An In-Depth Look at Two Dodge & Cox Funds
January 6, 2015
by Larry Swedroe
Dodge & Cox is one of the most respected mutual fund families in the country. According to Morningstar, the firm managed about $170 billion of assets as of June 30, 2014. The Dodge & Cox Stock Fund (DODGX ) is the company’s flagship fund with more than $60 billion in assets as of December 19, 2014. Launched in 1965, it has become a mainstay of many retirement plans. The fund certainly has been a solid choice for long-term investors.
Although DODGX is considered a U.S. large-value fund according to Morningstar, at present about 15% of its holdings are non-U.S. stocks. These are mostly from developed European countries. The fund’s current managers have an average tenure with Dodge & Cox of 26 years, and portfolio turnover rates are very low (15% for DODGX, according to Morningstar). This is an indication of disciplined investing. What’s more, for the 15-year period ending December 19, 2014, Morningstar ranked the performance of DODGX in the first percentile of its peer group.
In hindsight, the fund has done exceedingly well.
Unfortunately, investors buy tomorrow’s returns, not yesterday’s. Thus, believers in active management are always searching for future star performers. And for investors looking to choose a U.S. large-value fund, DODGX is an excellent candidate. Given its outstanding record, Advisor Perspectives asked me to take a look at the fund’s performance.
We’ll examine how the fund has done over the past 5-, 10- and 15-year periods. Specifically, we’ll explore the various sources of the fund’s returns (or how the fund has loaded on common factors) and determine whether or not it has delivered alpha on a risk-adjusted basis. Finally, we’ll compare the performance of the actively managed DODGX to that of Dimensional Fund Advisors’ U.S. Large Cap Value Fund (DFLVX). This is the fund my firm, Buckingham, used for exposure to U.S. large-value stocks during this period. While DFLVX is not an index fund, it is passively managed, at least by the definition discussed in an article I wrote for ETF.com, “How to Define Passive Investment.”
We’ll begin with the results of a regression analysis run for the 5-, 10- and 15-year periods ending September 2014. We will start with the longest period, the 15-year results. The table below shows each of the fund’s loadings on the following five factors: beta (market), size (SMB, or small minus big), value (HML, or high minus low), momentum (UMD, or up minus down) and quality (QMJ, or quality minus junk). The data is from Portfolio Visualizer.
*R-squared is a statistical measure that represents the percentage of a fund’s returns that can be explained by the model. A high r-squared indicates that the model does a good job of explaining returns.
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