This international fund looks for cheap valuations on its contrarian picks, and finds a decent number of them, writes Russel Kinnel of Morningstar FundInvestor.

Dodge & Cox International Stock (DODFX) is not a conservative fund, but it is a reliable one.

Even more than most, this fund’s managers want bargains. They are very hesitant to pay prices they don’t consider cheap, even for impressive companies.

That explains the fund’s low level of holdings in the consumer-defensive area, for example. At the end of December 2012, the fund had less than 3% of assets in that sector, versus a foreign large-blend average of 11.5%.

But that same desire to buy companies when they’re available cheaply can lead the managers to take positions in stocks that most investors are wary of (explaining the low prices).

In 2012, the fund benefited from its exposure to European financials at a time when both that region’s debt issues remained a topic of global concern. The fund’s managers also bought pharmaceutical firms years ago, when they were highly out of favor, and have not only hung on to embattled Hewlett-Packard (HPQ) and Nokia (NOK), but added to them at times of high-profile difficulties.

This approach—while leading to losses deeper than the norm when markets have been particularly skittish—has paid off over time. Usually the managers’ view that the stocks they like are being punished unfairly has been borne out.

Since its May 2001 inception, the fund has soundly beaten the foreign large-blend category average (its portfolio is often just over the line from value) and the MSCI ACWI ex-US Index (which contains a meaningful emerging-markets stake, like this fund).

In the trailing 12-month period, it has topped about three-fourths of the category, as those European financials had a strong 2012, and the pharma giants—which the fund still owns because the managers say they have excellent growth prospects, owing to revived research productivity—enjoyed powerful gains.

Other attractions here include a very long-tenured group of managers and analysts, and an expense ratio far lower than those of nearly all other actively managed foreign-stock funds. Shareholders who can tolerate the occasional rough ride should be content with this fund over time.

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