AFTER A 13-YEAR drought, value stocks surged over the past year, and arguably no fund rode the wave better than the venerable Dodge & Cox Stock Fund (symbol: DODGX), which was launched in 1965. Long one of the largest and most respected mutual funds, it’s run by a nine-member investment committee, though the fund is perhaps most associated with Charles Pohl, who has been a manager for 30 years and is set to retire in 2022. Turns out he’s beaten the market the entire time.
In an era when we’re used to eye-popping gains, the fund’s 53% return in the year ended Oct. 22 ought to grab attention. That 53% is well ahead of the Vanguard 500 Index Fund (+33%), as well as the huge winners from the past five years, like Invesco QQQ Trust (+32%) and the ARK Innovation ETF (+21%). It’s also ahead of fellow giant value funds Vanguard Windsor (+46%) and Windsor II (+42%).
According to a fund report by Morningstar, Pohl and his colleagues stuck with hard-hit energy and financial names through the pandemic bear market and added on weakness, scoring with top holdings like Capital One Financial.
Returns cited on Dodge & Cox’s site go back 20 years. The fund beat both the S&P 500 Index and the Russell 1000 Value Index during that time. One publication, citing data from Morningstar Direct that I don’t have access to, says the fund has handily beaten both benchmarks from the time Pohl took over in early 1992 through 2020. Pohl also has managed the equity portion of the Dodge & Cox Balanced Fund during that time.
Even the late Jack Bogle, Vanguard Group’s founder and a big proponent of the notion that trying to beat the indexes was futile, said the stock-picking team at Dodge & Cox was among the few he would recommend. I only recall two other managers garnering such praise, but their days have long past: Peter Lynch, former manager of the growth-oriented Fidelity Magellan Fund, and the late John Neff, who ran Vanguard Windsor Fund.
Dodge & Cox stumbled during the Great Financial Crisis, causing changes in the investment process, but has since roared back, as you can see in the accompanying table. Indeed, even though value was out of favor from 2007 through late 2020, Dodge & Cox Stock Fund beat the S&P 500 over the past 20 years.
While Pohl will retire next June, Morningstar says it has confidence in the fund’s succession plan. During Pohl’s tenure, index funds came to dominate. The pursuit of “top fund managers,” which sustained many a financial magazine back in the day, seems so 20th century.
Will Dodge & Cox continue to perform well? Nobody knows. Still, it offers two attributes much loved by index-fund investors. First, the fund’s expense ratio is just 0.52%, modest for an actively managed fund. Second, its portfolio turnover rate over the past five years has averaged a glacial 17%, meaning the fund typically holds stocks for almost six years. Such attention to costs doesn’t guarantee the fund will continue to beat the market. But it should ensure that shareholders collect a decent chunk of whatever the fund does earn.