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Dodge and Cox proxy vote

I haven't had a chance to go through this carefully at all, but it seems like D&C is seeking some very fundamental changes, including the ability to short, buy on margin, and be an activist manager:

https://dodgeandcox.com/pdf/proxy/DC_Funds_Proxy_2014.pdf

Will have to decide my vote when I'm better able to process. Thoughts welcome.

Comments

  • msf
    edited March 6
    Thanks for posting this - I was thinking of asking as well; I hadn't read through it yet - just read the items they are asking to change.

    The timing was somewhat coincidental. There's a recent thread here on investments one regrets, that starts off with Crabbe Huson. The conventional wisdom on that fund was that the manager was good at holding long positions, but in 1994 he decided that he wanted to try shorting stocks. That apparently wasn't in his skill set, and the fund tanked after that. Shorting is not the same as just "negative long". Risks are different, tactics different.

    So I'm leery of handing someone that flexibility, even D&C.

    The other items trouble me less. The arguments seem to all be that, well, this is just cleanup, that regulations on funds have become more more lax since we wrote the fund rules, and we should have all the flexibility allowed by law. Not that we're thinking of using it.

    That's a common refrain, seen in lots of these ballots. Not sure I ever buy it, but I'm willing to grant D&C a certain amount of leeway. Still need to think about the other propositions, but as I said above, they're much less troubling than the shorting one.
  • edited March 7
    I will vote no. Like I did in 2007...but to no avail, of course.
  • Do only the direct holders get the proxy materials? I have an IRA through Fidelity brokerage and don't get any notifications about them.
  • Looking at DODGX vs the S&P over the long term, it barely earns its very low ER (does better over selected shorter periods). Since it's the only D&C fund I own, I'll vote against as usual, be on the losing side as usual (has a board of directors ever recommended against a management recommendation?), but this time I may just sell out. It's not that big a holding anyway, but maybe I'll even send them an email reminding them that actions have consequences.
    Realistically, one probably should buy funds from managers who have a track record doing what they propose to do with your money (as was mentioned above).
  • gindie said:

    Do only the direct holders get the proxy materials? I have an IRA through Fidelity brokerage and don't get any notifications about them.

    All share holders of record as of 2/14 are entitled to vote. The link is here. You'll need to contact your brokerage if they haven't sent you your control number.
    Charles said:

    I will vote no. Like I did in 2007...but to no avail, of course.

    Just curious. I've only held shares since 2012. What did they change last time around?

    I'll have to read the whole document later this afternoon. My first thought is that I hired D&C to buy stocks and bonds for me based on their 80+ year reputation of expertise in valuing securities for long term holds. I always wondered why they didn't express more interest in management given their size, but figured they just let the money do the talking. Shorting, margins, puts, and calls are kind of different beasts though, and, as msf pointed out, not really conducive to long termism. D&C say these are antiquated and pointless restrictions, but you don't really ask for something like this unless you see a possibility of using it.
  • Oh, and the announcement regarding D&C Global Income is no longer on their homepage.
  • I think only direct owners in the fund get to vote. So, if you own through say Schwab, you do not get to vote, unless Schwab offers similar proxy vote...at this time, it does not.
  • msf
    edited March 7
    mrdarcey said:

    gindie said:

    Do only the direct holders get the proxy materials? I have an IRA through Fidelity brokerage and don't get any notifications about them.

    All share holders of record as of 2/14 are entitled to vote. The link is here. You'll need to contact your brokerage if they haven't sent you your control number.
    If you've signed up for electronic delivery of proxies, you can find them at Fidelity here:
    http://www.fidelity.com/proxymaterials (you'll need to be logged in for this to work)


    I'm curious about people's objection to proposal 4 (other than DODIX investors). Exactly the same restriction is being kept in place. What is being changed is how easy it will be for D&C to alter/remove the restriction in the future. (A fundamental restriction is being made nonfundamental, i.e. not needing shareholder approval to change.)

    Unlike the other proposals, D&C is not saying that they want to change an investment policy now. If/when they do want to change that policy, it will be less expensive for shareholders - D&C won't need to hold another meeting and have more proxy ballots. And if they do change the illiquid securities restriction some time in the future, then one can think about selling.

    (For DODIX, there is a current change - the amount of illiquid securities allowed is raised from 10% to 15%.)

  • edited April 22
    Thanks msf, as usual. I checked with Schwab this morning and got a "no," but maybe there was a misunderstanding. I (and other members of my family) own D&C funds direct with D&C, so we will be voting for sure. I might even decide to attend the meeting in April if it's open to regular shareholders, although I think I may be in DC about that time. Will see.

    I just checked with D&C and it is indeed open to mere mortals. And I will be in town after all, so right now I plan to attend.

    It will be held Wednesday, April 23 at 10am. The address: 555 California Street, San Francisco, CA in the Memorial Auditorium. DF King is the company handling the voting. At the meeting, they will review the seven proposals. If interested, bring ballet and ID. I believe the building is the old BofA Center.
  • edited March 7
    Just about every fund family that I've invested in has gone through similar proxies in the last 2 to 12 years. Simply put, they don't want to have to come back to shareholders every time they want to make a change.

    Most funds don't take advantage of these looser rules. Occasionally they do. For me it was Longleaf Partners. They went from a mandatory diversified fund to a non-diversified fund, following their successful proxy vote. LP was already concentrated in that they had 25 securities, but no investments were purchases over 5% of Net Assets. That could only go higher if the investment paid off.

    So immediately following the change to non-diversified investment, the fund's NAV started to plunge. Turned out that they immediately pumped 25% of the net assets into Waste Management. The investment was ill timed, as the security went down like a lead balloon. When I found out why, I sold 100% of my shares as they lost my trust.
  • msf said:

    I'm curious about people's objection to proposal 4 (other than DODIX investors). Exactly the same restriction is being kept in place. What is being changed is how easy it will be for D&C to alter/remove the restriction in the future. (A fundamental restriction is being made nonfundamental, i.e. not needing shareholder approval to change.)

    Unlike the other proposals, D&C is not saying that they want to change an investment policy now. If/when they do want to change that policy, it will be less expensive for shareholders - D&C won't need to hold another meeting and have more proxy ballots. And if they do change the illiquid securities restriction some time in the future, then one can think about selling.

    (For DODIX, there is a current change - the amount of illiquid securities allowed is raised from 10% to 15%.)

    I've had a chance to read and digest the proxy report now. Like you my main objection is Proposal 3. The shorting just seems like something that would tempt someone somewhere along the line. Though I'm not sure why a company with $125B in assets would ever need to buy anything on margin.

    I have no objection to Proposal 4. I wish D&C could purchase more illiquid assets.

    Thanks for the thoughtful responses. While I'll probably vote a contrarian "no," I'm willing to give D&C some benefit of the doubt..
  • I think VFINX did something similar a while back (margin, options). Without digging deeper into the statement at the moment, I think it could be covering bases rather than a fundamental change in investment strategy. Interesting turn of events if its the latter.
  • Another thought, can't shorting be used to create "stubs" -- if I want to invest in company A, which I think is a great business, but company A also has a majority stake of companies X, Y, and Z which I don't think are great bets, can't I buy A, but short X, Y, Z in some fashion to get a "stub" which gives me ownership in A net of X, Y, and Z?
  • @mrdarcey: I don't have a dog in the fight, but I would recommend you vote YES on Proposals 1-7. D&C is not asking for anything that is not in the interest of D&C shareholders.
    Regards,
    Ted
  • Ted said:

    @mrdarcey: I don't have a dog in the fight, but I would recommend you vote YES on Proposals 1-7. D&C is not asking for anything that is not in the interest of D&C shareholders.
    Regards,
    Ted

    Thanks. I appreciate the input.
  • edited April 22
    All set for tomorrow. I understand that after the formal shareholder meeting there will be a one hour tour of the Dodge & Cox facility. It's an impressive building actually. Views from up-top are take-your-breath away beautiful. I had opportunity recently to watch the documentary Money for Nothing there.
  • @mrdarcey. I agree. I've recommended to other shareholders in my family to vote with the board. I will be bringing my proxy card to the meeting.
  • Thanks, @Charles. Hope the spread is nice!
  • I am interested though, if anyone knows, what happened to the DODLX launch?

    The announcement disappeared in early March from the website never to seen again...
  • edited April 22
    Will keep my ear to the ground and ask around.
  • edited April 22
    Hey, also, despite its size (and eye-watering number of VPs), most of the time when I call their investor relations number either to complain or praise, I get pretty frank discussion with a member of the D&C staff.
  • Charles said:

    Hey, also, despite its size (and eye-watering number of VPs), most of the time when I call their investor relations number either complain or praise, I get pretty frank discussion with a member of the D&C staff.

    100% agree. I've only ever had one bad interaction with D&C. I forgot to send in my check for the annual IRA fee until after Jan 1 this year. One very nice employee said that wasn't a problem, the fee wouldn't be charged until later in the month, go ahead and send.

    A month later I got the check back with a letter explaining that the fees had been cancelled as of this year. But when I looked at my statement, they had charged the nominal amount to my account. When I called I ended up in the most circular conversation of all time with a man who explained that the fee is canceled as of FY2014, so my check was returned because it wasn't necessary. When I tried to point out, repeatedly, that the check was for FY2013, he just kept saying I hadn't paid that, the check was for 2014, so it was returned. It was very odd.

    Every other time they have been professional, courteous, and knowledgeable. That has always made me feel comfortable with D&C handling my Roth.
  • edited April 23
    @mrdarcey: DODLX seems destined for 5/1/14 as per this 4/7/14 filing.

    http://www.sec.gov/Archives/edgar/data/29440/000119312514133696/d647972d485bpos.htm

    Since interested purchasers will have to wait the required waiting time, there is no reason to publicize something no one can purchase until the required waiting period ends. This also happened with Artisan's Global Small Cap Fund when it was first introduced. Initially, you saw information about the fund, then it disappeared from the web site.
  • edited May 3
    Turned out to be really good event.

    Some quick notes...

    All measures passed. 1st >90%. Others 60-75%. Of votes at time of meeting.

    I actually had opportunity to ask the new Chairman Charles Pohl and new President Dana Emery a few questions during open Q&A period...

    DODLX is expected to launch 1 May. It will complete transformation of D&C into global investment house, which started with DODFX in 2003 and DODWX in 2008.

    No new funds in pipeline. No plans for new funds.

    No plans to close any funds at this time.

    They instituted several lessons-learned after 2008/2009, including taking a more marco view of debt. Members of fixed income team now scrutinize equity fund holdings to "independently" assess credit risk. And, new officers appointed to assess risk across portfolio...no longer just looking bottom-up valuations of individual companies.

    In more general comments...

    Given current US equity valuations, they expect only single digit returns this year.

    As of 3/31, DODBX has 66.2% equities, down from 75% last few years. (Mr. Pohl could not reveal current allocation, but from his tone, I suspect it's lower still.)

    They too see low returns in fixed income and are postured against an anticipated interest rate rise by holding shorter duration bonds.

    They remain wary of investing in China, Russia, some former eastern-block and EM countries because of poor corporate governance and attendant laws to protect shareholders.

    Mr. Pohl acknowledged that virtually all of D&C's $110M employee retirement plan is invested in D&C funds.

    The firm currently has 240 employees. Every analyst and fund manager is homegrown. Starting off as an intern while an undergraduate. They hire just 1-2 folks per year full time. Usually staying forever...
  • edited June 16
    Thanks Charles. Very informative.
  • Thanks so much for all the info, Charles. Glad the event was good. Love that d&c attracts such dedicated talent.

    Equities might only return single digits this year, but YTD DODWX is up 4.4% compared to 2.3% for the S&P.
  • Charles said:

    Turned out to be really good event.

    The firm currently has 240 employees. Every analyst and fund manager is homegrown. Starting off as an intern while an undergraduate. They hire just 1-2 folks per year full time. Usually staying forever...

    Another way to buy-and-hold. Impressive!

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