Don’t Overlook Dodge & Cox International Stock Fund (DODFX)

by Kent Thune | June 5, 2015 2:49 pm

Dodge & Cox International Stock (DODFX[1]) is a rare bird in the mutual fund industry in that it’s currently closed to new investors … but there’s still plenty of new money that could target it in the future.

[2]This international fund is enormously popular, having amassed some $72 billion in assets, and for good reason — it’s one of the best international stock funds out there.

However, prudent money managers know that bigger is not always better, and the closing of Dodge & Cox to new investors is a shining example of portfolio management wisdom.

But that doesn’t necessarily mean that, if you’re not in DODFX now, you’re completely locked out of it. For example, Dodge & Cox International is available in many 401k plans, so even if you’re not in it personally at the moment, if your company’s 401k offers DODFX as a choice, you can still invest in this elite international stock fund.

For most investors, international stocks funds like DODFX are a smart piece of a well-diversified long-term portfolio. But up until 2015, the patience of international stock investors has been tested, to say the least.

Before this year, the MSCI ACWI ex USAIndex lost to the S&P 500 Index in each of the preceding five calendar years, with most of those years having significant differentials in returns.

To be more specific, the five-year annualized return of the MSCI ACWI ex USA is 8.3%, which pales in comparison to 17% on the S&P 500. Remember, that’s the return in each of the past five years — the outperformance compounds every year.

But 2015 is a different story. The MSCI is up 7.7% while the S&P 500 is struggling with a 2% gain. Also, the big gains of U.S. stocks in recent years has made them generally more expensive than foreign stocks with a 17.5 forward P/E on the S&P 500 and 15.5 on the MSCI.

What Makes DODFX an Outstanding International Stock Fund

To begin with, the best international stock funds tend to be actively managed, while performance for the passively-managed index funds hang around the median. This is fundamentally due to the fact that foreign countries have inefficient qualities about them that make it more unlikely for a passive strategy to outperform a smart, low-cost active strategy over time.

In simple terms, a well-managed international stock fund can provide long-term returns that outpace the broad market indices with relative consistency, unlike many domestic stock fund categories in relation to their respective benchmarks. This is essentially what Dodge & Cox International Stock has been able to do since its inception in 2001.

What makes DODFX such an outstanding international stock fund? Here a few of the most prominent reasons:

Top-Notch Management: A team of nine works together to manage DODFX. Each of the members has been with Dodge and Cox for more than a decade. Their patient, low-turnover value strategy helped the management team win Morningstar’s manager of the year award for international stock in 2014, a year they were able to squeeze out a 0.1% gain while the MSCI ACWI ex USA Index had a negative return of -3.9%.
Low Expenses: You’ll find it difficult to get such outstanding management at an expense ratio as low as that of 0.64% for DODFX. In 2014, the average expense ratio for foreign large blend funds was nearly twice that at 1.18%. Oh yeah, and DODFX is a no-load fund!
High-Ranking Performance: The award-winning performance for DODFX beat 91% of category peers, but the long-term annualized returns are just as impressive. The 3-year and 5-year ranks also put DODFX ahead of at least 90% of category peers, and the 10-year return ranks ahead of 83% of foreign large blend funds. Top holdings that helped recent performance include Novartis AG ADR (NVS[3]) and Schlumberger NV (SLB[4]).

If you are not able to buy new shares of DODFX and are looking for a comparable fund — a well-managed, low cost international stock fund with a value slant — you can take a look at

Vanguard International Value (VTRIX[5]), which has an expense ratio of 0.44%, a 10-year performance record that beats 87% of category peers, and a $3,000 minimum initial investment.

As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. However he holds DODFX in some client accounts. His No. 1 holding is his privately held investment advisory firm. Under no circumstances does this information represent a recommendation to buy or sell securities.

Don’t Overlook Dodge & Cox International Stock Fund (DODFX)

What Makes DODFX an Outstanding International Stock Fund

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