| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 0% | 22.02% |
| 2025 |
|---|
| 22.0% |
Davis Opportunity Fund returned 22.02% in 2025, significantly outperforming the S&P 1500 Index's 17.02% return. The fund advocates for active management over passive indexing given stretched valuations in major indexes, with the S&P 1500 trading at nearly 26 times forward earnings and showing extreme concentration reminiscent of the late 1990s bubble. The portfolio trades at a steep discount to the benchmark with a 14.3x forward P/E versus 25.6x for the index, while delivering superior 20.4% five-year earnings growth compared to the index's 18.3%. Key performance drivers included opportunistic healthcare investments in managed care insurers during cost pressures, select technology holdings including Magnificent 7 positions, and unique financial services exposure through Capital One Financial. The fund maintains positions across energy and commodities, reflecting electrification trends. Davis believes active management will prove its value in the coming period, advising clients to reduce passive index exposure and reallocate to actively managed portfolios given the likelihood of falling interest rates making cash suboptimal.
Davis Opportunity Fund offers active management as a solution to navigate today's market environment characterized by stretched passive index valuations and extreme concentration, providing selective security picking and rational diversification while trading at a steep discount to benchmarks despite superior earnings growth.
Davis believes they may be entering a period where active management proves its value over passive management, opposite to the recent decade. They advise decreasing exposure to stretched passive index valuations and reallocating to actively managed portfolios. With likely falling interest rates, they see surplus cash as suboptimal compared to well-chosen equities.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 26 2026 | 2025 Q4 | AMAT, AMZN, COF, CTRA, CVS, DGX, GOOGL, META, MKL, SOLV, TECK, UNH, USB, VTRS, WCC | active management, energy, financials, healthcare, Outperformance, selectivity, technology, valuation |
UNH COF WCC |
Davis Opportunity Fund delivered 22.02% returns in 2025, outperforming benchmarks through active management focused on healthcare recovery plays, select technology positions, and undervalued financials. Trading at 14.3x forward earnings versus 25.6x for the S&P 1500, the fund advocates reducing passive index exposure given stretched valuations and extreme concentration levels. |
| Jul 30 2025 | 2025 Q2 | AGCO, CI, COF, CVS, DGX, META, MKL, SOLV, TECK, TOU.TO, USB, VTRS, WCC | earnings, financials, growth, healthcare, industrials, technology, value | - | Davis Opportunity Fund delivered 9.50% returns in H1 2025 through concentrated value investing in 45 quality businesses trading at 13.2x forward P/E versus 22.5x for the benchmark. The portfolio emphasizes healthcare services, financials, technology, and industrials with superior earnings growth, positioned defensively amid macro uncertainties including higher rates, geopolitical tensions, and deglobalization trends. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIAI developments from major companies are causing rapid market changes and stock price declines for quality businesses. The market is reassessing AI's impact on software companies, with concerns about reduced seat-based pricing, lower pricing power, and competition from AI-first upstarts. Manager sees potential opportunities in the software wreckage but notes uncertainty about which solutions can be easily replaced. |
Software Disruption Pricing Competition Valuation |
SoftwareSoftware companies are experiencing significant declines as the market works to reassess AI impacts. Virtually everything software is being discarded until catalysts arise to disprove current beliefs. Manager identifies three vectors that could negatively affect valuations: fewer seats, lower pricing power, and reduced new customer bookings from AI-first competition. |
SaaS Valuation Competition Pricing Power AI Impact | |
Home ImprovementFloor & Decor represents an attractive opportunity following the Home Depot model to disrupt flooring retail. The company has higher inventory selection and lower prices than competitors, taking market share for years. Current EBIT margins are 30% below pre-COVID levels but should scale toward low-to-mid-teens as store base builds out. |
Retail Market Share Margins Store Growth Cyclical | |
| 2025 Q2 |
HealthcareThe portfolio focuses on dominant healthcare companies, predominantly healthcare services that are both cheap and underestimated. Holdings range over managed insurance, lab and diagnostics services, generic pharmaceuticals and medical supply businesses. As the population ages, aggregate healthcare spend in absolute terms will continue to climb over the coming decade. |
Managed Care Clinical Labs Generics Medical Devices Healthcare Services |
FinancialsThe portfolio includes durable financial services across credit cards and payments companies, global insurers and reinsurers, and various businesses driven by the capital markets including investment banks, trust and custody institutions. Representative holdings include Capital One Financial, Markel Group and U.S. Bancorp. |
Credit Cards Insurance Banks Capital Markets Payments | |
ValueThe fund seeks to purchase durable, well-managed businesses at value prices according to the Davis Investment Discipline. The portfolio has a forward P/E of less than 14x versus the S&P 1500's 22.5x, reflecting a conservative posture and margin of safety approach. |
Value Investing Margin of Safety Undervalued Conservative Discipline |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jan 26, 2026 | Fund Letters | Chris Davis | UNH | UnitedHealth Group Inc. | Health Care | Managed Health Care | Bull | New York Stock Exchange | Cost Normalization, Healthcare services, managed care, Margins, valuation | Login |
| Jan 26, 2026 | Fund Letters | Chris Davis | COF | Capital One Financial Corp. | Financials | Consumer Finance | Bull | New York Stock Exchange | AI, consumer finance, Deposits, earnings yield, rerating | Login |
| Jan 26, 2026 | Fund Letters | Chris Davis | WCC | Wesco International Inc. | Industrials | Electrical Components & Equipment Distribution | Bull | New York Stock Exchange | compounding, Distribution, Execution, Industrials, supply chain | Login |
| TICKER | COMMENTARY |
|---|---|
| AMAT | Top gainers in the Fund this quarter included Applied Materials (+26%). During the quarter, we trimmed the Fund's holding in Applied Materials as it rallied |
| AMZN | One company we own that we think has unique positioning to benefit from both the infrastructure and application layers is Amazon. Amazon's logistical prowess is one of the foremost moats in business today and it can and will be enhanced with AI. The company will do this in multiple ways, with better orchestration of its logistics assets and underlying cargo, as well as the buildout of more capable, sophisticated and robust robotics. Amazon is singularly well positioned to dominate the coordination layer, with AI's help, across its entire logistics network. |
| COF | We added to Capital One Financial Corporation, which was a core new addition in the prior quarter. |
| CTRA | Playing on the continued theme of infrastructure spending, defense and energy sustainability, Coterra added positively to performance |
| CVS | CVS Health represents 2.02% of top holdings |
| DGX | and in lab and diagnostics services (Quest Diagnostics). We see good value in these holdings based on the view that healthcare spend in the U.S. is likely to continue expanding, increasing the addressable market opportunity for our healthcare names. |
| GOOGL | In the third quarter, Google, Kairos Power, and the Tennessee Valley Authority announced a major collaboration centered on a novel power purchase agreement. Google followed this announcement with another significant step forward. On October 27, Google and NextEra Energy announced plans to restart the Duane Arnold Energy Center. |
| META | On January 9, Meta Platforms unveiled a new agreement with Vistra—the largest generator of competitive electricity in the United States—as well as with TerraPower and Oklo. The announcement builds on Meta's agreement last year with Constellation Energy and positions the company to become one of the largest corporate purchasers of nuclear-generated electricity in the United States. |
| MKL | MKL produced excellent results in its insurance and investment operations. The insurance segment delivered a 93% combined ratio while the equity portfolio benefited from the year-end market rally. MKL's disciplined capital allocation, including significant stock buybacks, boosted their book value per share growth. |
| SOLV | Medical products and health care IT services company Solventum was spun off from 3M in April 2024. We believe the company will likely show improved growth and margins as a standalone company, as the business has previously been challenged by years of underinvestment and market share losses. Solventum's new management team is focused on improving revenue growth, and we expect to see more fully optimized research and development and improved sales mix from new products moving forward. |
| TECK | Teck Resources and Anglo American announced a merger of equals that would create world's fifth-largest copper miner. Benefits include the ability to integrate Teck's Quebrada Blanca II with Anglo's neighbouring Collahuasi mine. |
| UNH | We also added back a full position in UnitedHealth |
| USB | Select holdings in banking (US Bank) detracted from returns |
| VTRS | Outside of managed care investments currently in the portfolio, we also own certain leaders in generic pharmaceuticals (Viatris) |
| WCC | Electrical products distributor WESCO International outperformed in Q4 after reporting solid Q3 results and raising 2025 guidance. Better-than-expected organic growth was driven by its rapidly expanding data center business, which reached nearly 20% of total revenue. |
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