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Has Dodge and Cox become fundamentally flawed?

edited September 2011 in Fund Discussions
I've held their funds since early 2000s when they could do no wrong. Currently about 15-20% divided between DODBX and DODWX and another 10% in the Income fund. Won't try to regurgitate the numbers, but as you likely know they are dismal, most funds near bottom of peer class going back 5 years and decidedly mediocre over 10 years, though they long held top place at the 10 year period. The income fund DODIX fares considerably better, but has slipped to mediocre past year.

I've followed them pretty close and have read the comments of many fine contributors in the past, including Bob C. Yep, they got bloated. And they got caught in a value trap loading up on financials at just the wrong time. They continue to hold big chunks of earnings challenged HP. As I've observed, they've long been bearish on bonds and are over-weight equities in the Balanced fund which will drag it down in this environment.

My questions remain. Were they that over-rated and over-hyped 10 years ago? That's an awful lot of intelligent observors getting it wrong. Even the launch of DODWX in 2008 was greeted positively by many at FA. Has management changed so much as to cause them to fall off a cliff? How big are outflows and are they contributing to the dismal performance? Could they be correct but early in their long term assessments? Sure, I can move the money. But it would sting to move it and them have DC rebound a year or two later, which I think possible. On the other hand maybe they are fundamentally flawed?


  • I think the issue in terms of a fund getting it right eventually is opportunity cost - how long do you have to wait while you could have been in something else. I mean, Heebner's investors in CGM Focus could have had time better spent elsewhere over the last few years (no offense to CGMFX investors) and there's no way to know that the fund will stay in the bet (whether it's HP or whatever) until it pays off (if it does.)

    If you don't like a specific fund for a number of reasons (large specific bets that have gone awry, consistently off timing on allocation, bloated, etc), then move. I don't disagree with favoring equities over bonds at this point, but who knows and maybe there's better vehicles out there to take advantage of that. You've certainly given them time, it's not as if you've had the funds for a month and are disappointed.
  • I don't think they are fundamentally flawed. Bloat is a factor but their area of concentration (Financials) is not working well. They have been pretty faithful to their picks thus until Financials start to perform well, I expect this fund family to underperform.
  • Dodge & Cox Global (DODWX) has done better than you think. The fund's underperformance occurred, almost exclusively, during the meltdown. From launch to the March bottom in 2009, the fund substantially lagged its peers. From the market bottom to now, it has substantially led its peers. $10,000 invested in DODWX on March 1, 2009, would have grown to $18,600 versus $16,200 at the average global equity fund. It has outperformed its peer group in six of the nine following quarters, and trailed the group by 1% or more only once. It was above average in its first two full years (2009-10) and was about average in 2011 until August, when it slumped badly.

    I mention that mostly because we sometimes draw conclusions based on headlines (two-star fund, lagged since inception) when it might be worth the extra effort to dig a bit more. Since I haven't looked at volatility or other portfolio characteristics, I'm not even pretending to offer a judgment about the fund as it has evolved, just a few more data points.

  • edited September 2011
    Yes, part of the problem is their past stellar performance against which we tend to measure them. DODBX according to the USA Today site ranks 95/100 of balanced funds for 5 years. The 13/100 rank for 10 years is still good, but not up to snuff for these guys. To be fair, this fund has always been more aggressive than your typical balanced fund.

    I should not have alluded to 5 year performance of DODWX as it has not been around that long yet. Sorry. At $7.53 today, it's NAV is about 25% below inception. However, doesn't take into account reinvested dividends/cap gains. I've tried to find out how much it's really off since inception, but no success. DC web site shows it roughly "even" as of June 30 if I'm reading it right.

    David's point about not reading too much into number of stars a fund has or rigid/short time frames is well taken. I believe a good fund house cultivates a successful culture, one reason TRP is so highly regarded. Guess that was really the gist of my question, whether such a culture existed and is still intact at DC. If it is intact they might well overcome short term failings. Thanks for all the thoughts.
  • DODWX performance since inception is straighforward to compute.
    From the 2010 Annual Statement:Growth of $10,000 since inception (as of Dec 31, 2010) is $9107.
    From M*, 2011 YTD performance: -15.39% (through 9/9/11)

    Combining, we have total return since inception = 91.07% * 84.61% = 77.05%.
    In other words, since May 1, 2008, the fund has lost 22.95%, cumulative. Easy enough to annualize.

    This is consistent with the dividend distribution: annual dividends of under 1%/year for 2008, 2009, 2010. (Again, per M*).
  • Reply to @msf: It's even easier with Morningstar's "chart" feature. It calculates a fund's returns between any two points in time and charts it against any other option in Morningstar's database.

    It seems to me that the question is whether, or to what extent, to discount the fund's troubled first nine months. The managers admit to two miscalculations in the face of a massive financial crisis (premature optimism and over commitment to financials, if I recall correctly). They claim to have reversed the mistakes and to have learned from the episode. From then through August 2011, they had a strong record. In the past six weeks, they've had a weak record.

    The vexing question is how to think about the data; what 'narrative framework' should we impose on it? Is the story "great active managers whose low-turnover discipline will inevitably lead to soft spots?" or "a committee that's trying a 20th century model in a 21st century environment"? Once you pick your story (almost regardless of what it is), all of the data will magically fall in place.


  • One way to prevent poor performance in a portfolio is to appropriate small amounts of your allocated amount to a investment group in multiple top rated funds instead of one fund. This prevents poor performance if allocated to one fund. You will then think , I just created an Index fund. Well that is what the financial media will tell you. By my calculations and those at Fidelity which calculates total return on my portfolio that just is not so. In fact with a well chosen group, say 4-6 Large Cap funds you can do 1-7 percent better as I do. This is for a taxable account where I use tax saving loss harvesting of the poor/losing funds. One example. Sold Fairholme fund for tax loss harvesting and bought Jensen. I left my other 5 Large Cap funds alone as they are doing well. You have to be willing to do research so that you are well diversified and not creating an index fund but this is rather easy. And you will have a full house of funds to deal with. But in the end you do not have all or most of your money in poor or losing funds and will come out ahead. I currently own 40+ funds more or less and it works for me
  • Reply to @Anonymous: Thanks. Good food for thought, Actually they got only about 25% my retirement money and some of that's in their income fund which is doing OK. I do believe in spreading it around, maybe not as much as you. Actually, used to have more with them. Been cutting back not because of their recent performance, but simply because am getting older and even their balanced fund a bit on the aggressive side.
  • I held DODGX and DODFX from 2004 to 2010, I was expecting better performance during 2008 based on past, I finally sold in early 2010 to wait for some recovery.

    I had lost confidence in Dodge & Cox, Currently invested in Global Allocation funds like IVWIX and SGIIX in Taxable account, So far my new funds are performing to my satisfaction, I am glad on my decision to get out of the Dodge and Cox and move money in funds that I have confidence in.
  • Reply to @CaryRaleigh: Dodge & Cox could have been better funds if they would close them years ago. IVWIX closed their funds while the size is still manageable.
  • While 10-year numbers are worth considering, I really don't include them in my screens. A lot can happen between 5 and 10 years, as we have seen from many funds, including Dodge & Cox. I look at 1, 3, and 5 year numbers, and I also look at ranks with similar funds. But keep in mind that M* can put funds in absolutely wrong categories. So be cautious about using their numbers as gospel. It is very, very important to compare apples to apples. Otherwise you do yourself and the funds no favor.

    Given that, DODGX had a horrible 2008, which has really hurt its 3 and 5-year numbers. If you want a fund that has less downside risk, FVALX is worth considering. As others have said, D&C could return to form, but until financials and some of its tech picks turn around, it will probably continue to struggle. Another option would be to consider high-quality dividend stocks, something like TIBIX. But then you get more into a global fund, not a mostly U.S. large cap fund. Another option would by SDY.

    When we sold out of DODGX a while back, it was because of a combination of too many assets, too concentrated a position in financials given the then-current outlook, and just a gut feeling. No doubt they may have some great years. But I think you have to make a decision and move on.
  • I sold D+C Stock fund when they were buying General Motors only weeks before it collapsed. Yes, I thought they're thinking was not only flawed, it stunk.
    Also, too many cooks.
  • I still own DODFX. But I sold most of my position in DODGX (which I purchased in 2009) to take profits and re-allocate.

    I still like the company. Make no mistake though, they are a traditional value bottom up outfit. Just know what you're getting.
  • A blast from the past (Fund Alarm 5/13/08)

    Message Added: Past Underperformance of Dodge and Cox
    The following information was added to the message board:

    Name: LarryT
    Subject: Past Underperformance of Dodge and Cox
    Body of Message:
    I've posted this before, in response to the wave of admirers of this fund who were posting the sort of "no brainer" "one fund I'll hold 'til death" kind of messages. This is the fund's returns against the S&P:
    1995 -4.06
    1996 -0.69
    1997 -4.96
    1998 -23.18
    1999 -0.83
    I posted this not as an argument against buying D&C, which I think is a fine fund, but as a warning about buying any fine fund after it has been on fire with the expectation that it will remain so. I asked these boosters if they would have bought the fund in 1999, considering the above record, but didn't get any responses.
    Obviously, 1999 was a great time to buy D&C, when it was in the midst of a five-year slump. When people were buying D&C in 2005 and 2006 after five or six years of outperformance, I suggested looking for great funds that had underperformed, rather than chasing the hot dot (again, and again, and again). Still seems to make sense to me--if D&C continues to slump, it will make sense to consider adding it in a year or two or three.
    Added on Date: 06:42:15 05/13/08

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