401(k) Fund Spotlight: Dodge & Cox Stock Fund
Summary Dodge & Cox Stock Fund’s top holdings are a reflection of its nostalgic value approach. Dodge & Cox Stock Fund’s “long term” approach faces “near term” risks from technological disruptions. Dodge & Cox Stock Fund’s low yield is a major shortcoming for a large cap fund in the current market environment. I select funds on behalf of my investment advisory clients in many different defined contribution plans, namely 401(k)s and 403(b)s. I have looked at a lot of different funds over the years. 401(k) Fund Spotlight is an article series that focuses on one particular fund at a time that is widely offered to Americans in their 401(k) plans. 401(k)s are now the foundational retirement savings vehicle for many Americans. They should be maximized to the fullest extent. A detailed understanding of fund options is a worthwhile endeavor. To get the most out of this article it is helpful to understand my approach to investing in 401(k)s . I strive to write these articles for the benefit of the novice and professional. Please comment if you have a question. I always try to give substantive responses. Dodge & Cox Stock Fund The Dodge & Cox Stock Fund (MUTF: DODGX ) is a large capitalization (“cap”) growth and income fund that tends to lean towards the value camp. It has only one share class, the simplicity of which is refreshing in this day and age. The fund is a giant. With $60 billion in assets, it is the second largest large cap value fund out there. The median market cap of the fund’s 64 holdings is $48 billion. I like the fact that, despite its size, the fund still remains relatively concentrated versus its benchmark, the S&P 500 index and its 500 holdings. It does stray a little overseas. 10% of the fund’s holdings are in dollar-denominated foreign stocks (as of June 30, 2015). DODGX is managed by the Dodge & Cox Investment Policy Committee , which has an average tenure of 27 years. These managers have consistently stayed true to their long term value approach. This is evidenced by the fund’s measly annual turnover of 17%. I do not particularly care for most of the fund’s largest holdings, but I at least give them credit for actually being stock pickers and not just index huggers. Interestingly, I think the fund’s ten largest holdings somewhat reflect the firm’s nostalgic approach. Here they are as of June 30, 2015: Ten Largest Holdings Fund Allocation Capital One Financial Corp (NYSE: COF ) 4.2% Wells Fargo & Co. (NYSE: WFC ) 4.0% Hewlett-Packard Co. (NYSE: HPQ ) 3.6% Microsoft Corp (NASDAQ: MSFT ) 3.6% Time Warner Cable, Inc. (NYSE: TWC ) 3.4% Time Warner, Inc. (NYSE: TWX ) 3.3% Novartis AG ( Switzerland ) (NYSE: NVS ) 3.2% Charles Schwab Corp (NYSE: SCHW ) 3.2% Bank of America Corp (NYSE: BAC ) 3.0% Comcast Corp (NASDAQ: CMCSA ) 2.7% DODGX has a lot riding on the future success of traditional media, computing, and finance. However, given the fund’s large cap value focus this is not a surprise. I am not an expert on these industries, but from a real world standpoint, I am skeptical. I am a 38 year old business owner who will never use a Microsoft product again and I would like an alternative to overpriced Comcast cable internet as soon as possible. My family also does not have cable television. The “long term” approach to these investments could become precarious, if they run into serious “near term” technological disruptions that younger generations will not hesitate to use. Where Are The Dividends? I find no compelling reason to choose DODGX over the standard, lower fee S&P 500 index fund offering available in most 401(k) plans. The fund’s .52% expense ratio is not overbearing, but I am dismayed by its paltry 1.30% dividend yield. Given the fund’s historical performance versus the S&P 500 index, I would rather just own the index with its higher 2.1% yield. According to a DODGX fund report , the 10-year annualized total return, as of July 31, 2015, was 6.94% versus 7.73% for the S&P 500 Index. The long term value approach of the fund has failed to shine over this longer period. Conclusion Based on my forecast for a lackluster stock market over the next 6 years, dividends will be a critical part of investor returns. If possible, 401(k) investors should consider bypassing DODGX for a higher yielding S&P 500 index fund. To me, high dividend yields and “value” tend to go hand and hand. Investing Disclosure 401(k) Spotlight articles focus on the specific attributes of mutual funds that are widely available to Americans within employer provided defined contribution plans. Fund recommendations are general in nature and not geared towards any specific reader. Fund positioning should be considered as part of a comprehensive asset allocation strategy, based upon the financial situation, investment objectives, and particular needs of the investor. Readers are encouraged to obtain experienced, professional advice. Important Regulatory Disclosures I am a Registered Investment Advisor in the State of Pennsylvania. I screen electronic communications from prospective clients in other states to ensure that I do not communicate directly with any prospect in another state where I have not met the registration requirements or do not have an applicable exemption. Positive comments made regarding this article should not be construed by readers to be an endorsement of my abilities to act as an investment adviser. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.