Investment Results

Davis Select Worldwide ETF’s performance in the first half of 2019 was driven by our hold­ings in the consumer discretionary, industrials and financials sectors.

Davis Select Worldwide ETF increased 19.3% in the first half of 2019, compared with an increase of 16.2% for the MSCI ACWI (All Country World Index), an outperformance of 3.1%. Generally speaking, the companies and sectors that declined the most at the end of 2018, when worries about the U.S. trade situation were the most acute, led the outperformance in the first half of 2019. However, most of these companies, such as our holdings of leading Chinese consumer companies including Alibaba Group, and Hollysys Automation Technologies, are still down significantly from where they were just 12 months ago as U.S. trade relations remain a source of friction.
Crucially, while stock prices have been impacted by macro concerns, the company results continue to be very strong. In the latest quarter results, for example, Chinese e-commerce leader Alibaba’s revenues grew 51%, and operating profits in the core e-commerce business were up 38%. is the #2 Chinese e-commerce player, and its revenues rose 21%, as profit margins jumped significantly. Hollysys Automation, a leader in industrial automation in China, enjoyed a 28% increase in earnings per share (EPS). These companies focused on the Chinese domestic market have little exposure to export markets, and our long-term outlook for consumer demand in China remains very positive. Strong business results coupled with low valuations is in our view a very favorable investment environment.

The average annual total returns for Davis Select Worldwide ETF periods ending June 30, 2019 are: NAV Price, 1 Year, -7.20%; Inception (1/11/17), 8.05%. Market Price, 1 Year, -7.37%; Inception (1/11/17), 8.05%. MSCI All Country World Index, 1 year, 5.74%; (1/11/17), 10.65%. 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. Returns of less than one year are not annualized. NAV prices are used to calculate market price performance prior to the date when the Fund first traded on NASDAQ. Market performance is determined using the bid/ask midpoint 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. For the Fund’s most recent month end performance, please call 800-279-0279 or visit The total annual operating expense ratio as of the most recent prospectus was 0.64%. The Adviser has contractually committed to waive fees and/or reimburse the Fund’s expenses to the extent necessary to cap total annual fund operating expenses at 0.64% until March 1, 2020. After that date, there is no assurance that Davis Selected Advisers, L.P. will continue to cap expenses. The expense cap cannot be terminated prior to that date, without the consent of the Board of Trustees. The total annual operating expense ratio may vary in future years. Current performance may be higher or lower than the performance quoted.

This report 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. Equity markets are volatile and an investor may lose money. All fund performance discussions within this piece are as of 6/30/19 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. Total returns are not annualized for periods of less than one year.

The energy sector was a detractor and the only sector with negative returns in the first half of 2019. While persistently low oil prices have impacted Apache, Encana and Seven Generations Energy, we continue to like their production and reserve profiles. Their North American shale positions continue to be low-cost and productive.

Representative Holdings

We invest around the world in select businesses to take advantage of long­term global trends.

While we believe certain emerging markets can be the home to world-class businesses, we also think selectivity is critical in reducing risks. As a result, we are in only four (China, Brazil, India, and South Africa) of the 26 emerging markets listed in the benchmark index. One such world-class business is SulAmerica SA, an over 100-year-old Brazilian health and auto insurer. Its primary focus is health insurance, where it has a 10% share, with a skew to higher-end plans. With a history of disciplined underwriting, the company has a long track record of success. Brazil is underpenetrated from a health insurance perspective, with only 23% of the population insured, and the rest relying on a public system that is widely considered inferior to private alternatives. SulAmerica has been gaining share in recent years, aided by the distress and in some cases outright failure of competitors, many of which are doctor-owned cooperatives, known as Unimeds, that have been struggling in a tough economic environment.
Investing in Brazil comes with risks: the country’s economy remains fragile, and new president Bolsonaro faces challenges in pushing through a critical pension reform package. That said, though, jobs and car sales are starting to grow again, and SulAmerica is well-positioned to take advantage of a return to normalcy in the economy. The company today trades for just under 13x 2019 price/levered owner earnings (P/LOE), which we believe is attractive, as is the large ownership stake that the founding family continues to maintain in the business. is another company that is well-positioned as a leading e-commerce platform in China. The company differentiates itself from its major China e-commerce peers by operating a first-party business that sells from its own stocked inventory, in addition to a marketplace business connecting third-party merchants with customers. As a result, despite being smaller than Alibaba, is actually the largest retailer, either online or offline, in China, which has become the world’s largest e-commerce market in the world. Similar to Amazon in the U.S., has built China’s most advanced e-commerce fulfillment and logistics infrastructure, encompassing more than 550 warehouses across the country and enabling same-day and next-day delivery.’s reputation for quality, authenticity and convenience has given its first-party business strong competitive positions in categories such as electronics and home appliances, while enabling the company to invest in expansion into newer categories such as fast-moving consumer goods.
We believe that will continue to be a key beneficiary of China’s increasing adoption of online shopping and that the company will leverage the scale of its first-party business and logistics operations to continue to take share from fragmented offline competitors. Sustained growth will increase the company’s bargaining power over suppliers, which should help to drive an increase in profitability over the long term. In addition, the company could see significant margin benefits from improvements in its high-margin advertising and marketplace businesses. Therefore, despite being marginally profitable today due to significant reinvestment through the income statement, we believe that over the long term, the company should be able to achieve a mid-single-digit normalized operating margin.
We also continue to find attractive opportunities in the U.S., and in Q3 of 2018, we started a position in Applied Materials, the largest supplier of production equipment and services to the semiconductor and panel display markets. The company provides tools to the vast $450 billion semiconductor device and $150 billion display markets that both are entirely dependent on a small number of production tool vendors like Applied Materials. Both markets are cyclical and capital-intensive, but while Applied Materials’ market is cyclical, it is not capital-intensive, meaning that the company tends to generate significantly more cash than it requires to run the business. This rare confluence of volatility and cyclically-resilient cash flow enables the company to take advantage of a volatile stock price during periods of episodic market contraction. Over the last five years, the company returned 88% of its free cash flow to shareholders via share repurchase and reduced its outstanding shares by nearly 25%. The company’s opportunistic return of excess capital reflects its strong, shareholder-focused management team.
The market for semiconductors is embarking on a period of significant end-market diversification and expansion. The PC drove the market during the 1990s, and mobile devices powered it in the 2000s, but new markets are emerging, and traditional markets are rapidly evolving by adopting semiconductor technology: cloud computing, artificial intelligence, machine learning, electric/driver-assisted cars, factory automation, robotics, so-called 5G wireless and the Internet-of-things (IoT). But at a time when the opportunities for the semiconductor industry have never been larger, the technical challenges of continuing to improve chip performance and reduce costs are becoming more and more daunting. An expanding market coupled with vastly more complex technical challenges is a very promising scenario for Applied Materials—a scenario that should inevitably result in an addressable market that is structurally much larger than it is today.


Market volatility over the last 12 months largely driven by macroeconomic concerns, such as U.S. trade relations, can be unnerving. As long- term value-focused investors, however, we take advantage of temporary dislocations by adding to our positions in these world-class businesses, much like Applied Materials’ management has. While we continue to closely monitor macroeconomic trends and potential scenarios, we have used recent market volatility to add to names such as Ferguson PLC, Bank of Butterfield, Wells Fargo, and Adient, as well as build new positions in Applied Materials and Danske Bank.
At Davis, we always want to ensure we follow the teachings of Warren Buffett’s mentor, Ben Graham, who memorably stated in a 1987 Berkshire Hathaway shareholder letter: “Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful.” We remain enthusiastic about owning a portfolio of world-class companies with durable competitive advantages around the globe trading at attractive valuations. We thank you for your continued trust and interest in the Davis Select Worldwide ETF.
We believe DWLD is well positioned for the future based on the table below.

Undervalued, Attractive Growth, Selective 1

Fund Index
P/E (Forward) 12.2x 15.5x
EPS Growth (5 Year) 26.3% 14.3%
Holdings 35 2,847

1 The Attractive Growth and Undervalued reference in this piece relates to underlying characteristics of the portfolio holdings. There is no guarantee that the Fund performance will be positive as equity markets are volatile and an investor may lose money. These characteristics are demonstrated in the chart above.

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, fees, and expenses before investing. Read the prospectus carefully before you invest or send money.

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.

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.

Objective and Risks. Davis Select Worldwide ETF’s investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Some important risks of an investment in the Fund are: 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; common stock risk: an adverse event may have a negative impact on a company and could result in a decline in the price of its common stock; cybersecurity risk: a cybersecurity breach may disrupt the business operations of the Fund or its service providers; depositary receipts risk: depositary receipts involve higher expenses and may trade at a discount (or premium) to the underlying security; emerging market risk: securities of issuers in emerging and developing markets may present risks not found in more mature markets. As of 6/30/19, the Fund had approximately 37.8% of assets invested in securities from emerging markets;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; fees and expenses risk: the Fund may not earn enough through income and capital appreciation to offset the operating expenses of the Fund. See the prospectus for a complete description of the principal risks; foreign country risk: foreign companies may be subject to greater risk as foreign economies may not be as strong or diversified; foreign currency risk: the change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of securities denominated in that foreign currency; foreign market risk: because certain foreign holdings of the Fund may trade in a market that is closed when the market in which the Fund’s shares are listed is open, there may be changes between the last quote of the foreign holding from its closed foreign market and the value of such security during the Fund’s domestic trading day. This in turn could lead to differences between the market price of the Fund’s shares and the underlying value of those shares; headline risk: the Fund may invest in a company when the company becomes the center of controversy. The company’s stock may never recover or may become worthless; intraday indicative value risk: the Fund’s INAV agent intends to disseminate the approximate per share value of the Fund’s published basket of portfolio securities every 15 seconds. The IIV should not be viewed as a ‘‘real-time’’ update of the NAV per share of the Fund because the IIV may not be calculated in the same manner as the NAV, the calculation of NAV may be subject to fair valuation at different prices, the IIV does not take into account Fund expenses, and the IIV calculations are based on local market prices and may not reflect events that occur subsequent to the local market’s close; large-capitalization companies risk: companies with $10 billion or more in market capitalization generally experience slower rates of growth in earnings per share than do mid- and small-capitalization companies; manager risk: poor security selection may cause the Fund to underperform relevant benchmarks; 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; mid- and small-capitalization companies risk: companies with less than $10 billion in market capitalization typically have more limited product lines, markets and financial resources than larger companies, and may trade less frequently and in more limited volume; and stock market risk: stock markets have periods of rising prices and periods of falling prices, including sharp declines. See the prospectus for a complete description of the principal risks.

Davis ETFs 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 report. 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.

Owner Earnings are the excess cash a business generates after reinvesting enough to maintain current capacity and competitive advantages but before investing for growth.

The information provided in this material should not be considered a recommendation to buy, sell or hold any particular security. As of 6/30/19, the top ten holdings of Davis Select Worldwide ETF were: New Oriental Education & Technology, 6.75%;, Inc., 6.03%; Alphabet Inc., 5.95%; Naspers Ltd., 5.40%; Alibaba Group Holding Ltd., 5.18%; Inc., ADR, 5.15%; Wells Fargo & Co., 4.71%; Berkshire Hathaway Inc., 4.71%; Capital One Financial Corp., 4.64%; Ferguson PLC, 4.54%.

The Forward P/E ratio is the aggregate of the Forward P/E ratios of the holdings. The ratio is not a forecast of performance and is calculated for each security by dividing the current ending price of the stock by a forecast of its projected Earnings Per Share (EPS). Historical 5 Year EPS Growth represents the annualized rate of net-income-per-share growth over the trailing five-year period for the stocks held by the Portfolio.

We gather our index data from a combination of reputable sources, including, but not limited to, Thomson Financial, Lipper 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. Investments cannot be made directly in an index.

After 10/31/19, this material must be accompanied by a supplement containing performance data for the most recent quarter end.

Shares of the Davis Fundamental ETF Trust are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested.