Core Insights - The U.S. stock market achieved its third consecutive year of double-digit returns in 2025, primarily driven by technology stocks, but is currently trading at high valuations and extreme concentration levels [4][9] - The Davis Opportunity Fund (DOF) outperformed the S&P 1500 Index with a return of +22.02% compared to the index's +17.02% in 2025, indicating strong performance driven by selective investment choices [8][9] - Active management is recommended in the current market environment to navigate high valuations and to capitalize on opportunities in well-chosen equities [5][19] Market Performance - The S&P 1500 Index is trading at a forward price-to-earnings (P/E) multiple of nearly 26 times, indicating high valuation levels [4] - The index is more concentrated than it has been in nearly three decades, with a significant portion of its value tied to a few megacap technology companies [4] Investment Strategy - The company advocates for a shift from passive index exposure to actively managed equity portfolios, emphasizing the importance of selective security choices and rational diversification [5][19] - The portfolio of DOF consists of 47 holdings compared to the S&P 1500 Index's 1,506, with a forward P/E ratio of 14.3x, significantly lower than the index's 25.6x [10] Sector Focus - The fund's investments include healthcare services, technology shares, and financial services, with a focus on companies that exhibit financial strength and competitive advantages [11][12][14] - Key holdings in healthcare include UnitedHealth, Viatris, and Quest Diagnostics, which are expected to benefit from the expanding U.S. healthcare market [12][13] Technology Investments - The fund holds positions in major technology companies such as Meta Platforms, Alphabet, and Amazon, while also investing in semiconductor firms like Applied Materials that offer strong value [14] - The strategy includes trimming positions in the "Magnificent 7" based on valuation considerations [14][22] Financial Sector - Capital One Financial is highlighted as a core holding, trading at a forward P/E of 13-14x, which is attractive compared to many technology firms [15][16] - The company is noted for its strong consumer finance division and significant AI-related patents, positioning it for future growth [16] Unique Opportunities - The portfolio includes special situations like Wesco International, which has outperformed the benchmark due to strong business fundamentals [17] - Investments in energy and commodities, such as Coterra and Teck Resources, reflect a strategic interest in sectors critical to electrification trends [18] Future Outlook - The company believes that the current market environment presents opportunities for active management to outperform passive strategies, especially given the valuation bubble in major indexes [19] - There is a call to reconsider surplus cash allocations in light of potential falling interest rates and the attractiveness of equities [19]

Core Insights - The exchange-traded fund (ETF) industry is experiencing a record year, with assets surpassing $1 trillion, largely driven by active managers [1][2] - Active ETFs represent 80% of year-to-date launches, with assets under management increasing by 38%, compared to a 6% growth for passive ETFs [2] - BlackRock anticipates continued growth in the ETF market through 2026, emphasizing the importance of active management in navigating market volatility [3][4] Industry Growth - Active ETFs are leading innovation and inflows in the ETF market, confirming trends observed over the past several years [1] - The balance of new ETF launches includes both fixed income and equities, indicating a diverse investment landscape [2] - Average assets under management for funds aged two to three years are approximately $120 million, while newer funds average around $40 million [2] Market Outlook - BlackRock's U.S. head of equity ETFs expresses optimism for the ETF market, highlighting the potential for active management to enhance investor returns amid market dispersion [4]

Group 1 - The Schwab U.S. Broad Market ETF (SCHB) is a diversified, low-cost, passively managed exchange-traded fund that provides broad US equity exposure across small-, mid-, and large-cap companies [1] - The ETF has a low expense ratio of 3 basis points (bps) and offers a modest payout [1] - The investment strategy considers the entire investment ecosystem rather than evaluating a company in isolation [1]

Core Insights - A significant majority of workplace plan sponsors, 80%, believe that active management can consistently outperform the market, while 86% agree that actively managed target date funds can mitigate volatility for participants [1][5] - Despite the optimism from plan sponsors, advisors express skepticism regarding the long-term effectiveness of active management, citing that it rarely delivers sustainable outperformance [3][4] Group 1: Active Management Perception - BlackRock's research indicates that active management is perceived as a valuable approach for uncovering value, managing risk, and adapting to market changes, although these benefits are not consistently realized for retirement investors [2][4] - A survey of 1,300 plan participants revealed that 80% are interested in using actively managed funds for their retirement savings, indicating a strong demand for such products despite the skepticism from advisors [5] Group 2: Performance Data - In 2024, 65% of actively managed large-cap U.S. equity funds underperformed the S&P 500, and this figure increases to 84% over a 10-year period, highlighting the challenges of achieving consistent outperformance in public markets [4] - The SPIVA U.S. Scorecard shows that after fees, at least 80% of equity funds and over half of fixed-income funds lagged their benchmarks over the 10-year period ending December 31, 2024 [5] Group 3: Cost Considerations - Advisors emphasize that investors often lack a clear understanding of active products, which typically come with higher costs that can erode long-term returns [6] - The irony noted by advisors is that in attempting to protect participants from market volatility, plan sponsors may inadvertently implement strategies that result in lower retirement savings [6]