Davis Opportunity Fund
Update from Portfolio Managers
Annual Review 2022

Market Perspectives
The Fund has prospered because of its reliance on the resiliency and strength of bottom-line fundamentals, represented by holdings in financial services, technology, communication services, industrials and healthcare companies.

For the year ended December 31, 2021, Davis Opportunity Fund delivered a return of 24.96%, reflecting real progress in the underlying business fundamentals across most of our holdings.

The Fund is positioned to capitalize on business opportunities that span a wide array of industries. Financial services, technology, communication services, industrials and healthcare companies make up the vast majority of our holdings and the largest aggregate percentage weights.

Within financial services, we have emphasized resiliency and strength of bottom-line fundamentals in our holdings. These businesses, comprised primarily of well-capitalized banks (in the U.S. and in select foreign jurisdictions), have durable economics, according to our research and analysis, in terms of current demonstrated earnings power, margin structures and forward-looking prospects.

The absolute level of revenues and profits generated by such companies is in fact so large that most of the major financial holdings in the portfolio produce enough annual operating income individually that a number of them could, in theory, purchase several entire businesses among hundreds of choices within the S&P 1500 Index, using just a year’s cash earnings without dipping into capital. This is theoretical, as financial companies would not be in the business of buying healthcare or technology companies, for example, but we point out these facts to illustrate the sheer scale of the economics produced by single financial companies in a given year, which is often a multiple of the cash earnings yielded by companies in a host of other industries.

Given this cash-generation power, we are naturally drawn to what we believe are strong and profitable financial institutions when the price is right. Presently, we believe the valuations of our financial holdings are not only reasonable, but extremely compelling, and our portfolio composition reflects this view. Representative financial holdings in the Fund include Wells Fargo and Capital One Financial.

Within technology and communication services, we own a number of online businesses and semiconductor related companies, including Alphabet, Amazon, Intel, Applied Materials and Texas Instruments. Within the realm of high technology, we believe that leadership positions reflect enduring and widening competitive advantages over smaller competitors, with few exceptions. This is because online businesses, as well as semiconductor companies, benefit from economies of scale. An online search and advertising engine will, in general, be more profitable per unit of cost as it grows larger in terms of users and advertising dollars. It is a hub-and-spoke model, in other words, where it is generally not necessary to grow expenses at the same rate that revenues grow beyond a certain threshold. Therefore, returns on capital tend to be higher, the larger and more dominant the online search company is.

Healthcare is included in the portfolio both for company-specific reasons, as well as big picture trends. At the company level, we hold select companies in pharmaceuticals, healthcare services and health insurance at attractive valuations. This is at a time when the average age of the U.S. population is fast approaching 40, older than Asia-Pacific and a little younger than the aged populations of Europe and Japan. The number of seniors in the U.S.—i.e., 65 years or older—now surpasses 54 million, or about 15% of the population. Seniors, on average, take a much greater number of medications and account for a large and disproportionate share of healthcare spending, and we expect that trend to continue due to both raw demographics and a proliferation in the number of available treatments and services available now, the latter being driven by innovation and investment in the healthcare industry. Representative holdings in the Fund include Cigna, United Health Group, Viatris and Quest Diagnostics.

The portfolio is rounded out by a number of other industries with the common thread being the attractiveness of individual businesses.

The average annual total returns for Davis Opportunity Fund’s Class A shares for periods ending December 31, 2021, including a maximum 4.75% sales charge, are: 1 year, 19.02%; 5 years, 12.40%; and 10 years, 14.00%. 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. For most recent month-end performance, click here or call 800-279-0279. Current performance may be lower or higher than the performance quoted. The total annual operating expense ratio for Class A shares as of the most recent prospectus was 0.94%. The total annual operating expense ratio may vary in future years. Returns and expenses for other classes of shares will vary. 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.

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 12/31/21 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. There is no guarantee that the Fund performance will be positive as equity markets are volatile and an investor may lose money.

Outlook
In the near-term, investors are confronted with twin challenges: COVID and inflation. But we believe they can be overcome by the resiliency of the U.S. economy.

The future cannot be predicted with precision, but we are operating on a few working assumptions:

First, we believe that COVID in its various iterations will be dealt with gradually by methods and treatments already available or in research and development. Never in modern history has so much intense focus by the private and public sectors around the world been exerted to solve a common problem. The closest analog in terms of spending and investment, as well as coordinated effort, would arguably be a major war. That does not ensure the eradication of the pandemic, but it means that from this starting point, where we are in the thick of the ordeal, the future may well be brighter as the health issue is attenuated. That would likely augur well for a host of industries, many of which have representation in the Fund today.

Second, with respect to inflationary pressures, we believe they are unavoidable for a time but that the inflation trend could moderate, with the easing of supply and logistical bottlenecks that are a by-product of the pandemic. Furthermore, we believe that inflation not only affects the liabilities and expense side of the corporate accounting ledger, but also the income and revenue side, provided companies have the competitive position and clout to raise prices. In nominal terms, if revenues and profits can expand at a rate commensurate with upward cost pressures, there is no reason to assume that operating margins will necessarily be compressed and impaired on any permanent basis. We will monitor this situation carefully, but believe that the probabilities favor further economic productivity in the face of rising costs, especially if supply chain problems begin to ease and economic activity is allowed to resume in full.

Lastly, we note the strong and healthy credit picture and balance sheets of both corporate America and U.S. households overall, which means that any improvement in economic terms need not go to repairing capital positions, as it was necessary in the aftermath of the 2008–2009 financial crisis. Earnings growth, therefore, may well be largely additive on an incremental basis, should revenues rise in conjunction with a partial or full resolution of the pandemic over time. Once again, many of our businesses are dramatically undervalued relative to that setup.

Conclusion
The Fund is focused on delivering tangible value to investors, safeguarded by diversification.

Context and having well-founded perspectives on the big picture are important, insofar as they can point to multiyear tidal trends benefiting groups of companies. We respect this rule of thumb and pay close attention to big picture forces.

In the final count, however, investing in specific businesses is where we believe we can add the most value for our shareholders. Sometimes the levers that managements can pull within their respective businesses are not apparent to the market, as they involve multiyear efforts that may not bear obvious fruit in the short term. That means investing in growth and reducing both expense structure and share count (at advantageous valuations) can create value, however delayed the response and appreciation of the general population of investors may be at times.

Taking a multiyear and multidecade view, we are confident that our portfolio is built to last at the individual business level. Furthermore, we would contend that the Fund is appropriately diversified to capture a range of possible outcomes in the future, as well as to mitigate the risk of putting all of one’s eggs in one basket. And finally, our observations suggest that the overall environment—particularly related to the impact of COVID—may well be poised to improve from here, looking out into the intermediate-term future.

At Davis Advisors, we seek to purchase durable businesses at value prices and to hold them for the long term. The Davis family, its foundation, our company, and our employees and directors have more than $2 billion invested alongside clients in similarly managed portfolios—a testament to our commitment to, and alignment with, shareholders.1

We are grateful for your confidence and trust, and we look forward to continuing our investment journey together.

1As of 12/31/21.

This report is authorized for use by existing shareholders. A current Davis Opportunity Fund prospectus must accompany or precede this material if it is distributed to prospective shareholders. You should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing. Read the prospectus carefully before you invest or send money.

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. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact.

Davis Advisors is committed to communicating with our investment partners as candidly as possible because we believe our investors benefit from understanding our investment philosophy and approach. Our views and opinions include “forward-looking statements” which may or may not be accurate over the long term. Forward-looking statements can be identified by words like “believe,” “expect,” “anticipate,” or similar expressions. You should not place undue reliance on forward-looking statements, which are current as of the date of this report. We disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate.

Objective and Risks. Davis Opportunity Fund’s investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. Some important risks of an investment in the Fund are: stock market risk: stock markets have periods of rising prices and periods of falling prices, including sharp declines; common stock risk: an adverse event may have a negative impact on a company and could result in a decline in the price of its common stock; foreign country risk: foreign companies may be subject to greater risk as foreign economies may not be as strong or diversified. As of 12/31/21, the Fund had approximately 14.5% of net assets invested in foreign companies; headline risk: the Fund may invest in a company when the company becomes the center of controversy. The company’s stock may never recover or may become worthless; large-capitalization companies risk: companies with $10 billion or more in market capitalization generally experience slower rates of growth in earnings per share than do midand small-capitalization companies; mid- and small-capitalization companies risk: companies with less than $10 billion in market capitalization typically have more limited product lines, markets and financial resources than larger companies, and may trade less frequently and in more limited volume; manager risk: poor security selection may cause the Fund to underperform relevant benchmarks; depositary receipts risk: depositary receipts may trade at a discount (or premium) to the underlying security and may be less liquid than the underlying securities listed on an exchange; emerging market risk: securities of issuers in emerging and developing markets may present risks not found in more mature markets; fees and expenses risk: the Fund may not earn enough through income and capital appreciation to offset the operating expenses of the Fund; and foreign currency risk: the change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of securities denominated in that foreign currency. See the prospectus for a complete description of the principal risks.

The information provided in this material should not be considered a recommendation to buy, sell or hold any particular security. As of 12/31/21, the top ten holdings of Davis Opportunity Fund were: Wells Fargo, 6.40%; Cigna, 5.65%; UnitedHealth, 5.52%; Viatris, 5.10%; Quest Diagnostics, 5.03%; Capital One, 4.81%; U.S. Bancorp, 4.65%; Owens Corning, 3.96%; Schneider Electric, 3.44%; and Alphabet, 3.37%.

Davis Funds has adopted a Portfolio Holdings Disclosure policy that governs the release of non-public portfolio holding information. This policy is described in the Statement of Additional Information. Holding percentages are subject to change. Click here or call 800-279-0279 for the most current public portfolio holdings information.

We gather our index data from a combination of reputable sources, including, but not limited to, Lipper, Wilshire, and index websites.

The S&P 1500 Index includes all stocks in the S&P 500, S&P MidCap 400, and S&P SmallCap 600. This index covers approximately 90% of U.S. market capitalization. Investments cannot be made directly in an index.

After 4/30/22, this material must be accompanied by a supplement containing performance data for the most recent quarter end.

Shares of the Davis Funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested.

Item #4776 12/21 Davis Distributors, LLC 2949 East Elvira Road, Suite 101, Tucson, AZ 85756 800-279-0279, davisfunds.com