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An Old-School Investment Manager That Builds Wealth Quietly – New York Times

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San Francisco — In the hard-sell world of mutual funds, the art of pushing pricey investments is a source of pride for many executives.

Not at Dodge & Cox.

The old-school investment firm does virtually nothing to promote or market its six modestly priced, actively-managed mutual funds.

“Every large mutual fund manager either advertises, pays brokers or does both,” said Charles F. Pohl, the chairman of Dodge & Cox. “We are the only one that does neither of those things — it’s just a different business model.”

To underscore his point, Mr. Pohl described a recent encounter with an executive from a rival fund company, whom he declined to identify. Mr. Pohl’s peer proudly described the way that new technology allowed him to track, in real time, how its vast portfolio of mutual funds, and their many share classes, were selling across the country.

Mr. Pohl was unimpressed.

“We have no idea about this,” he said dryly. “But if you give me enough time I think I can name every single issuer of a bond or equity that we own.”

Mr. Pohl did not rattle off the names of the 164 companies that Dodge & Cox, which manages $303 billion in assets, oversees in its portfolios. He was, however, quick to highlight the simplicity, parsimoniousness and devotion to disciplined value investing that distinguishes this traditionally minded investment firm from much of its industry.

Founded in 1930 by two Depression-era bankers, Dodge & Cox has just six, single-class mutual funds, compared with an average of 464 for the largest 25 fund shops, according to Morningstar. Its fees are about half the industry average, Morningstar says. It has no sales force and says it has never paid to advertise its small stable of funds.

If the indexing giant Vanguard were reincarnated as a pure stock-picking outfit, it might look a lot like Dodge & Cox: lean, cheap and not a little holier than thou.

For years, fund companies that rely on active stock selection to churn out returns have been pummeled by investors switching over to lower-cost, better-performing index and exchange-traded funds. The portfolio managers at Dodge & Cox, stock pickers to their very core, have not been immune to these industry-shaking trends.

Over the past three years, the firm’s main fund, Dodge & Cox Stock, has returned just over 8 percent, trailing the Standard Poor’s 500 index by 1.5 percent during this period, according to Morningstar. A tried-and-true value fund, it has not chased after fashionable technology stocks, which has also hurt short-term performance.

Investors have been less than patient with such results. Since 2012, the Dodge & Cox Stock fund has had close to $10 billion in outflows, although the firm’s other funds have had net inflows during that time.

The Dodge & Cox Stock fund’s five-year performance has been better. While many large capitalization mutual funds have struggled to keep pace with the surging Standard & Poor’s 500-stock index, which returned 14.2 percent, annualized, through September, Dodge & Cox Stock was up 15.6 percent, according to Morningstar. That put the fund in the top 2 percent of its category.

While other fund companies with an active — as opposed to an index-based, or passive — investing bias are wrestling with their missions, contemplating mergers or exploring ways to use index-tracking exchange-traded funds to attract new investors, Dodge & Cox is staying true to its principles.

At the root of those principles is a Vanguard-like aversion to spending money. Despite having $100 billion parked in stocks and bonds that trade in overseas markets, the company has no offices in Europe or Asia. In addition to doing no advertising, the firm has no public relations office and no sales force.

A glance at employees’ business cards highlights this self-effacing culture. Mr. Pohl and Dana M. Emery, the firm’s chief executive, hand out cards free of any reference to title or position — an oddity in the status conscious world of finance.

Executives at the firm insisted that there was a method to the madness: investors reaping better returns from lower fees on Dodge funds.

For example: According to Morningstar, the 0.52 fee levied on the Dodge & Cox Stock fund is half the price of the average large stock fund, which charges about 1.07 percent to investors these days.

For a major stock-picking fund of its size — $66 billion in assets at last count — that is quite a discount, and cheaper even than many large E.T.F.s, where cost is the major selling point. For example, the iShares MSCI Emerging Market E.T.F., which has $35 billion in assets, charges a fee of 0.72 percent.

“The fee differential is unique,” said Andrew Daniels, an analyst at Morningstar who covers the firm’s main fund, Dodge & Cox Stock. He added: “Their interests are aligned with fund holders, and, for how strong a fund this is, it’s one of the cheapest active funds that you can buy.”

Dodge & Cox is, in many ways, a throwback to a much earlier time, before mutual fund companies went public and before the now departed era when hot shot portfolio managers graced the covers of glossy magazines. Its first offering, the Balanced Fund, was established in 1931.

Since then, generations of top managers have resisted the urge to sell their shares in an initial public offering. And while many firms brag about low manager turnover, few can match Dodge & Cox’s numbers.

Mr. Pohl, 59, has been chairman since 2013. He and Ms. Emery, who is in charge of fixed-income investing, preside over the firm’s investment committee and also share operational responsibilities. He has spent 33 years at the firm; she has been there for 34.

It is not uncommon for people to stay at Dodge & Cox for a long time. One of the firm’s founders, E. Morris Cox, who died in 2003, came into the office regularly when he was well into his 90s. These days, the average firm tenure for all of its portfolio managers is 19 years. At the 25 largest fund families, the comparable figure is just over 8 years, according to Morningstar.

Mr. Daniels cited two factors in particular that allowed the firm to keep its fees down.

That Dodge & Cox is a private company protects it from quarterly earning pressure to ramp up fees. And the firm rates among the highest among mutual fund companies in terms of portfolio managers that invest in their own funds, which studies have found is a key attribute for funds that outperform their peers.

“They really eat their own cooking,” Mr. Daniels said.

Mr. Pohl, the Dodge & Cox chairman, said his company’s methods enabled it to excel.

“We are after a different customer,” he said, “someone who does not have to read an ad or have a broker call them. And in return they get a lower fee and a better long-term return.”