our portfolio of carefully selected companies is more than just words. While we do not welcome the pessimism and fear that have characterized our world recently, we are prepared for it and, importantly, we believe we are well-positioned for the future. We thank you for your continued trust and interest in Davis Select Worldwide ETF.


10.5x versus 17.1x as of 6/30/23


The inception date of DWLD is 1/11/17.


As of 6/30/23 Davis Advisors, the Davis family and Foundation, our employees, and Fund trustees have more than $2 billion invested alongside clients in similarly managed accounts and strategies.

This material is authorized for use by existing shareholders. A current Davis Select Worldwide ETF prospectus must accompany or precede this material if it is distributed to prospective shareholders. You should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing. Read the prospectus carefully before you invest or send money.

Shares of DWLD are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. There can be no guarantee that an active trading market for ETF shares will develop or be maintained, or that their listing will continue or remain unchanged. Buying or selling ETF shares on an exchange may require the payment of brokerage commissions and frequent trading may incur brokerage costs that detract significantly from investment returns.

This material includes candid statements and observations regarding investment strategies, individual securities, and economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact.

Davis Advisors is committed to communicating with our investment partners as candidly as possible because we believe our investors benefit from understanding our investment philosophy and approach. Our views and opinions include “forward-looking statements” which may or may not be accurate over the long term. Forward-looking statements can be identified by words like “believe,” “expect,” “anticipate,” or similar expressions. You should not place undue reliance on forward-looking statements, which are current as of the date of this material. We disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate.

Objective and Risks. The investment objective of Davis Select Worldwide ETF is long-term capital growth and capital preservation. There can be no assurance that the Fund will achieve its objective. Some important risks of an investment in the Fund are: stock market risk; common stock risk; market trading risk: includes the possibility of an inactive market for Fund shares, losses from trading in secondary markets, periods of high volatility, and disruptions in the creation/redemption process. ONE OR MORE OF THESE FACTORS, AMONG OTHERS, COULD LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV; exchange-traded fund risk: the Fund is subject to the risks of owning the underlying securities as well as the risks of owning an exchange-traded fund generally; foreign country risk; exposure to industry or sector risk: significant exposure to a particular industry or sector may cause the Fund to be more impacted by risks relating to and developments affecting the industry or sector; China risk – generally; headline risk; foreign market risk; large-capitalization companies risk; manager risk; authorized participant concentration risk: to the extent that Authorized Participants exit the business or are unable or unwilling to proceed with creation and/ or redemption orders with respect to the Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Fund shares may trade at a discount to NAV and could face delisting; cybersecurity risk; emerging market risk: securities of issuers in emerging and developing markets may present risks not found in more mature markets; depositary receipts risk: depositary receipts involve higher expenses and may trade at a discount (or premium) to the underlying security; fees and expenses risk; foreign currency risk; and mid- and small-capitalization companies risk. See the prospectus for a complete description of the principal risks.

The information provided in this material should not be considered a recommendation to buy, sell or hold any particular security. As of 6/30/23, the top ten holdings of Davis Select Worldwide ETF were: Meta Platforms, 9.94%; Danske Bank, 6.66%;, 5.88%; Ping An Insurance Group, 5.02%; Wells Fargo, 4.99%; Julius Baer Group, 4.65%; Capital One Financial, 4.60%; Berkshire Hathaway, 4.31%; Samsung Electronics, 4.27%; and DBS Group, 4.27%.

Davis Fundamental ETF Trust has adopted a Portfolio Holdings Disclosure policy that governs the release of non-public portfolio holding information. This policy is described in the Statement of Additional Information. Holding percentages are subject to change. Visit or call 800-279-0279 for the most current public portfolio holdings information.

The Global Industry Classification Standard (GICS®) is the exclusive intellectual property of MSCI Inc. (MSCI) and S&P Global (“S&P”). Neither MSCI, S&P, their affiliates, nor any of their third party providers (“GICS Parties”) makes any representations or warranties, express or implied, with respect to GICS or the results to be obtained by the use thereof, and expressly disclaim all warranties, including warranties of accuracy, completeness, merchantability and fitness for a particular purpose. The GICS Parties shall not have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of such damages.

We gather our index data from a combination of reputable sources, including, but not limited to, Lipper, Wilshire, and index websites.

The MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets throughout the world. The index includes reinvestment of dividends, net foreign withholding taxes. The MSCI China Index captures large- and mid-cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g., ADRs). With 698 constituents, the index covers about 85% of this China equity universe. Currently, the index includes Large Cap A and Mid Cap A shares represented at 20% of their free float adjusted market capitalization. The S&P 500 Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The index is adjusted for dividends, weighted towards stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. Investments cannot be made directly in an index.

After 10/31/23, this material must be accompanied by a supplement containing performance data for the most recent quarter end.

Distributor, Foreside Fund Services, LLC.
Foreside and Davis Selected Advisers, LP, the Fund’s investment adviser, are not related.

Item #6362 6/23