Dodge & Cox

I notice that some funds hold large investments in companies that have their funds prominently displayed in their 401k plans. How common is this? I smell a rat. Specifically at DODGE AND COX and I suspect at a lot of other places… Anyone feel the same way? DODGE & COX management = HBS/GSB GROUP THINK.

I’m not sure I understand the nuance here. Just inexperience on my part, I’m sure, but can you explain the concern. Is it that funds are holding large investments in companies that funnel retirement back to their own funds through the 401k plans? On the one hand, what’s a company like Fidelity supposed to do in the large cap space? Restrict purchases of companies that have Fidelity as an IRA option? That would probably increase tracking error and reduce alpha potentials because you can’t make bets on companies that use you for 401k. I guess the real issue is whether having a company invest in your plans as a 401k will affect your investment decisions about whether to buy or sell the company. My guess is that PMs have enough separation from the sales staff, and enough incentives that they will want to buy/sell whatever they think is best. Sales may want PMs to buy more to keep a client happy, but if this reduces returns overall, then you’re going to lose other clients. Or is it something else?

bchadwick Wrote: ------------------------------------------------------- > I’m not sure I understand the nuance here. Just > inexperience on my part, I’m sure, but can you > explain the concern. Is it that funds are holding > large investments in companies that funnel > retirement back to their own funds through the > 401k plans? > > On the one hand, what’s a company like Fidelity > supposed to do in the large cap space? Restrict > purchases of companies that have Fidelity as an > IRA option? That would probably increase tracking > error and reduce alpha potentials because you > can’t make bets on companies that use you for > 401k. > > I guess the real issue is whether having a company > invest in your plans as a 401k will affect your > investment decisions about whether to buy or sell > the company. My guess is that PMs have enough > separation from the sales staff, and enough > incentives that they will want to buy/sell > whatever they think is best. Sales may want PMs > to buy more to keep a client happy, but if this > reduces returns overall, then you’re going to lose > other clients. > > Or is it something else? That’s correct. In some cases fund co’s have very large holdings in large caps (ie. among the companies’ biggest investors) and at the same time those same funds have prime shelf space in the 401k plans of those same companies. It looks like one big circle jerk. There is a huge conflict of interest nobody has really talked about. Companies like Dodge and Cox cannot afford to lose that 401k business. They are extremely well compensated for it. Same with Fidelity or any of the other players in the retirement services space. I think this is a big factor in why those companies maintain those large holdings and fail to lighten up when things go sour. They visit the managements of those companies and have cozy relationships with them. They invest in the stock and the managements return the favour by funnelling their employee’s assets to those funds. Then the funds underperform and fund shareholders get screwed and assets under management and management fees go up.

Specifically with regards to Dodge & Cox, I don’t think this is the case. D&C can definitely afford to lose the 401(k) business that you’re talking about. And aren’t their main funds closed for the most part? Wouldn’t that mean that they aren’t as interested in the AUM gathering game as they are at generating returns at this point? It sounds like you have an ax to grind with D&C here.

Stock fund just reopened. They are getting desperate in view of their horrible performance in the 1 - 3 year time frame. I don’t have an ax to grind. I just think that there are some unethical, and prevalent, practices that have not yet come to light. https://www.dodgeandcox.com/stockfund_character.asp

I didn’t know the funds were reopened–it’s been a couple years since I was up to date on them. Do you have more info that suggests desperation other than the 1 and 3 year return vs. S&P500 and the reopening of the fund? I mean, they have a pretty good long-term track record. I’m not saying they are or aren’t doing anything unethical, just that these guys have been making tons of money for a long time now and I wouldn’t necessarily think they were desperate enough to do something like that.

They’re getting greedy. Hence the emphasis on growing what is already a massive fund. Same thing happened at Fidelity with Magellan. Their excuse for reopening the fund is such BS!!! They say that they want to “take advantage of opportunities in the market…” yeah right… opportunities to fatten their wallets at the expense of investors! They lost massive amounts of money already on incredibly bad decisions. They just want to increase their management fees in a time of extended poor performance. That makes me question their ethics. And then when I see a particular holding where they are the #1 shareholder… and that company has both the Stock Fund and the Balanced Fund in the 401k, it really makes me wonder what the hell is going on considering the cozy relationship they purport to have with the managements of the companies they invest in. But this is what you expect from a retail name right!!!

Danteshek, I have to take issue with your views on Dodge & Cox. The firm has been around for a long time and always acted in the best interest of shareholders. They have very low expense ratios on the funds and a track record that is incredible if you are willing to look past the last year. I have worked for companies that offer funds managed by that company in 401(k) plans. I just think you are way off on this. Fair disclosure… I own the Dodge and Cox Interanational and Balanced funds.

I hope I’m way off. If the performance numbers are bad this year they will have A LOT of explaining to do. I would like to see some disclosures on how their institutional and HNW separate accounts are doing relative to their retail funds, and compensation.