Scott Chan has added two new value-oriented mutual funds — one focused on mid caps and one on large caps — the the model portfolio at Investing Daily's The Complete Investor.
With more than $70 billion under management, Dodge & Cox Stock fund (DODGX) has ranked in the top 6% among large-value peers in annualized return over the past three-year period. Over the past five-year stretch, it’s ranked in the top 19%. That solid performance has earned it a four-star rating from Morningstar.
DODGX is managed by a large team of 10 portfolio managers, all of whom have been with the Dodge & Cox fund family for 10 years or more. Most of the team have been managing DODGX for 13 years or more.
The managers strategically seek out well-established medium-to-large companies that they believe have good long-term growth prospects but appear to be undervalued by the market at the moment. A secondary objective is to generate reasonable income—the fund’s current yield is 1.4%.
As of the end of the first quarter, DODGX held 69 stocks. Allocation-wise, Financial Services (25.3%) represents the most heavily weighted sector, followed by Healthcare (22.1%) and Communication Services (14.7%).
The fund’s top five stocks are Comcast (CMCSA), Wells Fargo (WFC), Charter Communications (CHTR), Microsoft (MSFT), and Alphabet (GOOG). The team keeps the turnover low (only 20% in 2018). This keeps transaction costs low and minimizes taxable events (e.g., realizing capital gains).
We like DODGX for its combination of an experienced team, strong relative performance, and low fees (0.52% expense ratio) to boot. The minimum initial investment is $2,500, but drops to $1,000 if purchased in an IRA.
The no-load small cap value fund Ariel Fund (ARGFX) is managed by a team of three veteran fund managers, including the fund family founder John W. Rogers (since 1986), ARGFX has a little over $2 billion in assets.
The fund’s objective is to “invest in small- and mid-capitalization undervalued companies that show strong potential for growth.”
To be clear, the average market capitalization of the 41 stocks in the portfolio is north of $6 billion, so there is no need to worry whether the fund over invests in small companies.
The fund’s top three sectors are Industrials (18.9%), Financials (18.7%), and Communication Services (16.2%). Its top five holdings are KKR & Co. (KKR), Zebra Technologies (ZBRA), J.M. Smuckers (SJM), Lazard (LAZ), and Stericycle (SRCL).
ARGFX has low annual turnover, at just 19% in 2018, which as we noted above keeps transaction costs low and minimizes capital gains taxes.
Over the past three- and five-year periods, the fund has ranked in the top 21% and 23% respectively. Year-to-date, through late May, its relative performance is in the top 38% among peer funds. The fund’s annual expense is 1.01%, which is about average for its type of fund. It does not charge a load and the minimum initial investment requirement is $1,000.
Like DODGX, ARGFX passes our criteria for fund selection in having a stable management team, strong relative performance, and reasonable fees, and we welcome both of them to TCI this month.
