Dodge & Cox

The Flawed Praise of “No Marketing”

Posted by Mike McLaughlin on Jan 31, 2014, in Thoughts , tagged with , , , ,

A recent article (subscription required) from FundFire covers Capital Group’s recent efforts to amp up its public communications. The short version is the firm is doing more to explicitly boost its brand and market itself.

I contributed a few thoughts to the article but wanted to expand a bit on this quote: There’s a badge of honor associated with not marketing.

It’s not rampant, but too often firms that say they don’t market themselves are falsely praised for having that stance. I touched on this in a post last month about Dodge & Cox, where Morningstar connected the firm’s reluctance to market itself to overall trustworthiness. Less obviously, Barron’s touched on Dimensional Fund Advisors’ lack of advertising in telling the story of that firm’s success.

The idea that a lack of marketing is somehow virtuous bothers me. Marketing is an agnostic discipline. You can execute well and you can execute poorly, but how you view marketing does not fundamentally make an organization better or worse.

More importantly (and obviously), ALL successful managers market themselves. They have Web sites. They have people who meet with prospects and tell them about the organization and what they offer. In some cases they even spend time with prominent publications so that those publications can write fawning articles. (Yes, I’m veering into sarcasm.)

I think it’s great that Capital Group has decided to be more proactive with the branding and marketing efforts. But the idea that they didn’t market themselves (or that any unwillingness to do so) was a part of why they did so well for so long is an utterly false narrative. I hope it’s a narrative that disappears across the industry.

A Misguided Assessment of “Culture”

Posted by Mike McLaughlin on Dec 06, 2013, in Thoughts , tagged with , ,

I just touched on something from Morningstar a few weeks ago, but I’ve got to go back to the well one more time.

Earlier this week the article Dodge & Cox is a Model Fund Family caught my eye, and it’s been on my mind ever since. The article’s intent is to analyze Dodge & Cox’s corporate culture as a key element in Morningstar’s stewardship evaluation for the firm. To be transparent on where I’m coming from, three initial thoughts:

  1. I conceptually understand and see merit in Morningstar’s goal to evaluate stewardship.
  2. However, I struggle with any assessment and judgment on culture. Culture is a byproduct of the people, dynamics, business situation, etc. of a company. It’s not an input.
  3. When was the last time you read a story about how awesome the culture is at a company that is performing terribly financially and/or letting people go?

In most cases, assessing culture is simply a qualitative and subjective exercise that ultimately supports preconceived notions of an organization. Dodge & Cox is a private company that has been hugely successful for 80+ years. Anyone would be hard-pressed to objectively and convincingly conclude that the culture there is one that doesn’t work.

To that end, the Morningstar article feels like a hollow exercise, and in fact one that is a bit condescending to other asset managers. The one thought that really stands out to me is this:

There are other reasons to trust the firm. It shuns marketing and advertising, has no salespeople, and has rolled out just five funds in eight decades.

Equating an aversion to sales, marketing, and product development with great culture and stewardship implies that embracing those things negatively impacts a firm. Ridiculous.

Morningstar thoughtfully updates its methodology on a regular basis. The cultural component of its assessment of funds and firms is one that I think needs to be reconsidered.

What Do You Say About Risk?

Posted by Anu Heda on May 25, 2011, in Thoughts , tagged with , , , , , , , ,

In our consulting work, we meet marketing executives wanting to extol their firm’s risk management practices.  Risk management poses a specific problem.  Stay to high-level and it sounds like you don’t manage risk.  Discuss procedures and controls and risk losing your audience.

Below is copy taken directly from three industry leading firms: Western Asset, Janus, and Dodge & Cox.  Great firms struggle to convey a straightforward process.  Many firms – BlackRock, MFS, PIMCO, Pyramis, & Vanguard – don’t emphasize the topic on their public Web sites.  Any of the below copy strike a chord with you?

We’re curious what you think should be conveyed when discussing risk management.  Send us an e-mail or message via Twitter.  I pasted all that copy into a word cloud software to see what words are most common: risk management is often described with the words “investment” and “team” (note: I excluded “risk” and “management.”)

Western Asset

Western Asset has a dedicated risk management team that oversees risk management and incorporates it into the investment process. While this team is integrated into the portfolio management unit, it has a separate and independent reporting structure. Western’s risk management team combines the best of the Firm’s technology and experience to develop useful risk management tools and procedures. These tools and procedures provide daily analysis for both the Investment Team and the Analytics/Risk Management Department, ensuring the integration of professional risk management practices into the investment process.

Janus

The Janus Risk Management team, headed by Dan Scherman, serves as a resource for portfolio management to assure that every portfolio maintains the appropriate level of risk given its performance objective. Additionally, the team helps to assure that risks taken are associated with intended bets.

Tools used to monitor risk include:

  • Tracking error decomposition, characteristics, concentration, Janus ratings, under-weights/over-weights
  • SPAR returns-based style analysis
  • Performance attribution (Factset, BARRA, Wilshire)
  • Index and competitor analysis, as necessary

Dodge & Cox

From the earliest days, Dodge & Cox’s investment approach has stressed evaluation of risk relative to opportunity. A strict price discipline — steering clear of popular choices that come at a price premium we would rather not pay — is critical to achieving our investment objectives. Low valuation investments, for example, typically reflect low investor expectations that may serve as a buffer against the risk of significant price decline; these low expectations may also create greater potential for capital appreciation should investor pessimism turn out to be unwarranted or short-lived. At all times, our ongoing search for superior relative value is guided by a rigorous research process that seeks to differentiate the short-term concerns that may be temporarily depressing an investment from the intractable, long-term problems that could doom it.