DFUS - DUSA: High Cost High Conviction Research Practices Lead To Mixed Results

2024-07-10 14:10:56 ET

Summary

• 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 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.

Investment Thesis

This article initiates my coverage of the Davis U.S. Select ETF ( 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. ...

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