Chris Davis of Davis ETFs on How Today’s Markets Are Setting Up for Active Manager Success

Why It Matters

In a market priced at historic multiples, active value ETFs like Davis’s offer a cheaper, resilient alternative that can outperform during inevitable corrections and the long‑run rollout of AI technologies.

Key Takeaways

• Active large‑cap value ETF outperforms in high‑multiple, concentrated markets
• Best‑of‑breed firms must be durable, adaptable, and fairly priced
• AI hype is overestimated now; long‑term value will emerge later
• Portfolio trades at ~14× earnings versus S&P’s 26×, offering discount
• Upcoming market correction could boost active managers with value discipline

Summary

Chris Davis of Davis ETFs explains why an active large‑cap value ETF can thrive when the S&P 500 trades at lofty multiples and is heavily concentrated in a few tech names. He argues that the current environment—high earnings multiples, AI‑driven disruption, and geopolitical uncertainty—mirrors the late‑1990s, a period when active managers historically outperformed passive benchmarks.

Davis emphasizes a "best‑of‑breed" approach that blends durable, adaptable businesses with disciplined pricing. He warns against buying great companies at inflated valuations, noting that even strong firms can become mediocre investments if growth assumptions ignore competition. The fund’s portfolio averages about 14‑times earnings, a stark discount to the S&P’s 26‑times and the Russell 1000 value’s 20‑times, positioning it as a value‑investor’s dream.

Key quotes illustrate his thesis: "AI is overestimated now, underestimated later" (Amara’s Law) and "Our portfolio is like a single company trading at 14× earnings." He also points out that during past market corrections—1999, 2000, early 2000s—active managers with a value bias generated outsized returns while the broader market stagnated.

The implication for investors is clear: avoid complacency with passive index exposure, especially at premium valuations, and consider active, value‑oriented strategies that can navigate corrections and capitalize on long‑term AI adoption. By focusing on pricing discipline and resilient business models, such funds aim to deliver superior risk‑adjusted returns in the next market cycle.

Original Description

Is the S&P 500's historic run finally hitting a wall? In this deep dive, Chris Davis, PM at Davis ETFs, joined Sumit Roy, Senior ETF Analyst at ETF.com at Future Proof Citywide to discuss why the current market environment mirrors the late '90s dot-com bubble and why active management is poised for a major comeback.

As the S&P 500 becomes increasingly concentrated in Big Tech and trades at 26x earnings, Davis explains the dangers of getting caught looking at historical performance. He breaks down the strategy behind the Davis Select U.S. Equity ETF (DUSA), which focuses on best of breed companies—durable, adaptable, and profitable businesses trading at a significant discount to the broader market.

Davis breaks down why the biggest winners of technological shifts (like the railroads or the early internet) are rarely the companies investors expect and the three pillar Davis uses to vet companies for inclusion in the ETF’s portfolio.

Follow along with the conversation at: https://www.etf.com/sections/conferences/todays-markets-are-setting-active-manager-success

Learn more about Davis ETFs at: https://www.davisetfs.com/