Dodd Kittsley

So before we get started, can you tell everybody a little bit about your background and how you ended up in the position that you are today?

I'd be happy to. I've been incredibly fortunate in my career to have stumbled on ETFs back in the late 90s, a time where there were 32 products, less than $40 billion in assets. And people didn't know the difference between an ETF and an EFT and an exchange fund. So I was really fortunate to be doing independent kind of third-party research at Morgan Stanley and helped launch one of the first ETF research teams on Wall Street. And that just afforded me so many different vantage points of this industry that's really changed the way people invest in our industry at large. So from there, I was able to work at some of the largest asset managers in the ETF space because I had such an interest in how these things work and had such an interest in being an evangelist for a product that

So it's interesting. being one of the originals in the ETF industry, and we are at Exchange ETF, and I know that this is going to come out later, but could you see this business exploding

Into what it is today? Nowhere near where we are today. I don't think anyone else did. we saw the promise of this. And to be clear, I was definitely not at the first inning of this, but probably the second inning, right? In the late 90s. And I give so much credit to folks like Nate Post and those that really helped design and bring SPDR and the first ETFs to market. But that was really a serendipitous event. it was really designed to be an alternative to futures and derivatives and program trading, more of an institutional tool, if you will. And I don't think that really the market recognized that this could be something that was for everybody, for the retail investor, the individual

Well, it's definitely an exciting industry to be in now. we're seeing new products launch every single day. But before we start to geek out more on ETFs, I always like to ask, what are some hobbies that you have? What are things you like to do when you're not working?

Oh, boy. I love spending time with my boys and my wife. We do a lot of gardening around the house. We've got a historic house in a wonderful town outside New York City called Pleasantville of all names. When my kids were not in college, which they are right now, we built an ice rink in our backyard every year, which was something that we were able to share with the entire community. A lot of fun there. And I'm a big sports fan. So stuff I get to share

With my boys, which is a lot of fun. That's great. So let's pivot over into the business that is Davis. So you guys have been around a very long time. Can you just talk about Davis as a whole and

What they do for clients? Absolutely. So Davis was founded in 1969 and also a very serendipitous type of type of event of how we came to be. Davis is three generations of amazing investors, starting with Shelby Davis, who essentially made a fortune investing exclusively in equities, primarily financial stocks. His son, also named Shelby, was legendary institutional investor. And one day people approached him and said, well, why don't you offer what you do for institutions in a mutual fund? And his initial reaction was not surprising. It's like, well, we don't do that.

Yeah. And that, it is the biggest mistake we all make. We're too emotional of animals to really play this game well sometimes. But you guys have had a very long history and longstanding in the mutual fund business, a lot of success in the mutual fund business. So what are some of the advantage of keeping a mutual fund lineup when the ETF industry has exploded the way that it has?

Yeah, it's a great question. And, we like to say we're delivery vehicle agnostic. And the reason we offer mutual funds, SMAs and ETFs is solely to offer choice. And at the end of the day, what really drives one's preference for a wrapper or vehicle to get the exposures in our portfolios is personal preference. For some, they may be tax sensitive and the ETF or the SMA can be incredibly compelling. Mutual funds offer advantages that I think people sometimes discard. And that's, you can dollar cost average very easily into that. Mutual funds don't disclose, holdings. So it allows you the ability to kind of own less liquid securities and for some people, it's back to emotion that we were talking about. some folks don't

To offer choice. So let's talk about DUSA. It is your select U.S. equity ETF. Can you talk about the fund as a whole and what it's trying to accomplish? Yeah. DUSA, I love you. I love that

You call it DUSA. D-U-S-A. It did take on that kind of name after a while, which makes a lot of sense. So it's really the epitome of what we do, right? It's creating a best ideas portfolio that is incredibly selective. We believe that what you don't own is as important as what you do own, particularly in this environment where money isn't free anymore, interest rates are more normal, and selectivity really matters. So DUSA has 22 to 23 holdings right now. And what we look for in that portfolio is stocks that are undervalued, mispriced in the marketplace, that are durable, have very well capable management teams that can allocate capital well, right cultures, companies with competitive moats, and those that are generating free cash flow, that are generating earnings that's sustainable

Because as you said, it's extremely, I shouldn't say extremely, it's pretty highly concentrated. 22 names, I think, are in there as we sit here today. Yep. So can you talk about the actual process of dwindling down from such a large universe into 22? And I'm assuming, you guys are probably pretty hands on in talking with management and everything with those names that you've selected.

Yes, 100%. So we are a research driven firm first and foremost. And as our chairman, Chris Davis, loves to say, we want to be in the top decile of knowledge of companies that we own and industries that they participate in before even thinking about investing a single dollar. We knew Google years before it went public. And because of that, because of those kind of knowledge, an intimate knowledge of kind of the inner workings of these companies, I think it gives us a real edge that can't be captured in a stock screen. So that's, I think, really where the case for Active is, right? We have a process where certainly we'll screen for companies that are viable, but without knowledge of their management team, their competitors, their customers, their sustainable

Conviction by your management team? Or is there some other thing behind it to keep it more market cap weighted? how are those weighting decisions come about?

It's such a great question, because for some, looking at the portfolio sector weightings, holdings, it could be a bit of a head scratcher. But as you point out, it is 100% conviction weighted, 100% conviction driven in terms of the holdings we have. We often will say we're benchmark agnostic, and it's not to mean we don't care about our bogey or the benchmark or the opportunity set we're looking at. But we will never true up, say, a sector that we don't own. In fact, we don't own three, four sectors in the S&P 500 in DUSA, because we don't see as much opportunity there as we see in, say, financials or communication services or even healthcare right now.

So I know that the fund is active, but is there a regular, we don't need to call it a rebalance schedule, but is there a regular re-screening for new opportunities? Or I guess, is the decision made on the fly as to whether or not to replace one of these companies inside the portfolio?

Every single day, we're looking at our holdings, we're looking at our weightings, and making decisions thereof. You don't see a lot of turnover in our portfolios, and that's by design. Because A, we do our homework ahead of time, and we're looking for companies that aren't necessarily going to kill earnings next quarter. We're looking at companies that are going to be long-term compounders that are going to generate wealth over a very, very long period of time. So that's really what's driving it. It's research, it's understanding the companies really well and reflecting that in the best ideas portfolio.

So let's talk briefly about DWLD. It doesn't roll off like DUSA. When I look at it, I want to say DWILD, but DWLD, which is the Davis Select Worldwide ETF. Is this basically the same idea? Is DUSA only kind of go anywhere?

It is. It is our most unconstrained ETF portfolio. It's an analog to the Davis Global Fund that's been around for a couple decades now. And yeah, it's both U.S. and international, so no constraints on the portfolio manager with respect to geography. Currently, it's about 50% U.S., 50% international, but that can fluctuate where we see opportunities overall. And we're seeing people attracted to DWLD because it's a way to get exposure to non-U.S., which we know has been unpopular, which hasn't really worked out recently.

And that's fairly concentrated as well. About how many holdings does DWLD have at any given time?

Yeah, we're about 30, 35 holdings. It depends on the time and our level of conviction. But it tends to have a few more holdings than some of our other ETFs just because it is the widest opportunity set. But we really haven't seen it go over 35 or so.

Well, Don, I really appreciate our time together. Before I let you go, I got to give people the opportunity to learn. Where can they learn more about you? Where can they learn more about Davis and all the things you guys do?

Yeah, thank you. It's been a pleasure being here. For more information, first, our website, davisetfs.com, davisadvisors.com is where you can find information on all three of our delivery vehicles. And we have such a great relationship management team. We call them regional directors. So you'd certainly call our 800 number, which is on the website, and get to know folks that are really wanting to build partnerships with financial advisors and your teams and help grow together.

Well, again, thank you so much for your time. And I really hope you have a great week. You as well. Thanks so much.

Thank you.