Davis Financial Fund has outperformed the S&P 500 Index and S&P 500 Financials Index since inception in 1991.?
On a cumulative basis, Davis Financial Fund has returned significantly more than the Financial Select Sector SPDR ETF (XLF) since XLF's inception in 1998.?
Currently, financial stocks are underappreciated and out of favor with investors, offering what we believe to be an attractive long-term investment opportunity.
Selectivity and active management are the keys to outperformance in the vast, inefficient financial sector, in our opinion. Investing in stronger companies and avoiding weaker ones can make a significant difference in investor returns.
Davis Financial Fund holdings include: Markel, Chubb, Berkshire Hathaway, JPMorgan Chase, BNY Mellon, American Express and Capital One Financial.?
Davis has successfully invested in financial stocks for almost five decades. Why should investors consider this sector now? Why are financial stocks one of the few areas that can perform well even if we are in a low growth environment as many believe? Scenario 1: No earnings growth and no P/E expansion Scenario 2: Modest earnings growth no P/E expansion Scenario 3: Modest earnings growth and modest P/E expansion Why have selectivity and active management generated outperformance for Davis Financial Fund? What are some of the perceived risks with financial stocks today? With all the positives, why is the opportunity in financial stocks underappreciated and not recognized by the market?
Class A shares without a sales charge. Inception date of the Fund is 5/1/91. Past performance is not a guarantee of future results. Inception of XLF is 12/16/98. See the endnotes for a description of the material differences between the Fund and XLF. 2. Individual securities are discussed in this piece. 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. The return of a security to the Fund will vary based on weighting and timing of purchase. This is not a recommendation to buy, sell or hold any specific security. Past performance is not a guarantee of future results. 3. While Shelby Cullom Davis' success forms the basis of the Davis Investment Discipline, this was an extraordinary achievement and other investors may not enjoy the same success. Davis Selected Advisers, L.P. was founded in 1969. 4. While we search for those companies possessing these characteristics, there is no guarantee that the criteria will be met or that a given security will be profitable. 5. As of 6/30/19. Source: Credit Suisse. 6. This hypothetical example is for illustrative purposes only and does not represent the performance of any particular investment. Actual results will vary. The return of a stock is based on a number of factors in addition to those discussed. Equity markets are volatile and there is no guarantee that these assumptions will prove to be correct. 7. As of 12/31/18. Source: Davis Advisors and Wilshire Atlas. 8. As of 6/30/19. Holdings are subject to change. 9. The information provided in this material should not be considered a recommendation to buy, sell or hold any particular security.
This report is authorized for use by existing shareholders-. A current Davis Financial Fund prospectus must accom- pany 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. This report includes candid statements and observa- tions regarding investment strategies, individual securities, and economic and market conditions; however, there is no guarantee that these state- ments, 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. Objective and Risks. Davis Financial Fund's invest- ment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Under normal circumstances the Fund invests at least 80% of its net assets, plus any borrowing for investment purposes, in securities issued by companies principally engaged in the financial services sector. Some important risks of an investment- in the Fund are: 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; credit risk: The issuer of a fixed income security (potentially even the U.S. Government) may be unable to make timely pay- ments of interest and principal; depositary receipts risk: depositary receipts may trade at a discount (or premium) to the underlying security and may be less liquid than the underlying securities listed on an exchange; emerging market risk: securities of issuers in emerging and developing markets may present risks not found in more mature markets; fees and expenses risk: the Fund may not earn enough through income and capital appreciation to offset the operating expenses of the Fund; financial services risk: investing a significant portion of assets in the financial services sector may cause the Fund to be more sensitive to systemic risk, regulatory actions, changes in interest rates, non-diversified loan portfolios, credit, and competition; focused portfolio risk: investing in a limited number of companies causes changes in the value of a single security to have a more significant effect on the value of the Fund's total portfolio; foreign country risk: foreign companies may be subject to greater risk as foreign economies may not be as strong or diversified. As of 6/30/19, the Fund had approximately- 17.6% of assets invested in foreign companies; 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; headline risk: the Fund may invest in a company when the company becomes the center of contro- versy. The company's stock may never recover or may become worthless; interest rate sensitivity risk: interest rates may have a powerful influence on the earnings of financial institutions; 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;- 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. The Morningstar Rating(TM) for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life sub- accounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar risk-adjusted return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating(TM) for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating(TM) metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three -year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. Davis Advisors is committed to communicating- with our investment partners as candidly as possible- because we believe our investors benefit from under- standing 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," "antici- pate," 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. 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 for Davis Financial Fund were: U.S. Bancorp, 7.64%; Berkshire Hathaway Inc., 7.56%; Capital One Financial Corp., 7.53%; JPMorgan Chase & Co., 6.33%; American Express Co., 6.21%; Markel Corp., 5.61%; Wells Fargo & Co., 5.46%; Chubb Ltd., 5.00%; Bank of New York Mellon Corp., 4.93%; Loews Corp., 4.46%. Davis Funds 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 davisfunds.com or call 800-279-0279 for the most current public portfolio holdings information. GuruFocus