By all standards, Dodge & Cox had a banner year. While fund data providers are still crunching full-year 2001 numbers, the institutional advisor based in San Francisco is poised to cap off the year as the third best selling no-load fund complex, and the seventh overall best selling fund group in 2001.

Through November, Dodge & Cox, which offers four funds, had garnered $3.6 billion in net new flows, placing it third behind Vanguard, which collected $33.6 billion, and Fidelity with $8.6 billion, according to Financial Research Corp. of Boston.

But as a percentage of overall assets, Dodge & Cox is the hands-down winner in the 2001 race to attract assets. From November 2000 through November 2001 the fund group increased total assets under management by 46%, from $11 billion to $16 billion. According to the firm, fund assets ballooned to nearly $17.0 billion by year-end.

Bucking the Trend

Dodge & Cox's asset flows fly in the face of the bloodletting many fund groups experienced last year. As a whole, the 50 largest fund groups, which hold $3.2 trillion, lost 14% of assets in the first ten months of 2001.

Dodge & Cox also disproved dire predictions that apart from the top one or two players, no-load fund groups were a dying breed.

Business as Usual

Dodge & Cox's success last year hinged on doing business as usual, the firm says. That may be somewhat surprising given that it has no formal marketing department, doesn't advertise and won't put its stock pickers on the financial channels' airwaves. "We don't have anyone paid to bring in business and we don't want to focus on getting new business," said Ken Olivier, senior VP at Dodge & Cox.

Moreover, the fund group is among the now scarce 100% no-load funds that don't tack on 12b-1 fees. Additionally, it refuses to offer its funds through traditional retail or institutional fund supermarkets because doing so would mean inking a revenue-sharing arrangement with supermarket proprietors, and that would drive up the funds' low expense ratios.

"We have trouble with the concept of making things more expensive. We've taken the no-load, low expense, no 12b-1 course," Olivier said. However, the group's funds are available for sale, in programs that charge retail investors a transaction fee.

Marketing Performance

Top performance has been key to Dodge & Cox's success, said Olivier. Dodge & Cox manages a total of $55 billion, $38 billion of which is managed in separate accounts for institutional investors, pension plans, foundations and wealthy families. "You have to start with performance. Performance gets attention and money flows to where performance was strong," Olivier said. "But it's what's behind the numbers that keeps people interested."

Much of Dodge & Cox's success stems from capturing the attention of institutional consultants who recommend investment managers to qualified plan sponsors. Their criteria typically include consistent performance, lengthy manager tenure and low expenses, said Olivier. He estimates that 75% of Dodge & Cox's fund assets are held in 401(k)s and other qualified plans.

And a low turnover has helped keep the Dodge & Cox Funds' overall expense ratios low, said Jeff Keil, VP at Lipper. Dodge & Cox's three more veteran funds fall into the lowest quartile based on fund expenses.

Dodge & Cox was perfectly positioned to win big in 2001, said industry analysts. "Dodge & Cox is a strict value style manager, with a long-term time horizon, a buy-and-hold philosophy, and outstanding fund performance," said Whitney Dow, research analyst at FRC. "The group has one of the best long-term [performance] track records in the industry," he said.

Three of the group's four funds have top decile performance, both for this past year and over three-, five- and 10-year periods according to Morningstar. Furthermore, with a low volatility rating, each of the three funds has earned the coveted five-star rating from Morningstar. The lineup includes a domestic equity fund, a balanced fund and a fixed-income fund. A fourth fund, the Dodge & Cox International Stock Fund, was launched just nine months ago.

Evaluating Winning Styles

"They are disciplined value investors, and good stock pickers," said Bill Rocco, analyst with Morningstar. With their core value style of investing being in favor over the past couple of years, they have had the wind to their backs and their funds have shined, he said. Dodge & Cox's value bent is applied universally to both the equity and fixed-income markets.

"There's no secret answer. It all comes down to smart and savvy managers that are experienced and have been there awhile," said Rocco. Of the eight individuals that compromise the firm's holistic investment policy committee, the average tenure is 23 years, according to the firm.

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