Dodge & Cox: Global Contrarian Value

08/11/2014 9:00 am EST


Walter Frank


Independent research is at the heart of the Dodge & Cox investment strategy; this fund—a new addition to our conservative model portfolio—is managed by nine members with an average tenure at the firm of 23 years, observes Walter Frank in MoneyLetter.

Dodge & Cox International Stock (DODFX) is a value-based fund with a long horizon that has certainly rewarded investors over time—despite a few periods of underperformance. But that is not unexpected for a fund that tends to show a contrarian streak.

The starting point for value investing is, of course, valuations, and the team looks at this factor from ay different angles, including price relative to earnings, revenue, cash flow, and asset value.

Of course, the team also assesses company fundamentals, including a firm’s business franchise, management expertise, growth potential, and financial condition.

The portfolio is constructed from a bottom-up perspective, one company at a time, and so its sector and country weightings are often quite different from its peers and major benchmarks.

However, at times, top-down considerations do influence stock selection. For example, the management team believes that faster growth rates in emerging markets will be a long-term vent that should be reflected in the portfolio.

In addition, weakness in the energy sector last year promoted the managers to boost positions in the oil services industry. The team cited industry consolidation, the increasing role of technology in oil extraction, and other factors as the reason behind its overweight in the industry.

Dodge & Cox International Stock has put up impressive long-term numbers. Since its inception in 2001, its average annual return is 9.28%, compared to 5.3% for the MSCI EAFE Index.

That’s not to say there have not been bumpy times along the way. As a value and contrarian fund, it will be out of sync with the market from time to time.

Looking at other tie frames, the fund has been within the top 10% of its category for the year-to-date, and trailing one, three, five, and ten year time frames. For the past year through June 30, the fund’s 29.3% return trounces 99% of the category.

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