Peter Sackmann
Earlier this month, two investment professionals from Davis Advisors (Davis) visited Australia and presented to a number of financial advisers. Peter Sackmann, Director and member of the Portfolio Review Committee, and Danton Goei, Portfolio Manager of the Pan-Tribal Global Equity Fund, provided an overview of the Davis investment approach, the Fund’s portfolio and answered range of questions from advisers.
Davis takes a truly global perspective when it comes to investing and every analyst at Davis is a global analyst. This methodology was introduced in the 1990s, well before most other investment managers adopted a global approach. Davis recognises that a global view is very important as most businesses are now operating and/or competing in the global arena; there is a high degree of interconnectedness and a very competitive landscape.
Each analyst spends a significant amount of time travelling and visiting company management, and building extensive networks that include industry groups and other investment houses.
Funds managed by Davis, including the Pan-Tribal Global Equity Fund, don’t look anything like the benchmark, and not much like other global equity funds available to Australian investors. While many funds have several stocks in common in their top 10 holdings, Davis is comfortable taking a different approach.
To be represented in a benchmark, a company needs to meet three requirements:
- It needs to exist
- It needs to be public
- It needs to be large.
Under Davis’s investment philosophy, these factors do not help select worthy investments from an opportunity set of 2,500 investment candidates. Focusing on tracking the benchmark is not a recipe for great results, particularly in a global context.
On average, the Fund has just 60 holdings from this broad field. Being benchmark agnostic allows Davis to focus on identifying businesses they want to own, and provides a broader opportunity set in terms of geography, market cap and sector allocation.
Active share measures an investment strategy vis-a-vie its benchmark – the higher the active share, the less the strategy is like the benchmark. Not surprisingly, the Davis global equity strategy – and the Pan-Tribal Global Equity Fund – has an average of 90%+ active share.
As a result, the portfolio of the Pan-Tribal Global Equities Fund looks quite different to those of other global equity funds. Some funds focus on mega cap, some are more US-centric, while others either eschew or focus on developing markets.
In the 1980s it was a good idea to get exposure to a range of economies through investment in multi-nationals; it was this way that many investment managers were able to access China and other developing markets.
In today’s environment however, while some multinationals make good investments, it can be better to focus on key companies in specific markets; many of these are providing serious competition to the multinationals. Increasingly, local businesses with great brands, good management teams and strong operations are providing excellent investment opportunities. Focusing on mega cap businesses can be opportunity lost.
While these businesses might take more work to identify, Davis believes it is worth the effort find great ‘compounding machines’ in all corners of the globe.
