Dodge & Cox Funds has a long and colorful history dating back to the 1930s, when its two founders, Van Duyn Dodge, and E. Morris Cox, formed a partnership independent and separate from Wall Street, which is how the company continues to operate today. Dodge & Cox has a small offering of funds, but its small size makes it very nimble, with the ability to concentrate decades of experience into its funds. Each of the fund managers is a shareholder in the Dodge & Cox, and most of them were home-grown within the firm. Of the six funds offered by Dodge & Cox, four stand out as top funds for retirement diversification.
The Dodge & Cox Stock Fund utilizes the combined expertise of nine fund managers with decades of experience in identifying undervalued stock. That may be the main reason why the fund has been a consistent outperformer since its inception in 1965. It is also the reason why many of the larger qualified retirement plans include the Dodge & Cox Stock Fund. The fund invests its $56 billion of assets into large-cap domestic stocks with a small portion allocated to large-cap foreign stocks. Its primary holdings are in financial services, healthcare, consumer discretionary and technology. The fund has been a perennial member of the Kiplinger 25, generating an average annual return of 13.03% over the last five years and 5.53% over the last decade. Its expense ratio of 0.52% is very low for an actively managed fund.
Like the Stock Fund, the Dodge & Cox International Stock Fund utilizes nine managers, each of whom has at least $500,000 of their own money invested in the fund. The management team decided in early 2015 to close the fund to new investors due to its size. However, the fund is open to new investors who have access through their 401(k) plans. Its nearly $63 billion of assets are spread among 91 holdings consisting of large-cap non-U.S. stocks. Three-quarters of its holdings are from developed countries, and less than a quarter are from emerging markets. The fund is a favorite holding in many qualified retirement plans because it provides a solid counterbalance to the price movements of U.S.-based stocks. Its 12% turnover ratio is lower than many foreign stock funds, which is one reason for its relatively low expense ratio of 0.64%. The fund has returned 4.21% over the last 10 years.
The objective of balanced funds is to generate income growth on top of current income while preserving capital. The Dodge & Cox Balanced Fund is one of the oldest in its category, having been established in 1931. The $14.62 billion fund has held up well over the years, which can be attributed to a consistent management approach. Unlike many balanced funds, which follow a simple mix of equities and bonds around 50/50, the fund's managers can invest anywhere between 25% and 75% in stocks. They can change the allocation based on market conditions, as they have in recent years when stocks have been performing well. As of June 30, 2015, it held a little less than 70% in large-cap stocks. Its fixed-income portfolio is invested in investment-grade corporate bonds, mortgage-backed securities (MBSs) and a small number of U.S. government bonds. The fund has returned 5.65% over the last 10 years and 10.66% over the last five years. Its expense ratio of 0.53% is very reasonable for its category.
The Dodge & Cox Income Fund’s steady performance relies heavily on the deliberately cautious and patient approach of its management team. Taking a more gradual approach to creating yield, management keeps the fund's turnover and costs low. The $44 billion portfolio is fully stocked with 930 different holdings with a high concentration of investment-grade corporate bonds. Bank of America, Macy’s and Time Warner are among its top holdings. The average duration for its bonds is three to five years. Although its outsized exposure to corporate bonds could generate more volatility than funds with more government-bond exposure, the fund has generated steady returns of 5.06% over the last 10 years. The expense ratio of 0.44% is below average for its category.