DODFX
Dodge & Cox Reopens Funds
Apparently fund investors are sick and tired of all the scary recession talk and stock market volatility. In recent weeks many closed funds have reopened to new investors amidst a flight of old investors. The latest and perhaps greatest to announce the lock is off the door is Dodge & Cox funds. The value oriented firm will be reopening Dodge & Cox Stock (DODGX) and Balanced (DODBX) funds on Monday:
Dodge & Cox Funds, one of the most popular U.S. mutual fund families, said it will reopen to new investors its flagship Stock fund and its Balanced fund, which invests in stocks and bonds, after performance lagged its peers for the first time in more than a decade.
The $63 billion asset Stock fund and $27.1 billion balanced fund will reopen on Monday. Dodge & Cox had in 2004 stopped accepting money from new investors after assets in the funds had grown too rapidly for it to invest easily. It continued to accept money from existing investors."
Dodge & Cox is losing investors for an unusual reason for this top-performing family, underperformance:
In a statement on Friday, Dodge & Cox said investors have recently been redeeming money from the funds because of weak returns and volatile markets....the Stock fund last year returned 0.1 percent, trailing 61 percent of its 'large-value' peers, while the Balanced fund returned 1.7 percent, lagging 89 percent of its 'moderate allocation' peers. Both funds had outperformed a majority of their peers in every year over the previous decade..."
Investors still love Dodge & Cox International Stock (DODFX) - a good sign this fund and international funds in general will underperform U.S. stock markets going forward.
Let Bygones Be Bygones
As banks are now learning the hard way, relying on past performance to predict future returns can be a recipe for disaster. If mortgage default rates remained at the levels of the past, all the no-money-down lending made in recent years wouldn't be causing a financial calamity today. The same is true for investing in mutual funds. What has worked in the past often doesn't work in the present. As a fund investor, you have to be very careful you are not loading up on yesterday's good ideas. Unfortunately, fund rating and ranking systems tend to have the opposite affect: they direct you into yesterday's winners.
A current article on TheStreet.com titled "Five Perpetually Winning Mutual Funds" shines a spotlight on five funds that TheStreet's rating system has given highest marks to for the last two years.
In the first table below are the "Perpetual A+ Winners" -- the five funds with two years of continuous A+ ratings. Especially with the recent market turmoil, it is not easy to outperform 96% of the open-end fund universe for 24 month in a row."
The "A+" funds in question are:
AIM European Growth A (AEDAX)
JPMorgan International Value A (JFEAX)
Franklin Mutual European A (TEMIX)
DFA International Value IV (DFVFX)
Dodge & Cox International Stock (DODFX)
Everybody loves a winner. Unfortunately these five fund will all very likely underperform the S&P 500 over the next few years.
The main problem is that this list of winners is really just the best performing funds in a fund category that has happened to beat most other funds over the last eight years - foreign funds that are more value than growth. If TheStreet had created this list in 2000, they would have wound up with five large cap U.S. stock funds with a heavy growth bend. Janus, PBHG, and Firsthand funds would probably have dominated the list.
Rating funds based on how they do against all funds in general is very dangerous. Morningstar learned this the hard way when they dolled out five star ratings to just about every U.S. large cap growth and tech fund manager with a pulse in 2000 while slamming foreign and small cap value funds. Morningstar eventually started doing things a little more like MAXfunds has since 1999 - comparing each mutual fund to similar funds (though they do not consider fees, fund size, category valuations among other things we consider). Clearly TheStreet.com is still using this old fashioned fund rating methodology.
If you think the next few years will be more of the same - a sharply falling U.S. dollar and European stocks clobbering U.S. stocks, these funds are for you. You certainly won't be alone in your decision - this is how most fund investors are allocating their money to funds these days. Our guess is it is many of the people who overloaded on tech and growth funds in 2000.
New Global Dodge & Cox Fund On Horizon
Last Friday Dodge & Cox filed with the SEC to launch a new global stock fund - their first new fund since 2001 when they launched Dodge & Cox International Stock (DODFX).
When investors are able to buy Dodge & Cox Global Stock in about three months, the fund will be more expensive than other Dodge & Cox funds, with a 0.60% management fee and total expenses capped at 0.90%. Currently the other Dodge & Cox funds are in the 0.44% - 0.65% total expense ratio range. We expect the total expense ratio of this new fund to reach around 0.80% in the next couple of years, and ultimately settle at roughly 0.65% once assets take off (which might take a little longer now that the market is weak and other Dodge & Cox funds have reopened). These extra fees in the near term will more than likely be offset by increased performance (relative to other Dodge & Cox funds) due to the benefits of a much smaller asset level (you will notice a low fat fund index on this fund's data page during its formative years). But should you buy? ...read the rest of this article»