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Dodge and Cox changes their approach to the Balanced Fund
It looks like that DODBX will be turned into the newer type of multi-asset funds that include stocks, bonds, alternatives. It may also become more global - the current DODBX has heavy domestic orientation. These special committees have been established by D&C in other areas, so why not for DODBX? http://portfolios.morningstar.com/fund/summary?t=DODBX®ion=usa&culture=en-US
I fail to see where they’ve yet changed the approach. The 2-3 page statement sounds like it was written by a committee. I might ask “Why change now?” since the past couple years seem to have been very good considering the type of fund. In recent years they’ve kept close to 70% in equities - higher than their “balanced” designation might suggest. ISTM they’ve had near 20% foreign holdings in the recent past, if not now. One concern will be fees. If they go into alternatives that may jack-up fees a bit.
Interesting line. Wonder what date they made this shift? Obviously the past couple weeks have seen some modest yield increases.
“More recently, we have reduced the Fund’s equity exposure in light of higher equity valuations and modestly more attractive bond yields.”
@yogibearbull -- i did a quick skim and i'm not seeing much more than a subtle nod to alternatives, nor to international stocks. all else being equal i'd welcome those updates, but not seeing much in the announcement to suggest that there will be much movement in that direction.
Hmmmm. "Alternatives." What are we talking about, there? Bitcoin? Inverse leveraged 3X warthog belly futures? "...considerable overlap among current and the new committees."
Remember: "A camel is a horse put together by a committee." So they want to EXPAND the committee. It seems like a decision from out of the "Department of Redundancy Department." (sic.)
Under normal circumstances no less than 25% and no more than 75% of the Fund’s total assets will be invested in equity securities. The Fund may invest up to 20% of its total assets in U.S. dollar-denominated equity or debt securities of non-U.S. issuers traded in the United States that are not in the S&P 500 Index. Asset allocation between equity and debt securities is based on Dodge & Cox’s assessment of the potential risks and returns for each asset class over a three- to five-year horizon. Factors used to estimate the range of potential returns include: future earnings growth, the outlook for the economy, inflation and interest rate trends, and current valuations relative to historical ranges.
Excerpt from The Intelligent Investor:
We recommend that the investor divide his holdings between high-grade bonds and leading common stocks; that the proportion held in bonds be never less than 25% or more than 75%, with the converse being true for the common-stock component; that his simplest choice would be to maintain a 50-50 proportion between the two, with adjustments to restore the equality when market developments had disturbed it by as much as say 5%.
Given the quality of analysis and advocacies we have observed within the working group, we plan to transition this team to a dedicated Balanced Fund Investment Committee, which will take over management of the Fund from the current Committees,
I was looking at the expertise of committee members:
For Equity: US, global, EMs For Fixed-Income: US, global Portfolio Strategy: Quantitative, EMs
Although the word "alternatives" is not in the release, I interpret mentions of " investment questions that span asset classes" and "combining expertise across asset classes, risk management, and asset allocation" to mean something beyond traditional stocks & bonds.
May be the next update of prospectus will be more clear.
So could it be said that D&C (along with other alternative strategy funds/management teams) are adopting the David Swensen Method to portfolio construction?
Sounds like an acknowledgment by D&C that the typical 60:40 equity:bonds portfolio just isn't going to cut it anymore. They may be having PRWCX envie, maybe?
Here is an interview with David Giroux from last July that was posted here by poster teapot. See what he has to say about the traditional 60:40 balanced fund. Listen closely around the 12 minute mark.
PRWCX Giroux was interviewed in Barron podcast this July.
Sounds like an acknowledgment by D&C that the typical 60:40 equity:bonds portfolio just isn't going to cut it anymore. They may be having PRWCX envie, maybe?
Correct.
Let’s hope their “cure” isn’t worse than the disease. I’ve been scaling out of DODBX as it’s risen the past couple years. Still hold a bit. In the event of a big market selloff, I’d probably buy into one of their equity funds.
One year performance (from Lipper): DODBX +17.85% / PRWCX +15.08%. However, at 3 & 5 years out PRWCX holds a slight edge. This is a radical move from a very conservative house. What comes next? Maybe D&C funds NTF at Fido, Schwab, etc.?
If you haven’t read Ed Studzinski’s column in the January Observer you might. He mentions “firms in the San Francisco Bay Area which face a problem of unaffordable housing costs for junior professional staff.” He mentions these employees having to commute long distances to work or reside in crime ridden areas. D&C is headquartered in SF - so I’d guess they’re one of the referenced here - but there’s a chance I’m wrong. In any event, read for yourself.
I don't know what brought about this change at Dodge & Cox. It's very difficult for me to imagine that this traditional firm will turn to alternative investments.
Ed has alluded to D&C in the past (and, I think once took a shot at, FPA). Osterweis is also in SF. If you believe the twitterverse/YouTube chatter, SF is all-around not a place to live right now.
Speaking of Ed, I did notice in one of my recent Oakmark letters that the OAKBX team reminded readers that OAKBX can invest broadly across assets -- which is odd since, like DODBX, I thought it was largely domestic (and, traditionally the bond sleeve held only government obligations).
Finally, on PRWCX -- there are really no peers for that fund. My wife is in it, for various reasons I never took the plunge but now it's closed. Excellent fund.
I think the tenor of Ed’s post overall was that fee competition among large investment institutions (heightened by low-fee ETFs) makes it hard for employees to receive adequate compensation. Other cities mentioned were Chicago and Boston. So, the issue is widespread.
But Ed’s references over time to D&C’s investment approach and funds has been nothing but positive. ISTM he once conjured that were he looking for a fund house to invest in, D&C would be one he’d consider. That’s pretty strong acolade coming from a former Oakmark fund manager! So I think it’s important here to separate the challenges facing some of these big institutions from the caliber of their funds themselves.
I tossed out the reference to Ed’s comments because, putting 2+2 together, it’s possible D&C’s motives in redrawing DODBX may relate to attracting more business. Let’s not overlook that they recently launched a new EM fund. And couldn’t help noticing when putting through a recent trade that the minimum exchange amount there is now $100 - not $1,000 (as it once was), which may have dissuaded some younger investors.
@hank -- points taken. Thanks. Not understanding your point on $100 vs. $1000; but i've always invested directly with them and they always had the $1000 minimum and $100 subsequent (I bought into DODFX as one or my first funds when I was a grad student and couldn't make Vanguard's $3000 minimum).
Always enjoyed Ed's commentary, BTW. Shame (but understandable) that he and David are stepping back. They've both helped me become a more thoughtful investor.
Often OEFs would broaden their investment mandates so they can open other space. Likely the balance fund would invest more overseas as it become a global balanced fund similar to that of VG global Wellington.
@Sven: I wondered since the launch of DODLX if they would eventually move in the direction of a VGWLX or RPGAX; further, if a global balanced fund would be developed as a separate offer vis-a-vis DODBX.
The recent use of hedging in DODBX also led me to wonder if they were merely leveraging a tool that was always available but now particularly relevant in these bizarre times, or indicative of a more enduring shift in approach.
We are all guessing at this point. Best is to watch for new changes in the fund. Wish they just launch a new fund with different strategy from the other D&C fund. This fund is already quite large.
DODBX at $15B is very small compared to VWELX, PRWCX, & FBALX to name a few. It had outflows consistently in the past 10 yrs per M*, even though some of those years total return performance was quite good. Any comment on the outflows? Not sure if it is the Value style. VWELX gave up its Value style recently.
DODBX at $15B is very small compared to VWELX, PRWCX, & FBALX to name a few. It had outflows consistently in the past 10 yrs per M*, even though some of those years performance was quite good. Any comment on the outflows? Not sure if it is the Value style. VWELX gave up its Value style recently.
Good question. Money today is fickle.To the extent money has fled DODBX in recent years, here’s some possible reasons:
- Dodge & Cox equity funds (including DODBX) faired poorly in 2008. They got caught leaning the wrong way on some financials early on and never recovered. DODBX lost 33.5% that year. (By contrast, PRWCX lost 27% in 2008.) Prior to that, D&C had been a board favorite and had seen steady inflows. It’s the old saw about reputations, like china, being easily damaged and hard to mend.
- There’s a long held perception that DODBX is bloated. Gained traction during the ‘07-‘09 bear market. While accurate, investors seem to overlook that PRWCX has greatly outdistanced it in AUM over the last decade.
- There’s an aversion nowadays to typical 60/40 “balanced” funds owing to low interest rates and a belief (true to some extent) that bonds no longer offer protection. This weighs against DODBX in investors’ eyes. Overlooked is that DODBX is actually more of a 70/30 fund. And perhaps unknown to some, it’s been holding a 5% short position against the S&P. Further, its heavier than average weighting to financials stands to benefit investors as rates rise.
- D&C underplays the significance of individual managers. Committees make the big calls, as I’ve understood them. Given the choice between investing with a bland committee or a well known figure with the aura of a David Giroux*, the latter likely wins out among today’s investors.
- D&C does not make their funds available NTF at brokerage houses. That has to hurt inflows and may lead to outflows.
* Not pertinent to the question, but I should note the performance of DODBX and PRWCX are quite similar. Over the past year DODBX led, gaining 18.9% to PRWCX’s 16%. Over 10 years, PRWCX wins at 13.36% compared to 11.91% for DODBX.
I'm keeping things simple for myself by using SCHD for my large-value allocation. I already have too many funds that I need to pare down.
+1
Traditionally, I used active equity OEFs in the IRAs but I now am leaning towards moving those to equity ETFs. Especially in Fidelity IRA where I have to call the rep to buy the same day I sell something else and all the other restrictions like 90% of proceeds availability, end of the day pricing, etc. Now is becoming more important for me than presumed potential future profits / outperformance. Equity ETFs already offer the opportunity for us to slice and dice the market in many ways should one wishes to do that, decreasing the need for active OEF managers.
Edit: If stock picking has its value going forward, 2022 should be the year. One of the difficulty with active OEFs is, most tend to box themselves into growth, value, or blend and then into size categories. I am not paying the huge ERs to become myself a tactical allocator within equities.
I would be interested in a list of active equity OEFs that are style, factor, size and box agnostic. Country / geographic preferences are OK - not to expect too much from the managers.
Comments
http://portfolios.morningstar.com/fund/summary?t=DODBX®ion=usa&culture=en-US
Interesting line. Wonder what date they made this shift? Obviously the past couple weeks have seen some modest yield increases.
“More recently, we have reduced the Fund’s equity exposure in light of higher equity valuations and modestly more attractive bond yields.”
Remember: "A camel is a horse put together by a committee." So they want to EXPAND the committee. It seems like a decision from out of the "Department of Redundancy Department." (sic.)
Under normal circumstances no less than 25% and
no more than 75% of the Fund’s total assets will be invested in
equity securities. The Fund may invest up to 20% of its total assets
in U.S. dollar-denominated equity or debt securities of
non-U.S. issuers traded in the United States that are not in the S&P
500 Index. Asset allocation between equity and debt securities is
based on Dodge & Cox’s assessment of the potential risks and
returns for each asset class over a three- to five-year horizon.
Factors used to estimate the range of potential returns include:
future earnings growth, the outlook for the economy, inflation and
interest rate trends, and current valuations relative to historical
ranges.
Excerpt from The Intelligent Investor:
We recommend that the investor divide his holdings between high-grade bonds and leading common stocks; that the proportion held in bonds be never less than 25% or more than 75%, with the converse being true for the common-stock component; that his simplest choice would be to maintain a 50-50 proportion between the two, with adjustments to restore the equality when market developments had disturbed it by as much as say 5%.
within the working group, we plan to transition this team to a
dedicated Balanced Fund Investment Committee, which will
take over management of the Fund from the current Committees,
effective May 1, 2022.
For Equity: US, global, EMs
For Fixed-Income: US, global
Portfolio Strategy: Quantitative, EMs
Although the word "alternatives" is not in the release, I interpret mentions of " investment questions that span asset classes" and "combining expertise across asset classes, risk management, and asset allocation" to mean something beyond traditional stocks & bonds.
May be the next update of prospectus will be more clear.
Here is an interview with David Giroux from last July that was posted here by poster teapot. See what he has to say about the traditional 60:40 balanced fund. Listen closely around the 12 minute mark.
PRWCX
Giroux was interviewed in Barron podcast this July.
https://www.barrons.com/podcasts/barrons-live/stocks-to-watch-investing-with-t-rowe-price-david-giroux/97b452aa-8887-4cde-84fb-06aa9bb07880?page=1
teapot December 2021 in Fund Discussions
Let’s hope their “cure” isn’t worse than the disease. I’ve been scaling out of DODBX as it’s risen the past couple years. Still hold a bit. In the event of a big market selloff, I’d probably buy into one of their equity funds.
One year performance (from Lipper): DODBX +17.85% / PRWCX +15.08%. However, at 3 & 5 years out PRWCX holds a slight edge. This is a radical move from a very conservative house. What comes next? Maybe D&C funds NTF at Fido, Schwab, etc.?
If you haven’t read Ed Studzinski’s column in the January Observer you might. He mentions “firms in the San Francisco Bay Area which face a problem of unaffordable housing costs for junior professional staff.” He mentions these employees having to commute long distances to work or reside in crime ridden areas. D&C is headquartered in SF - so I’d guess they’re one of the referenced here - but there’s a chance I’m wrong. In any event, read for yourself.
It's very difficult for me to imagine that this traditional firm will turn to alternative investments.
Speaking of Ed, I did notice in one of my recent Oakmark letters that the OAKBX team reminded readers that OAKBX can invest broadly across assets -- which is odd since, like DODBX, I thought it was largely domestic (and, traditionally the bond sleeve held only government obligations).
Finally, on PRWCX -- there are really no peers for that fund. My wife is in it, for various reasons I never took the plunge but now it's closed. Excellent fund.
I think the tenor of Ed’s post overall was that fee competition among large investment institutions (heightened by low-fee ETFs) makes it hard for employees to receive adequate compensation. Other cities mentioned were Chicago and Boston. So, the issue is widespread.
But Ed’s references over time to D&C’s investment approach and funds has been nothing but positive. ISTM he once conjured that were he looking for a fund house to invest in, D&C would be one he’d consider. That’s pretty strong acolade coming from a former Oakmark fund manager! So I think it’s important here to separate the challenges facing some of these big institutions from the caliber of their funds themselves.
I tossed out the reference to Ed’s comments because, putting 2+2 together, it’s possible D&C’s motives in redrawing DODBX may relate to attracting more business. Let’s not overlook that they recently launched a new EM fund. And couldn’t help noticing when putting through a recent trade that the minimum exchange amount there is now $100 - not $1,000 (as it once was), which may have dissuaded some younger investors.
Always enjoyed Ed's commentary, BTW. Shame (but understandable) that he and David are stepping back. They've both helped me become a more thoughtful investor.
The recent use of hedging in DODBX also led me to wonder if they were merely leveraging a tool that was always available but now particularly relevant in these bizarre times, or indicative of a more enduring shift in approach.
- Dodge & Cox equity funds (including DODBX) faired poorly in 2008. They got caught leaning the wrong way on some financials early on and never recovered. DODBX lost 33.5% that year. (By contrast, PRWCX lost 27% in 2008.) Prior to that, D&C had been a board favorite and had seen steady inflows. It’s the old saw about reputations, like china, being easily damaged and hard to mend.
- There’s a long held perception that DODBX is bloated. Gained traction during the ‘07-‘09 bear market. While accurate, investors seem to overlook that PRWCX has greatly outdistanced it in AUM over the last decade.
- There’s an aversion nowadays to typical 60/40 “balanced” funds owing to low interest rates and a belief (true to some extent) that bonds no longer offer protection. This weighs against DODBX in investors’ eyes. Overlooked is that DODBX is actually more of a 70/30 fund. And perhaps unknown to some, it’s been holding a 5% short position against the S&P. Further, its heavier than average weighting to financials stands to benefit investors as rates rise.
- D&C underplays the significance of individual managers. Committees make the big calls, as I’ve understood them. Given the choice between investing with a bland committee or a well known figure with the aura of a David Giroux*, the latter likely wins out among today’s investors.
- D&C does not make their funds available NTF at brokerage houses. That has to hurt inflows and may lead to outflows.
* Not pertinent to the question, but I should note the performance of DODBX and PRWCX are quite similar. Over the past year DODBX led, gaining 18.9% to PRWCX’s 16%. Over 10 years, PRWCX wins at 13.36% compared to 11.91% for DODBX.
Traditionally, I used active equity OEFs in the IRAs but I now am leaning towards moving those to equity ETFs. Especially in Fidelity IRA where I have to call the rep to buy the same day I sell something else and all the other restrictions like 90% of proceeds availability, end of the day pricing, etc. Now is becoming more important for me than presumed potential future profits / outperformance. Equity ETFs already offer the opportunity for us to slice and dice the market in many ways should one wishes to do that, decreasing the need for active OEF managers.
Edit: If stock picking has its value going forward, 2022 should be the year. One of the difficulty with active OEFs is, most tend to box themselves into growth, value, or blend and then into size categories. I am not paying the huge ERs to become myself a tactical allocator within equities.
https://stockcharts.com/h-perf/ui?s=DODBX&compare=BALFX,FBALX,FMSDX,JABAX&id=p15525362102