Dodge & Cox Goes Global
Investing in a new mutual fund is usually a crapshoot. After all, a new fund, by definition, doesn't have a track record. But if any new fund deserves the benefit of the doubt, it's Dodge & Cox Global Stock, which begins accepting cash on May 1. It's only the fifth fund from Dodge & Cox in the firm's nearly 80 years of existence.
Based in San Francisco, Dodge & Cox has achieved near-cult status among fund aficionados, thanks to strong long-term results, low fees and an almost quaint, committee-oriented approach to picking stocks and bonds.
Analysts pitch ideas for the firm's three stock funds (a fourth fund focuses on bonds). Committee members then vet and stress-test the proposals, with an eye toward identifying stocks that are cheap in relation to a company's earnings and cash flow prospects over the next three to five years.
The new fund will cull investment ideas from the same set of stocks that populate the firm's domestic and foreign stock funds. So far, so good: Dodge & Cox Stock, which invests mostly in U.S. companies, has returned 13% annualized over the past 15 years to May 1, beating 99% of its peers. The younger International has gained 27% annualized over the past five years, beating 98% of its rivals.
The principals at Dodge & Cox say the new fund will adhere to the same principles as the older funds. "This is the same process and the same team," says Diana Strandberg, a 19-year veteran and one of the managers of the new fund.
Initially, at least, Global (symbol DODWX) will invest in companies from the existing portfolios of Stock and International. But because the committee members of Global will not overlap completely with those of Stock and International, Global could buy stocks not owned by the others.
As of March 31, Stock's biggest holdings were Comcast, Hewlett-Packard and Wachovia, while International's were Novartis, Schneider Electric and HSBC Holdings. Global's annual expense ratio will start at 0.90%, well below the average of 1.54% for worldwide-stock funds.
So if Global will combine the best of Stock and International, should you expect it to leave those two in the dust? "Our general counsel has warned us not to say that," says Charles Pohl, the firm's chief investment officer and a manager of Global.
Global's launch follows the reopening, in February, of the Dodge & Cox Stock and Balanced funds, which had been closed to new investors since 2004. Pohl says the firm waited to launch Global for the same reasons it had kept Stock and Balanced shut: "concerns over inflows and capacity."
But with the stock market choppy, cash flows have stabilized. And, says Pohl, "we are seeing a lot more opportunities now than we were a year and a half ago."
Still, there's reason to be concerned about burgeoning assets, which can hinder a manager's flexibility. Assets in the four existing funds have increased by almost $70 billion, to $144 billion, over the past four years.
That may not be a problem now, when depressed stock prices have created a wealth of opportunities. But if stocks were to rebound strongly, Dodge & Cox could be stuck with a mountain of new cash and precious few places to put it.