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By Gregg Wolper | 01-21-2015 11:00 AM

Dodge & Cox's Keys to International Investing Success

Focusing on fundamentals, tuning out noise, and practicing patience has worked for Morningstar's 2014 International-Stock Manager of the Year.

Gregg Wolper: Hello, I am Gregg Wolper, senior analyst at Morningstar, and I am here with Diana Strandberg and Charles Pohl of Dodge & Cox. They are two members of the team that runs Dodge & Cox International Stock Fund (DODFX), and that team has just been named Morningstar's International-Stock Fund Manager of the Year for 2014. So, welcome and congratulations.

Diana Strandberg: Thanks, Gregg. It's really a honor.

Wolper: Well, we appreciate you coming here, and the award was well deserved. We just have a few questions for you to help our viewers learn more about you. I think one of the hallmarks of the fund is its low turnover rate. At a time when there is tremendous volatility in the markets and crazy events seem to be going on all the time--whether it's central banks or economies--I think that it's hard to understand how you can keep your stocks for such a long time without much trading. It's a much lower rate, about 12% or 14% per year, when a lot of other funds are in the 70s, 80s, or even over a 100. How do you manage that?

Diana Strandberg: First, we'd observe that stock prices move much more dramatically than long-term company fundamentals, and we remain focused on the long-term company fundamentals when we make an investment in a company.

Charles Pohl: On top of that, I think that people should consider the fact that turnover is not free. There is a cost to it. So, a low-turnover strategy, a long-term investment strategy, incurs significantly fewer costs for the investors, and so that leads to, we think, better returns over time.

Strandberg: I think something that we hope our shareholders appreciate is that the short-term volatility actually gives us numerous opportunities to nudge positions--to add a little bit or trim a little bit to a long-term position.

Wolper: One of the areas you've always had a higher-than-average stake in is emerging markets. That goes back a long way. It's often double the category average. Now, everyone knows that there are higher growth rates in emerging markets. And yet, that doesn't always translate into higher company share prices, better company performance, just because country's GDP is growing at a higher rate. So, what explains the higher emerging-markets stake?

Strandberg: Well, we do agree that growth rates are higher in the developing world than in the developed world, but we're pretty agnostic about domicile in the following way: We're looking at individual companies. We're weighing the caliber of their management teams, the strength of their business franchise, the competitive position, their financial wherewithal, and we're weighing that--what we're buying, if you will--against what we're paying, the valuation end. We think about macro factors, governance, and other very important ingredients as really part of that full picture of a company. So, it happens to be that we have found 21 companies that are domiciled in emerging markets where we think the long-term prospects are very attractive in relation to the current valuation.

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