Dodd Kittsley
Director @ Davis Advisors

“Understand your own strengths, what makes you happy and find a role that really is congruent with that”

Dodd Kittsley has worked at an impressive number of the largest ETF businesses on Wall Street over the last 20 years.

Starting out as a research analyst at Morgan Stanley, he dipped his toe into the ETF market and soon found himself a sought-after, seasoned expert in an industry that was growing from strength to strength.

Dodd spoke to Jobs in ETFs about how his veteran status in the ETF world led to his current role at Davis Advisors and his project of launching active ETFs. He also spoke of the need to always work outside your comfort zone, revealing that throughout his career of two decades, he never left a role because he “didn’t like it”.

JE: How did you get into the ETF industry?

Dodd: My background is a bit unconventional. I was a psychology undergraduate and then pursued a Ph.D. in sports psychology. I decided to take a break from school and turn my hand to investing, another passion of mine.

I sometimes think about where that passion came from. My grandfather was a restaurant owner, and it struck me that he made far more money from investing in the stock market than in the restaurant business. He came from humble beginnings, emigrating from Wales to the United States at a young age and never completing high school. So, his story planted the seed in my mind. He was kind of hero to me and I listened to what he told me about stocks.

I was fortunate to stumble on exchange traded funds in the late ‘90s. At that time, I was a research analyst of closed-end funds at Morgan Stanley. The institutional trading desk approached our Director of Research and asked, “Do you want to look at these new things called ETFs?” We were like, “What?” At that time, there were only 32 products and less than $40 billion in assets in the ETF industry. We laugh about it now. Anyway, I wanted to do it. I rose my hand, along with a couple of my colleagues, and the rest is history.

ETFs began to really grow as iShares got into the business in 2000. Vanguard launched their products shortly thereafter. ETFs started out as a very small part of our research effort because we continued to follow closed-end funds. But ETFs became an increasingly large part of what we were doing and a very gratifying part, in that the products were adding tremendous amount of value to those who gave them a shot and began to use them in their portfolios.

JE:  What do you do in your current role at Davis Advisors?

Dodd:  I was hired last September to help drive the ETF initiative, which was something new for this firm. Davis Advisors has been around since 1969; it’s a traditional bottom-up active equity stock selection shop. We have over $27 billion in assets in mutual funds, separately managed accounts and other vehicles, but clients increasingly wanted our strategies and investment discipline in an ETF format.

Actually, my role kind of grew out of casual discussions with Davis. They knew me as “an ETF guy” who has been in the industry for many years in several different capacities. As we talked, we grew more excited to launch actively managed ETFs based upon our many decades of experience in successfully selecting stocks with our time tested investment discipline. 

JE:  You’ve worked for large corporations, like BlackRock, State Street, Deutsche and Morgan Stanley, before moving to Davis. What are the challenges and benefits of working at both smaller and larger companies?

Dodd:  Well, both certainly have benefits. The real question you need to ask yourself is, what environment or culture enables you to make the biggest contribution? Large firms have a lot of resources, a lot of depth. However, roles tend to be a bit more specialized. At smaller firms, you tend to wear more hats and work more cross-functionally than you would at a larger firm. This is a broad generalization. But it’s important to point out is that there is an opportunity to be entrepreneurial at both.

JE:  There are so many young people that finish university and then try to transition to the ETF industry or even try to move from investment banking or from other parts of the financial services sector towards ETFs. What advice would you give to those who are just starting out?

Dodd:  Well, a couple things. I think it’s important to find a place where you will have the chance to grow and really challenge yourself to be the best you can be. Also important is to understand your own strengths, what makes you happy and find a role that really is congruent with that. Too often people say, “Look, I want to be in this particular industry” without acknowledging that the ETF world is a very broad ecosystem. 

I would also say to folks just starting out: don’t be afraid to take a risk if a new challenge comes your way. Throughout my career, I’ve left firms and roles, and it’s always been a very difficult decision to make. I’ve never left something because I didn’t like it. It was just a case of asking myself, “What would be best for me and where can I make the biggest contribution longer term?” You might be comfortable, but my advice would be never second guess yourself and just make the leap.

JE:  What has been the biggest highlight of your career so far?

Dodd: I think I can narrow it down to three things. The first was during my time at Morgan Stanley, where I helped to launch the first ETF research-focused due diligence team on Wall Street. That was incredibly rewarding and when I look back, I feel proud that the need for that service grew, i.e. the need to educate investors on ETFs and the advantages that they can deliver.

The second was creating the iShares due diligence team which was really the first of its kind in the ETF industry and was a part of our national account effort, specifically servicing and building relationships with the ETF research community. It was also a good example of being entrepreneurial in a very large firm.

The last is the most recent – launching the first actively managed equity ETFs here at Davis. You know, being able to deliver a solution to the marketplace that has been largely unmet in the industry is really rewarding.

JE: What one thing would you change in the industry?

Dodd:  More education on ETFs to reach a broader investor base. Yes, adoptions have been nothing short of amazing, as we approach nearly $4 trillion in assets globally, but I think we’re literally just scratching the surface and there’s an immense amount of education that still needs to take place. There has been no lack of effort to educate, but more can be done to teach the broader investing public, not only of the advantages of ETF investing but the challenges and pitfalls that can occur.

JE: What trends do you think will define the ETF industry over the coming years?

Dodd:  Several. So, one trend is that growth will likely exceed even the most optimistic forecasts. Or at least most of them. I do believe that.

One area that I think has been underserved through the ETF structure has been actively managed strategies and that is obviously something I’ve been working on at Davis, but our product could be just one of many good active solutions in the marketplace. ETFs are about delivering exposures and strategies in a more efficient way and in a more efficient wrapper and that can include things such as active strategies and smart beta-type investments – not just traditional market cap-weighted indexes.

There’s going to be a lot more innovation, not just in terms of exposures and strategies but also in terms of ETF structure. ETFs have gone through an evolution: starting out as unit investment trusts and then 1940 Act mutual funds. We then saw the launch of the first commodity ETF back in 2004 which, to me, was a real inflection point as it signaled to the marketplace that ETFs are not just about indexing but rather are about delivering exposures to markets, market segments and even strategies in a more efficient manner. 

Some of those new innovative structures will be successful and some won’t, but either way that innovation will continue to democratize investing and profit investors through lower fees, more flexibility and increased transparency. Those are all incredibly good things and I’m so proud to be a part of that.