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Davis Global Fund DGF ANNUAL REVIEW 2021 Davis Global Fund Update from Portfolio Manager Danton Goei The Equity Specialists DGF | ANNUAL REVIEW [ 1 ] Davis Global Fund Annual Review 2021 Please provide an update on the long-term We also learned that while the novel virus was performance and more recent results for Davis highly transmissible, exacerbated by asymptomatic Global Fund. Discuss the current positioning: carriers, the mortality rate was lower than initially feared. As overwhelmed hospitals recovered, record For the year 2020, Davis Global Fund returned high unemployment levels fell, and the Federal 23.06%, compared with a 16.25% return for Reserve further eased monetary policy, equity the MSCI ACWI (All Country World Index), an markets recovered, looking ahead to the end of outperformance of 6.81%. In the first half of 2020, Davis Global Fund returned −4.87%, though it still the pandemic. outperformed the index by 1.38%. This weak market The beginning of the end was on November 9, environment in the first half was followed by a very when Pfizer and its partner, German biotech firm strong rebound in the second half, when the Fund returned 29.36% for the six months, compared to BioNTech, announced the results of their Phase 3 the market return of 24.01%. interim analysis, showing vaccine efficacy of over 90%. This stunning level of efficacy, achieved in less In the first half of 2020, the rapid spread of than 10 months after the genetic sequence of the the COVID-19 pandemic led to a wide range of novel virus was first shared globally on January 11, reasonable disaster scenario forecasts, given the was astounding. It was particularly impressive novel nature of the SARS-CoV-2 virus. Included in given the Pfizer/BioNTech vaccine will be the first this range of outcomes was a replay of the Great ever approved using the messenger RNA (mRNA) Influenza Pandemic of 1918, when an estimated approach. The Pfizer vaccine was approved for 2% of the world population perished. A similar 2% emergency use by the U.S. FDA on December 11, death rate would have resulted in a devastating toll and a similar mRNA vaccine by Moderna was of 150 million casualties today. However, as spring approved on December 18. As colder winter turned into summer in the Northern Hemisphere, weather exacerbates the spread of a second wave countries in Asia, Europe and North America of the pandemic across many regions, including were able, through a mix of lockdowns, social North America and Europe, it is clear that over the distancing and wearing masks, to significantly coming months, challenges remain; nonetheless, it lower transmission rates. also appears that the end of the pandemic is in sight. The average annual total returns for Davis Global Fund’s Class A shares for periods ending December 31, 2020, including a maximum 4.75% sales charge, are: 1 year, 17.22%; 5 years, 12.43%; and 10 years, 9.76%. The performance presented represents past performance and is not a guarantee of future results. Total return assumes reinvestment of dividends and capital gain distributions. Investment return and principal value will vary so that, when redeemed, an investor’s shares may be worth more or less than their original cost. The Fund is subject to a 2% short-term redemption fee for shares held for fewer than 30 days. The total annual operating expense ratio for Class A shares as of the most recent prospectus was 0.98%. The total annual operating expense ratio may vary in future years. Returns and expenses for other classes of shares will vary. Current performance may be higher or lower than the performance quoted. For most recent month-end performance, visit davisfunds.com or call 800-279-0279. The Fund’s performance benefited from IPO purchases in 2013 and 2014. After purchase, the IPOs rapidly increased in value. Davis Advisors purchases shares intending to benefit from long-term growth of the underlying company; the rapid appreciation of the IPOs were unusual occurrences. The Fund recently experienced significant negative short-term performance due to market volatility associated with the COVID-19 pandemic. This report 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. All fund performance discussions within this piece refer to Class A shares without a sales charge and are as of 12/31/20 unless otherwise noted. This is not a recommendation to buy, sell or hold any specific security. Past performance is not a guarantee of future results. DGF | ANNUAL REVIEW [ 1 ] Among the drivers of outperformance were U.S. vehicles and renewable energy will also decrease Internet companies such as Amazon.com, Alphabet demand for fossil fuels. As a result, we sold out of and Facebook that benefited from the stay-at-home our three energy positions in 2020. During 2020, behavior of consumers during the pandemic, which we were instead adding to other sectors that also accelerated already long-standing trends of the were trading at low valuations, such as financials growth in the share of e-commerce, online video and and industrials, but where we had stronger online communications. Resilient cyclicals such as conviction that the long-term health of their Carrier Global, Applied Materials and Ferguson have businesses was strong. since rebounded, while at first negatively impacted by the recession, as U.S. GDP fell by 9% year-over- year in the second quarter of 2020, and some even Please provide your current perspective on have benefited from certain aspects of the pandemic global markets during COVID-19: world. Carrier, the leader in heating and ventilation The year 2020 has been a difficult year in the systems, for example, has seen demand for home and workplace air filters rise, while Ferguson, the United States like for much of the world. The over leading distributor of plumbing and heating products, 20 million U.S. confirmed infections and 350,000 has benefited from strong residential demand as deaths from the COVID-19 pandemic have been the people spend more time at home. Finally, holdings largest health crisis in over a century. The economic in China, which predominantly focus on the Chinese disruption has also been significant, as U.S. GDP in consumer such as JD.com, Meituan and New 2020 is forecast to fall by 3.6% and unemployment Oriental Education & Tech, had strong results as they peaked in April at the highest level since the Great too experienced increased demand for food delivery, Depression at 14.7%. Large corporation earnings e-commerce and online education, coupled with the were heavily impacted, as S&P 500 Index earnings strength of the Chinese economic rebound, as virus for 2020 are expected to drop by 14%, and small- transmission was largely brought under control. and medium-sized businesses have been especially hard hit, with an excess of 100,000 businesses Detractors to performance relative to the index permanently closed. include financial services holdings such as Wells Fargo, Bank of Butterfield and Metro Bank. While So why, might one ask, did the S&P 500 Index return banks in general have suffered due to the recession 18.40% in 2020? The two “Feds”—the Federal and experienced credit losses, Wells Fargo and Reserve and the Federal government—were key Metro Bank have also suffered from operational reasons why asset prices, including equity values, missteps. It is our expectation, however, that our were boosted in 2020. Since March, the Federal bank holdings in general will benefit from stronger Reserve has cut the Federal funds rate by 150 bps to economic growth as the pandemic recedes; and we believe Wells Fargo and Metro Bank, in particular, a range of 0% to 0.25%—basically near zero. The will, over time, lower their costs and successfully Fed also resumed purchasing a massive amount grow their businesses. Energy holdings in Ovintiv, of securities, including Treasuries and mortgage- Seven Generations and Apache also experienced backed securities, a tool known as quantitative detracted performance, as oil demand collapsed due easing, to improve market liquidity and further to the pandemic. With approximately 70% of oil lower interest rates. From mid-March to year- demand used for transportation, the decline in miles end, the Fed’s portfolio of securities owned grew driven (i.e., U.S. miles driven are down 11% in 2020) from $3.9 trillion to $6.6 trillion, up $2.7 trillion. In and the far bigger 60-70% decline in global air addition to lowering the Fed funds rate and pursuing passenger traffic led to a dramatic drop in oil prices. quantitative easing, the Fed undertook a number of programs to support the smooth functioning of It is our expectation that oil demand will remain capital markets and the banking system. weak for the foreseeable future, as flying and driving slowly recover, and that over the long term, electric [ 2 ] DGF | ANNUAL REVIEW The Federal government, led by Congress and Though the S&P 500 Index was up 18.40% in 2020, the President, also responded from mid-March to returns have been very unevenly distributed. For mid-April by passing four coronavirus relief bills example, the S&P 500 Growth Index has returned providing $3 trillion in fiscal stimulus to individuals, 33.47% year-to-date, compared to a 1.36% return small and large businesses, hospitals, and state and for the S&P 500 Value Index, yielding a 32.11% local governments and to fund testing.
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