MUTUAL FUNDS


Dodge & Cox Balanced

After five years of mostly mediocre performance, Dodge & Cox’s U.S.-oriented stock funds have emerged from the wilderness. Dodge & Cox Stock, a member of the Kiplinger 25, beat the market by four percentage points over the past year. And Dodge & Cox Balanced is near the top of the list of one-year winners in Morningstar’s moderate-allocation category.

Balanced is essentially a sedate version of Stock. It holds nearly all of the issues in Stock, but it also invests a big chunk of its assets in the bonds held by Dodge & Cox Income.

Lately, Balanced has been pushing the allocation envelope. The typical balanced fund has 60% to 65% of its assets in stocks, but Balanced recently had 71% in stocks, near the maximum of 75% permitted by its charter. “Long term, the potential returns from fixed income are limited,” says chief investment officer Charles Pohl. “We see significantly better long-term potential for equity.”

When picking stocks, Dodge & Cox favors growing companies at favorable prices. But the firm’s 18 managers and 23 analysts also shop for distressed merchandise with slashed share prices. Balanced’s biggest stock-sector weightings at last report were in financials, technology and health care. As for Balanced’s bond holdings, 38% was in corporate debt (nearly all of it investment-grade), and one-fourth was in government-agency mortgage securities.


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