New global fund raises questions

Dodge & Cox's intention to launch a global-stock fund in April or May has observers trying to read the tea leaves.
MAR 03, 2008
Dodge & Cox's intention to launch a global-stock fund in April or May has observers trying to read the tea leaves. Since the San Francisco-based asset manager offers just four other funds, and last launched one — the International Stock Fund — in 2001, the move may hint at possibly growing demand for global funds, according to some observers. Or it may mean merely that Dodge & Cox, which manages $160 billion in mutual fund assets, is rounding out its product line. The company declined to comment beyond what it filed with the Securities and Exchange Commission last month, saying its fund is in registration. "They're not a fund firm that rolls out a lot of products, or chases the latest trend," said Dan Culloton, fund analyst for Chicago-based Morningstar Inc. "It's likely that Dodge & Cox have deliberated over this for quite some time," said Jeff Tjornehoj, senior research analyst at Lipper Inc. of New York. "They don't come out with a flavor of the month," he said. "I think it could be a great addition to a stellar lineup." From January 2006 to January 2007, the number of global funds grew from 111 to 135, an increase of 21%, according to Morningstar. From January 2007 to January 2008, the pace of growth slowed to 16%, with 157 global funds in operation at the end of the period.

OUTPERFORMANCE

Performance of global funds, which include a mix of both U.S. and foreign stocks in their portfolios, has kept up with the purely international funds and outperformed U.S. stock funds in recent years.
Through Feb. 22, the five-year average annual return on global funds was 16.98%. That compared with a 19.1% average annual return earned by foreign large-blend funds and 11.51% earned by domestic-large-blend funds, according to Morningstar. Performance of the new Dodge & Cox global fund may be helped by its anticipated low costs. According to the filing, the fund's expense ratio will be 0.9%, which is much lower than the industry mean of 1.23% for global funds. Of the 161 global funds now in the Morningstar database, just 31 have expense ratios of less than 1%. Some think that more global launches are on the horizon. "Global funds may be more common than international in retirement plan offerings," said Mike Scarborough, president of Scarborough Capital Management Inc. of Annapolis, Md., which manages $1.7 billion in assets. "People are running to the hot areas, and the international market has become that hot area. The best way to hedge their portfolio is not to be country-specific, [United States] included," Mr. Scarborough said. "I think global funds hedge the domestic market," he said. "Instead of taking a bet on one, you get a mixed bag." Others disagree about the prospects for more global funds, noting that international funds are more popular. International funds hold $1.9 trillion in assets, compared with $364 billion for global funds, according to Financial Research Corp. of Boston.

SPECIFIC PRODUCTS

Those focused on asset allocation want specific products, said Avi Nachmany, director of the New York-based research firm Strategic Insight Mutual Fund Research and Consulting LLC. "I think the religion of asset allocation is still out there, and you need more purely defined strategies to fit investors' portfolios," he said. Global funds work well for a quick diversification, said Joseph Alexopolous, co-founder and principal of Aequitas Wealth Management LLC of Los Angeles, which has $15 million in assets under management. "But we don't use them much, because we like to have more surgical precision in being able to allocate certain resources to geographies or capitalizations across the planet," he said. Because the portion of a global fund dedicated to foreign stocks may vary, holdings might not be clear. "We want to know exactly what is in the fund, so we use foreign funds," said Rob Williams, financial adviser and portfolio manager at Baltimore-Washington Financial Advisors Inc. of Columbia, Md., which has $200 million in assets under management. E-mail Sue Asci at sasci@invest mentnews.com.

Latest News

Merrill lands four advisor teams as May recruiting data shows firm's two-way churn
Merrill lands four advisor teams as May recruiting data shows firm's two-way churn

Merrill's latest hires span Colorado to Louisiana, even as industry-wide recruiting data suggests the firm is losing almost as many advisors as it gains.

Fund manager sues Kandeo, alleges $100 million FinSocial loss
Fund manager sues Kandeo, alleges $100 million FinSocial loss

The $36 million buy allegedly hid inflated books and a $50 million diversion.

Advisor gets $200,000 from Ameriprise in 'emotional distress' lawsuit
Advisor gets $200,000 from Ameriprise in 'emotional distress' lawsuit

“An award citing emotional distress is very unusual,” an industry executive said.

Workplace financial education linked to stronger financial habits, but participation remains low
Workplace financial education linked to stronger financial habits, but participation remains low

New EBRI research found workers who participated in employer financial education reported higher confidence, literacy and financial satisfaction.

The rise of the super advisor: How AI is redefining competitive advantage in wealth management
The rise of the super advisor: How AI is redefining competitive advantage in wealth management

Beyond operational excellence, the winning advisors of the future are the ones who can reach across multiple disciplines without discarding specialist skills.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income