DUSA: High Cost, High Conviction Research Practices Lead To Mixed Results

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DUSA is a high cost, high conviction ETF benchmarked against the S&P 500 Index. It has a 0.61% expense ratio and $521 million in assets under management.Recent results for active large-cap blend funds...

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It has a 0.61% expense ratio and $521 million in assets under management.Recent results for active large-cap blend funds...</p>\n\n<a href=\"https://seekingalpha.com/article/4703387-dusa-high-cost-high-conviction-research-practices-lead-to-mixed-results\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>DUSA: High Cost, High Conviction Research Practices Lead To Mixed Results</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDUSA: High Cost, High Conviction Research Practices Lead To Mixed Results\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-11 02:10 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4703387-dusa-high-cost-high-conviction-research-practices-lead-to-mixed-results><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>DUSA is a high cost, high conviction ETF benchmarked against the S&P 500 Index. It has a 0.61% expense ratio and $521 million in assets under management.Recent results for active large-cap blend funds...</p>\n\n<a href=\"https://seekingalpha.com/article/4703387-dusa-high-cost-high-conviction-research-practices-lead-to-mixed-results\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4533","symbol_name":"AQR资本管理(全球第二大对冲基金)","start_time":0,"source_url":"https://seekingalpha.com/article/4703387-dusa-high-cost-high-conviction-research-practices-lead-to-mixed-results","article_id":"2450721841","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1406660473/image_1406660473.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2450721841","pubTimestamp":1720635056,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"DUSA is a high cost, high conviction ETF benchmarked against the S&P 500 Index. 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It has a 0.61% expense ratio and $521 million in assets under management.Recent results for active large-cap blend funds are encouraging, but for the most part, active funds have lagged passive funds over the last five years. DUSA is no different.Despite emphasizing how different DUSA is compared to broad market funds like SPY, ironically, its recent success is because it's overweighted mega-caps like Meta Platforms, Amazon, and Alphabet.Based on interview transcripts with the firm's National Director and historical portfolio turnover rates, I'm not convinced DUSA will pivot when market conditions warrant. DUSA has 37% allocated to Financials.I've assigned DUSA a \"sell\" rating and recommend readers avoid it. This article also includes performance statistics for 30 large-cap blend ETFs and a fundamental analysis comparing DUSA with SPY and three other actively managed peers.   AlexSava/iStock via Getty ImagesInvestment Thesis This article initiates my coverage of the Davis U.S. Select ETF (BATS:DUSA), an actively managed fund focused on 25-30 companies with attractive valuations, strong financial strength, long-term competitive advantages, and superior management. While designed to compete with Index funds in the large-cap blend category, DUSA has only outperformed the SPDR S&P 500 ETF (SPY) once over the last seven years, doing little to justify its 0.61% expense ratio, which is among the top 20% highest in its category.   Portfolio VisualizerThis article's purpose is to determine why. Below, I'll highlight DUSA's strengths and weaknesses against SPY and three actively managed peers I believe are superior. While I don't recommend DUSA, I still hope readers can use the information in this article to select the right ETFs based on objective, fundamental statistics. I hope you enjoy the read. DUSA Overview Strategy Discussion I first learned about DUSA after listening to Seeking Alpha's Jonathan Liss interview with Dodd Kittsley, National Director at Davis Advisors, in January 2021. Along with reading the fund's methodology document, I have five takeaways for readers: 1. DUSA is a high-conviction fund, typically holding only about 25-30 stocks at a time. Still, there is some turnover, which Kittsley estimates should be about 20-30% per year. According to the fund's latest annual report, actual portfolio turnover was between 12-24% for the fiscal years ending October 31, 2019, and 2023. 2. The approach to buying and selling securities is the same: the research team evaluates a company's financial strength, competitive advantages, and management strength, looking for stocks that meet these criteria and trading at attractive valuations based on owner earnings. 3. Stock screeners are only a small part of the research process, which is often done over several quarters or years. The team conducts \"boots on the ground\" research, which involves interviewing the management team, their customers, and generally assessing how well they run their business. 4. Research is nearly entirely bottom-up driven, with little attention given to current macroeconomic conditions. It's also not constrained to a particular style, like growth or value. 5. DUSA is \"benchmark agnostic,\" though the S&P 500 Index is the benchmark stated on its fact sheet. During the podcast, Kittsley emphasized that DUSA is not a closet index fund and indicated its composition is far different from what you might find elsewhere. DUSA Performance Analysis DUSA's 0.61% expense ratio is relatively low for an actively managed fund. Of the ones I track in the large-cap blend category, it ranks #19/87 but only #204/252 overall. Everything is relative, and most investors won't screen out the lower-cost passive alternatives because active managers have yet to prove themselves as a group. To illustrate, consider the following average trailing active vs. passive returns for the month ending June 2024:  3 Months: 12.58% vs. 11.78% 1 Year: 21.20% vs. 20.70% 3 Years: 22.87% vs. 23.81% 5 Years: 76.88% vs. 82.87%  While recent results are encouraging, the 13 active funds I track averaged only a 76.88% total return over the last five years compared to 82.87% for the 119 passive fund sample. The active sample size is small, but that's also the point. There are now 87 active funds charging high fees with limited track records, and investors should be skeptical. Next, please consider the following table of periodic returns for 30 large-cap blend ETFs through June 2024, including DUSA and SPY. I've also mixed in some active funds like the Fidelity Enhanced Large Cap Core ETF (FELC), the Dimensional U.S. Equity ETF (DFUS), and the SGI U.S. Large Cap Core ETF (SGLC). The subsequent fundamental analysis compares all five funds to help illustrate DUSA's strengths and weaknesses.   The Sunday InvestorWhile this is only a sample of the 252 large-cap blend ETFs I track, it's a crowded field, and the most popular passive funds have outperformed DUSA over the last seven years. DUSA's 114.95% total return between July 2017 and June 2024 pales in comparison to SPY's 153.16% gain. It's also lagged DFUS by 8.17% over the last three years (21.85% vs. 30.02%), but notably, it's turned things around over the previous year. DUSA's 31.05% return from July 2023 to June 2024 ranked #13/232, with mega-cap and momentum funds also performing well. DUSA Analysis Composition By Company, Sector One of the fund's objectives is to be \"different\" than Index ETFs, perhaps to justify its expense ratio. Based on the table below of the fund's holdings, DUSA succeeds. There are only 26 holdings, and they account for just 16.50% of the weight in SPY.   The Sunday InvestorMeta Platforms (META), Berkshire Hathaway (BRK.B), Capital One Financial (COF), Amazon (AMZN), and Alphabet (GOOGL) (GOOG) are among their highest-conviction plays, with the combined allocation totaling 34.57%. Along with JPMorgan Chase (JPM), these stocks represent the extent of the fund's overlap with SPY. From a sector allocation perspective, the high-conviction approach is even more evident. DUSA has virtually no exposure to Consumer Staples, Energy, Real Estate, and Utilities but 37.05% to Financials.   The Sunday InvestorThe Financial Select Sector SPDR ETF (XLF) ranked #3/11 among large-cap sector ETFs over the last year, gaining 24.04% between July 2023 and June 2024. However, its 64.79% five-year return ranked only #7/11, so these results might explain DUSA's recent success and long-term mediocrity. Ignoring macroeconomic conditions struck me as an odd and even reckless investment strategy because when a sector is out of favor, it's very difficult to pick the handful of stocks in that sector that will succeed. Davis Advisors seem to believe they can, and I'm concerned with how quickly the team will adapt should, say, the Financial sector fall out of favor. A 15-30% turnover rate might be insufficient. DUSA Fundamental Analysis The following table highlights selected fundamental metrics for DUSA's top 25 holdings, totaling 99.93% of the portfolio. I've also included summary metrics for FELC, DFUS, SGLC, and SPY at the bottom.   The Sunday InvestorHere are five additional observations: 1. DUSA has a 1.13 five-year beta, indicating greater volatility than the broader market. It's part of a pattern, as DUSA's annualized standard deviation since February 2017 was 19.00% compared to 16.45% for SPY. Risk-adjusted returns (Sharpe and Sortino Ratios) were inferior, and notably, DUSA's 28.72% drawdown from June 2021 to September 2022 was larger.   Portfolio Visualizer2. The portfolio mix is unusual but consistent with what Kittsley noted in the podcast interview. Several high P/E stocks like Meta Platforms accompany low P/E stocks in the Financial sector. The net result is an attractive 20.11x forward earnings valuation, or 14.75x, using the harmonic weighted average method used by sites like Morningstar.   MorningstarOn its surface, DUSA is heavily discounted, but that's not surprising because it overweights the Financial sector, which is known for its low valuations. Still, DUSA has a sector-adjusted 3.59/10 value score, which I derived from individual Seeking Alpha Factor Grades. That's #26/252 among the large-cap blend ETFs I track and #90/428 among all large-cap ETFs (value, blend, growth). Therefore, I'm satisfied that DUSA does well in this regard. 3. DUSA has a 10.33% weighted average estimated one-year earnings per share growth rate, which is a few percentage points less than its peers and commensurate with its cheaper valuation. Still, the difference between its selections' three-year annualized EPS growth rate and one-year estimates is stark, driven by Health Care stocks like Humana (HUM), Cigna (CI), and Quest Diagnostics (DGX). In my experience, it's better to give weight to both historical- and forward-looking statistics, so I'm concerned Davis' research team is too overconfident, which might also explain past results. 4. Meta Platforms is responsible for a large chunk of the fund's recent success. According to the latest semi-annual report for the six months ending April 2024, the stock had an average 16% weighting and was the most significant contributor to performance, not surprisingly, given its 82.19% one-year price return. Amazon and Alphabet were also large contributors, so despite DUSA wanting to be different from Index funds like SPY, it's done well because it didn't ignore the market's most influential stocks. It's ironic, but I view highly-profitable mega-caps as essential holdings. You can tinker with the weights, but avoiding them is not the answer. At this point, it's fair to question if DUSA's 0.61% expense ratio is justified. Since you can access these mega-caps through Index funds and pay as low as 0.03% (SPLG, IVV, VOO), DUSA charges for other stocks that haven't contributed positively to performance. Further, you aren't even getting any diversification benefits from the strategy. DUSA's diversification rank, which I calculate based on sub-industry concentration levels, is #247/252 in the large-cap blend category. 5. You'll notice that FELC, DFUS, and SGLC have higher valuation ratios and higher growth rates. Taken together, you may view their value and growth combination negatively compared to DUSA. However, please note these ETFs:  Are better diversified than DUSA, with 46-72% of assets allocated to their top 25 holdings. This feature increases the chance of more consistent returns, a problem that's negatively impacted DUSA. Are at least as profitable as DUSA, based on their sector-adjusted profit scores. Have similar three-year trailing and one-year estimated earnings per share growth rates, further promoting stability in returns.  Investment Recommendation  DUSA's recent results are encouraging, but I'm concerned the team is too focused on bottom-up research and ignores the macroeconomic environment. I also think the team is overconfident and is unlikely to pivot quickly enough when presented with new information. Finally, DUSA's 0.61% expense ratio is too high, and the \"other\" stocks not overweighted in low-cost Index funds have not contributed positively to the portfolio's returns. As a result, I recommend readers avoid DUSA, and I have assigned it a \"sell\" rating.\" Thank you for reading, and I look forward to your comments below.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2450721841"}