Dodge and Cox Funds is a San Francisco-based investment adviser founded in 1930, after the crash of the stock market and amidst the beginnings of the Great Depression. In the words of co-founder Morrie Cox, the company's basic vision was that "well-conceived professional investment management could bring the force of some order into a rather chaotic investment world."
As of 2008, Dodge and Cox managed five mutual funds. The Stock Fund, trading under ticker symbol DODGX, and the International Fund, DODFX, are large cap value funds, with the latter focusing on foreign markets. The Global Stock Fund, traded as DODGX, is a combination of assets in the Stock and International Funds into a single product. The Income Fund, DODIX, makes fixed-income investments, with an emphasis on highly-rated intermediate term vehicles. The Balanced Fund, DODBX, the oldest of the remaining mutual funds, is a combination of stocks and bonds.
The Dodge and Cox approach to investing is fairly conservative. The firm does not rely on market timing and, as its website attests, is "skeptical that short-term market trends can be predicted with consistency." The funds focus on fundamental factors to identify mid-priced stocks trading at a discount to their long-term value, professing a 3- to 5-year investment horizon for each of its positions.
The biggest risk to fundamental value investing is that, in periods of uncertainty or panic, markets tend to overcompensate and price assets well below reasonable long-term valuations. Bear markets are not necessarily known for being reasonable. One of the most opaque business models in any investment environment is that of the investment banks, most of which rely on value estimates of securitized assets to determine their book value. The credit crisis of 2008 was particularly noteworthy for the resulting inability to price mortgage-related and other securitized assets.
The year 2008 was in fact one of the worst in history for the Dodge and Cox family of mutual funds. In 2007, the firm increased its stake in several of the financial firms that would prove to be Ground Zero of the credit crisis just a year later: firms including AIG, Wachovia and Fannie Mae. All three of these companies saw their stocks reduced to almost nothing, with Wachovia ultimately being acquired by Wells Fargo. Heavy allocations in international equities markets led to a 60-percent decline in the Dodge and Cox Global Stock Fund. While the overall market experienced significant declines in 2008, the relative performance of the Dodge and Cox funds was the worst in over a decade.
Dodge & Cox Funds is itself a partnership, in which the fund managers have a partial ownership interest. The group rates near the top in management retention--an important metric used by mutual fund analysts--with less than 5 percent of their managers leaving annually between 2003 and 2008. The long tenure of the manager-owners and the time-tested investment strategies of the individual funds give some observers confidence that the Dodge and Cox funds will return to outperformance over the long term, particularly for newly invested money.
- Photo Credit Dan Jahner (CC-BY-SA-2.5)
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