Key Takeaways
- The world’s major regions continue to show significant differences at the macro level, with Europe growing at a sluggish pace and Asia-Pacific focused on China’s efforts to revive its economy.
- In general, our European and Asian companies are trading at very attractive valuations based on our research.
- Davis International ADR SMA portfolio performed strongly in 2024, driven by an array of individually selected businesses across multiple geographies.
- It supports our view that attractive opportunities can today be found across regions with vastly different dynamics and economic conditions.
Market Perspectives:
Beyond Indexing
The MSCI ACWI ex US (All Country World Index ex US) returned 5.53% in 2024, a rather modest result when compared with U.S. equities where the S&P 500 Index delivered double-digit returns in the period following on a strong 2023 as well.
That stated, the forward price-to-earnings (P/E) multiple for MSCI ACWI ex US is far lower than for the domestic U.S. universe the S&P 500 Index represents. We believe there are many attractive opportunities overseas both in terms of low valuations as well as relatively high growth rates.
In Europe, conditions have been sluggish by and large, prompting the European Central Bank to take a more aggressive stance in favor of lowering interest rates. The unemployment rate for Eurozone is approximately 6% and the annualized gross domestic product (GDP) growth rate is just under 1%. Inflation has fallen from its recent peaks but remains above the target rate at about 2.4% on the latest reading. We have been advising clients that selectivity and company-by-company research is key in Europe today.
Across the broad spectrum of the emerging markets, our interest has historically been mainly in Asia- Pacific. This super region has become the economic and population center of gravity for the world. It has faster economic growth (in China, India and Singapore, most notably), expanding consumer wealth and better demographics than Europe in particular. We believe the economic recovery of China, although slow in coming, remains in its early days and we expect an eventual resurgence of the country. This is likely to have knock-on effects on growth in the greater region.
In Asia-Pacific, select businesses that are engaged in food delivery, e-commerce, multi-line insurance and cross-border banking look particularly attractive to us at this time.
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. Equity markets are volatile and an investor may lose money. Past performance is not a guarantee of future results. Unless otherwise noted, all performance information is as of 12/31/24. The investment strategies described herein are those of Davis Advisors. These materials are being provided for illustrative and informational purposes only. The information contained herein is obtained from multiple sources that are believed to be reliable. However, such information has not been verified, and may be different from the information included in documents and materials created by the sponsor firm in whose investment program a client participates. Some sponsor firms may require that these Davis Advisors materials are preceded or accompanied by investment profiles or other documents or materials prepared by such sponsor firms, which will be provided upon a client’s request. For additional information, documents and/or materials, please speak to your Financial Advisor.
Portfolio Review:
Multi-Regional Opportunities
Davis International ADR SMA portfolio represents our highest-conviction investment ideas from outside the U.S. What makes it distinct is the selectivity we apply in our process, the low valuations currently represented in the portfolio, and the earnings growth potential of the businesses we own.
As an illustration, below we present the comparative number of holdings, price-to-earnings ratios, and fiveyear earnings per share growth rates for the portfolio versus its benchmark, MSCI ACWI ex US.
Selective, Attractive Growth, Undervalued1
| Portfolio | Index | |
| Holdings | 22 | 2,058 |
| EPS Growth (5 year) | 18.7% | 12.3% |
| P/E (Forward) | 8.4x | 14.7x |
Davis International ADR SMA strategy outperformed its benchmark by a wide margin in 2024. Our performance was driven by a broad array of individually selected businesses across multiple geographies, including Europe and Asia. This illustrates our belief that attractive opportunities can be found across regions with vastly different economic dynamics and conditions today.
Last year’s results also speak to the merits of investing on the basis of company-by-company analysis rather than investing solely through broad stock indices. Given our flexibility to choose where and how we believe we can add value at the individual company level, we have constructed a rather unique portfolio which includes: very large financial and technology-related companies; app-based food delivery businesses in Asia-Pacific and in continental Europe; fast-growing e-commerce companies in South Korea, Singapore and China; very well-capitalized banks that are dominant in their home countries such as Denmark, Switzerland and Singapore; and tech-forward holding companies in Europe and South Africa with interests in fintech, app-based food delivery, classified advertising on the Internet, and video gaming, respectively.
To give an idea of the quality of companies we own, representative holdings in the portfolio include the multi-line insurer AIA Group of Hong Kong, Coupang of South Korea (e-commerce), the Japanese semiconductor manufacturing equipment company Tokyo Electron, and the Swiss private bank Julius Baer. During the fourth quarter of 2024 we initiated a position in NetEase, a Chinese video gaming company, and sold our position in Alibaba to redeploy that capital into other names.
Outlook:
Appropriate Balance
The international stock market is really an immense market of individual stocks. Selectivity has always been a key characteristic of our portfolio and our strategy but its importance has risen given the broad regional uncertainties of today.
Overall, we are very comfortable with the businesses we own in Davis International ADR SMA portfolio, and believe that the portfolio overall represents an appropriate balance between low valuations and relatively attractive potential earnings growth looking ahead.
For more than 50 years we have navigated a constantly changing investment landscape guided by one North Star: to grow the value of the funds entrusted to us. We are pleased to have achieved strong results thus far and look forward to the decades ahead. With more than $2 billion of our own money invested in our portfolios, we stand shoulder to shoulder with our clients on this long journey.2 We are grateful for your trust and are well-positioned for the future.
Five-year EPS Growth Rate (5-year EPS) is the average annualized earnings per share growth for a company over the past 5 years. The values shown are the weighted average of the 5-year EPS of the stocks in the Portfolio or Index. Approximately 17.60% of the assets of the Portfolio are not accounted for in the calculation of 5-year EPS as relevant information on certain companies is not available to the Advisors’ data provider. Forward Price/Earnings (Forward P/E) Ratio is a stock’s price at the date indicated divided by the company’s forecasted earnings for the following 12 months based on estimates provided by the Fund’s data provider. These values for both the Fund and the Index are the weighted average of the stocks in the portfolio or Index.
As of 12/31/24, Davis Advisors, the Davis family and Foundation, and our employees have more than $2 billion invested alongside clients in similarly managed accounts and strategies.
This material may be shared with existing and potential clients to provide information concerning market conditions and the investment strategies and techniques used by Davis Advisors to manage its client accounts. Please refer to Davis Advisors Form ADV Part 2 for more information regarding investment strategies, risks, fees, and expenses. Clients should also review other relevant material, including a schedule of investments listing securities held in their account.
*As of 12/31/24. Includes Davis Advisors, Davis family and Foundation, and our employees. †The Attractive Growth and Undervalued reference in this piece relates to underlying characteristics of the portfolio holdings. There is no guarantee that the Portfolio’s performance will be positive as equity markets are volatile and an investor may lose money. Past performance is not a guarantee of future returns. Five-Year EPS Growth Rate is the average annualized earning per share growth for a company over the past five years. The value for the portfolio is the weighted average of the five-year EPS Growth Rates of the stocks in the portfolio. Approximately 17.60% of the assets of the Portfolio are not accounted for in the calculation of 5-year EPS as relevant information on certain companies is not available to the Portfolio’s data provider. The 5-year EPS of the MSCI ACWI ex US is 12.3%. Forward Price/Earnings (Forward P/E) Ratio is a stock’s price at the date indicated divided by the company’s forecasted earnings for the following 12 months based on estimates provided by the Advisor’s data provider. These values for both the Portfolio and the Index are the weighted average of the stocks in the Portfolio or Index. The Forward P/E of the MSCI ACWI ex US is 14.7x. ‡For information purposes only. Not a recommendation to buy or sell any security. **Sources: Davis Advisors and Wilshire Atlas
The investment strategies described herein are those of Davis Advisors. These materials are being provided for illustrative and informational purposes only. The information contained herein is obtained from multiple sources that are believed to be reliable. However, such information has not been verified, and may be different from the information included in documents and materials created by the sponsor firm in whose investment program a client participates. Some sponsor firms may require that these materials are preceded or accompanied by investment profiles or other documents or materials prepared by such sponsor firms, which will be provided upon a client’s request. For additional information, documents and/or materials, please speak to your Financial Advisor.
The performance of mutual funds is included in the Composite. The performance of the mutual funds and other Davis managed accounts may be materially different. For example, the Davis International Fund may be significantly larger than another Davis managed account and may be managed with a view toward different client needs and considerations. The differences that may affect investment performance include, but are not limited to: the timing of cash deposits and withdrawals, the possibility that Davis Advisors may not buy or sell a given security on behalf of all clients pursuing similar strategies, the price and timing differences when buying or selling securities, the size of the account, the differences in expenses and other fees, and the clients pursuing similar investment strategies but imposing different investment restrictions. This is not a solicitation to invest in the Davis International Fund or any other fund.
Effective 9/23/14, Davis Advisors created an International Equity SMA Composite which excludes the institutional accounts and mutual funds. Performance shown from 10/1/14, through the date of this material, the Davis Advisors’ International Equity SMA Composite includes all eligible wrap accounts with no account minimum from inception date for the first full month of account management and includes closed accounts through the last day of the month prior to the account’s closing.
A time-weighted internal rate of return formula is used to calculate performance for the accounts included in the Composite. The net of fees rate of return formula is calculated based on a hypothetical 3% maximum wrap fee charged by the wrap account sponsor for all account services. For the gross performance results, custodian fees and advisory fees are treated as cash withdrawals.
Davis Advisors is committed to communicating with our investment partners as candidly as possible because we believe our clients 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 material. 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.
This material discusses companies in conformance with Rule 206(4)-1 of the Investment Advisers Act of 1940 and guidance published thereunder. Six companies are discussed and are chosen as follows: (1–4) current holdings based on December 31 holdings; (5) the first new position; and (6) the first position that is completely closed out. Starting at the beginning of the year, the holdings from an International Companies model portfolio are listed in descending order based on percentage owned. Companies that reflect different weights are then selected. For the first quarter, holdings numbered 1, 6, 11, and 16 are selected and discussed. For the second quarter, holdings numbered 2, 7, 12, and 17 are selected and discussed. This pattern then repeats itself for the following quarters. If a holding is no longer in the portfolio then the next holding listed is discussed. Each of these holdings must come from a different country. None of these holdings can be discussed if they were discussed in the previous three quarters. If there were no purchases or sales, the purchases and sales are omitted from the material. If there were multiple purchases and/or sales, the purchase and sale discussed shall be the earliest to occur. Other than the recent buy and sell, any company discussed must constitute at least 1% of the portfolio as of December 31.
The information provided in this material does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to buy or sell any particular security. There is no assurance that any of the securities discussed herein will remain in an account at the time this material is received or that securities sold have not been repurchased. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of any account’s portfolio holdings. It should not be assumed that any of the securities discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. It is possible that a security was profitable over the previous five-year period of time but was not profitable over the last year. In order to determine if a certain security added value to a specific portfolio, it is important to take into consideration at what time that security was added to that specific portfolio. A complete listing of all securities purchased or sold in an account, including the date and execution prices, is available upon request.
The investment objective of a Davis International Equity account is long-term growth of capital. There can be no assurance that Davis will achieve its objective. Davis Advisors uses the Davis Investment Discipline to invest a client’s portfolio principally in common stocks (including indirect holdings of common stock through depositary receipts) issued by foreign companies, including countries with developed or emerging markets. The international companies strategy may invest in large, medium, or small companies without regard to market capitalization. The principal risks are: China risk, common stock risk, depositary receipts risk, emerging markets risk, exposure to industry or sector risk, fees and expenses risk, foreign country risk, foreign currency risk, headline risk, large-capitalization companies risk, manager risk, mid- and small-capitalization companies risk, and stock market risk. See the ADV Part 2 for a description of these principal risks.
We gather our index data from a combination of reputable sources, including, but not limited to, Wilshire, Lipper, and index websites.
The MSCI ACWI (All Country World Index) ex US is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States. The index includes reinvestment of dividends, net of foreign withholding taxes. The S&P 500 Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The index is adjusted for dividends, weighted towards stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. Investments cannot be made directly in an index.
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International ADR SMA Portfolio
Winter Update 2025