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Home>Research & Insights>Fund Times>An Outstanding Large-Cap Fund for Patient Investors

An Outstanding Large-Cap Fund for Patient Investors

Gold-rated Dodge & Cox Stock’s seasoned team, low fees, and decisive value approach have led to enviable long-term results.

Andrew Daniels, CFA, CMA, 07/15/2017

The following is our latest Fund Analyst Report for Dodge & Cox Stock DODGX.  

Dodge & Cox Stock’s deep investment team, decisive value approach, and rock-bottom fees inspire confidence in its ability to outperform over the long term. The fund also benefits from the exemplary stewardship practices of its San Francisco-based parent company. It continues to merit a Morningstar Analyst Rating of Gold.

Dodge & Cox’s eight-person U.S. equity investment committee, whose members have been with the firm for an average of 24 years, manages the fund. Moreover, a deep and experienced analyst team, most of whom are Dodge & Cox lifers, support the committee. The seasoned investment staff, combined with the consensus-oriented team approach, limits key-person risk.

The committee seeks firms it considers to be undervalued versus their true long-term worth. It relies on bottom-up, fundamental research and favors firms with good management, competitive advantages, and solid growth potential. Oftentimes, it takes advantage of bad news or a bad economic environment to buy fundamentally strong businesses. Once management buys, it tends to hold on for the long term, so expect turnover to remain low. Indeed, some holdings such as Wells Fargo WFC and FedEx FDX have been in the portfolio since the 1980s and 1990s.

Since Charles Pohl and Bryan Cameron joined the committee in January 1992, through June 2017, the fund’s annualized gain of 11.5% beats the Russell 1000 Value’s and S&P 500’s gains of 10.0% and 9.3%, respectively. The team’s contrarian nature and willingness to be patient while theses play out have contributed to the fund’s long-term success but also have come with elevated volatility and downside capture levels. This was evident during the financial crisis of 2007-09, and the fund also lagged in a volatile 2011. But the fund has bounced back: During the trailing five-year period ended June 2017, the fund’s 16.4% annualized gain outpaced the Russell 1000 Value’s 13.9% gain as well as 99% of its large-value peers.

All told, this fund requires patience. It likely will reward investors willing to stomach short-term pain, but it is not for everyone.

Process Pillar: Positive | Andrew Daniels, CFA, CMA 07/10/2017
This fund’s decisive value approach earns it a Positive Process rating.

The fund holds primarily large-cap stocks that look cheap on a range of valuation measures. The managers rely on bottom-up, fundamental research and favor firms with good management, competitive advantages, and solid growth potential. Oftentimes, they take advantage of bad news or a bad economic environment to buy fundamentally strong businesses.

Andrew Daniels, CFA, CMA, is an analyst covering equity strategies on Morningstar’s manager research team.

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