Morningstar

Dodge & Cox Worldwide US Stock A EUR

Analyst Report
Morningstar's Take
|05/06/2023
by Tony Thomas
As it typically does each January, Dodge & Cox recently announced plans for personnel moves in the coming year. The 2023 update primarily affects its fixed-income team, but as usual, the firm has prepared well, and all pillar and Morningstar Analyst Ratings for its funds—particularly Dodge & Cox Income DODIX and Dodge & Cox Global Bond DODLX—are unaffected.

The main news is that director of fixed income Tom Dugan will retire at year’s end. While this is the first public statement of his plans, it’s clear that preparations have been in the works for a few years. Lucy Johns, the associate director of fixed income since January 2020, will take over the directorship when Dugan leaves. Like Dugan, Johns serves on both the U.S. and global fixed-income investment committees, and she will take Dugan’s place as portfolio director of the U.S. group (which collectively manages Dodge & Cox Income) at his retirement. The portfolio director role is largely administrative and involves coordinating the committee’s business. Johns is currently portfolio director for the global fixed-income investment committee, but she’ll cede that position to committee member Matt Schefer at the end of 2023. Schefer, a 14-year veteran of the firm, has already been shadowing Johns in the role.

May 1 will bring other changes to the global fixed-income investment committee. At that time, Dugan will step off and analyst Mimi Yang will join, keeping the committee’s total membership at seven. Yang has spent all eight of her years at Dodge & Cox focused on macroeconomics and global bonds in support of Dodge & Cox Global Bond, which the committee runs.

The firm did not appoint a new associate director of fixed income to work alongside Johns, but there is little concern that Johns—who has spent two decades at Dodge & Cox—will leave. The firm has a solid record of retaining key leaders.

Dodge & Cox has handled other transitions smoothly in recent years, including the retirement of former chairman and CIO Charles Pohl in June 2022. That coincided with a handful of well-planned moves on the equity investment committees and within the firm’s leadership over a few years. (The firm had announced Pohl’s plans in January 2021.) Dodge & Cox does not anticipate changes in 2023 to the equity side or among the firm’s leadership, including chair and CEO Dana Emery and Pohl’s successor in the presidency, Roger Kuo.
 
Dodge & Cox Stock’s people, process, and track record earn each of its two share classes (and its Irish UCITS version, Dodge & Cox Worldwide U.S. Stock) a Morningstar Medalist Rating of Gold.

The strategy’s personnel advantage is more about organization and quality than headcount. Like all Dodge & Cox offerings, a committee of seasoned investors—all of whom rose through the firm’s ranks—runs the strategy. Its seven members include CIO David Hoeft and director of research Steven Voorhis. Its depth helped it absorb what otherwise would have been an impactful retirement: the mid-2022 departure of veteran Charles Pohl. For research, the committee relies on the exhaustive work of the firm’s global industry analysts, who carefully dig into companies and defend their views before specialized sector teams as well as the experienced managers.

In addition to its thoroughness, the process is also contrarian, valuation-focused, and long-term oriented. To get its edge, Dodge & Cox’s analysts and managers want to buck the consensus view. They want stocks trading cheaply relative to their apparent competitive strength and growth prospects. They’re not afraid to look for bargains among companies facing what the team believes are temporary, surmountable challenges. They’re also willing to stick around until those companies’ fortunes improve. A fine recent example of this is the strategy’s stake in Occidental Petroleum OXY. The committee first bought the stock in mid-2017, saw it flounder in the wake of the company’s 2019 acquisition of Anadarko and the 2020 onset of the coronavirus pandemic, but stayed with it as the analysts saw a path for the firm to meet its obligations. They then watched the stock flourish as oil prices rose through 2021 into 2022. Occidental was the strategy’s top position in March 2023.

Having the courage to brave the ups and downs of various markets and individual stocks has put the strategy in rarefied company as one of the best large-value strategies available. Investors who show the same patience and fortitude stand to be well rewarded—and will pay relatively low fund fees along the way.
 
Morningstar Medalist Rating™Still among the best.
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Morningstar Pillars
PeopleHigh
ParentHigh
ProcessHigh
 
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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