10
I don’t make a lot of changes to my portfolio. I buy
good funds for the long haul and tend to be pretty
patient. This year, I have one new fund in my portfolio
and one other that I made an additional investment
in outside my
401
(k).
As it happens, both are foreign-stock funds. Because
the U.S. market had bigger returns in
2013
, my port-
folio was looking a little U.S.-heavy, so sending some
new money to foreign funds helps me to get back
to where I want to be. In addition, foreign equities in
general look a bit more attractive than U.S. stocks.
The new fund is
DFA International Small Company
DFISX
, which was added to the Morningstar
401
(k)
plan.
DFA
is a master of small caps. Its strategy is to
behave mostly like an index fund except when it
comes to trading. Because small-cap stocks tend to
have wide bid-ask spreads, index funds that track
such equities can be hurt by making lots of little
trades that are bound to put them on the wrong side
of those spreads.
DFA
’s approach is to instead capture as much of
those spreads as possible for its funds by serving as
a provider of liquidity. That means the firm offers
to buy when someone is really eager to sell, and sell
when someone is really eager to buy. Thus,
DFA
gets to capture a lot of those spreads. This means that
its trading costs are either very low or even a net
source of profits, while traditional small-cap index
funds have a tougher time keeping up.
DFA
’s suc-
cess with small caps has translated well overseas as
this fund’s top-quintile
15
-year returns suggest.
Not everyone can get into
DFA
funds, though.
DFA
is available through more planners and platforms than
it used to be, but it’s still fairly tough to access. A
pretty good alternative is
Vanguard FTSE All-World
ex-US Small-Cap Index
VFSVX
, which is also avail-
able as an exchange-traded fund,
VSS
. Those funds
charge less than
DFA
, though they don’t pull out as
many tricks to reduce trading costs as
DFA
does, so
it’s something of a wash.
I also put some more money in
Dodge & Cox Inter-
national Stock
DODFX
, which I’ve owned for more
than
10
years. For starters, I like the culture of the
firm. Dodge
&
Cox managers and analysts often spend
their careers at the firm, and the stability of the
investment team gives the fund a competitive advan-
tage. It also makes all of the firm’s funds easy to
own for the long haul, as a single manager departure
won’t spoil things.
The fund’s low costs also stand out in an asset class
where many other firms get away with charging extra.
This fund started with a low expense ratio and has
kept it low ever since. I think I may have mentioned
the importance of costs once or twice.
I also like the fund’s eurozone enthusiasm, as that’s
a good place for a value investor to be. Europe’s
stocks are fairly cheap, and Dodge
&
Cox figures to
be able to make the most of that. True, the fund
took its bumps in
2008
, but since its
2001
launch, it
has doubled its benchmark’s return.
Finally, I love management’s commitment to the fund.
Six of the seven listed managers have more than $
1
million of their own money invested in the fund, and
the seventh has between $
500
,
000
and $
1
million.
œ
Funds I’m Buying
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to find
overlooked funds that may be
ready to rally.
Three Solid Foreign-Stock Plays
Name
Morningstar
Analyst
Rating
Morningstar Category
Total Ret
% Rank
Cat 3 Yr
Total Ret
% Rank
Cat 5 Yr
Total Ret
% Rank
Cat 10 Yr
Total Ret
% Rank
Cat 15 Yr
Prospectus
Net
Expense
Ratio%
Overall
Steward-
ship Grade
Dodge & Cox International Stock DODFX
Œ
Frgn Lg Blend
6
4
9
0.64
A
Vanguard FTSE All-Wld ex-US SmCp Idx VFSVX
•
Frgn Sm/Mid Blend
96
85
0.40
A
DFA International Small Company DFISX
•
Frgn Sm/Mid Blend
53
53
32
19
0.54
B
