Portfolio - OAKBX

Hello Everyone,

I have my emergency fund ($40,000) in the below funds since last 3 years in my taxable account

Dodge and Cox Stock - DODGX - $ 15,000
Dodge and Cox Intl - DODFX - $ 5000
BRUCE - BRUFX - $2000
Third Ave Value - TAVFX - $2000
Mairs and Power Growth - MPGFX - $4000
Value Line Emerging Opps - VLEOX - $1000
Oakmark Equity and Income - $10,000

This year when filing my tax return I noticed that DODGX had a huge capital gains distribution. This prompted me to take a look at my overall portfolio and after a lot of research and risk-reward-tax analysis, I have concluded that the best fund is Oakmark Equity and Income (OAKBX). It has a low standard deviation and holds well in bear markets.

I am thinking of selling all the funds and invest 100% in OAKBX.

I am a little jittery - Is this the right thing to do and right time to sell.

I will appreciate if you can share your thoughts regarding this strategy.

Thanks in advance,

Annex

My first thought is that and Equity-Income fund would be far less tax efficient than a capital gains producing stock fund.

The income producing element in a the equity-income fund will be taxed at ordinary income tax rates with some capital gains sprinkled in. The straight stock fund should produce primarily capital gains, which are in most cases taxed at a lower rate than income.

What methodology did you use in your analysis?

I checked the 1099 tax forms for 2007 for both OAKBX and DODGX and the numbers for DODGX were a lot higher. To further confirm this I went to Forbes mutual fund data screens. They have a Lipper score card. OAKBX has a tax efficiency of 4 compared to DODGX which has a 2

http://www.forbes.com/funds/Tearsheet.jhtml?tkr=OAKBX

http://www.forbes.com/funds/Tearsheet.jhtml?tkr=dodgx

Thanks

Annex

I would think the income from an EI stock fund would be a mixture of ordinary and qualified dividends. The qualified would be taxed similarly to long term cap gains and the ordinary as regular income. Hopefully you get qualified. I'd agree that an EI fund is not tax efficient and better held in a tax advantaged account.

Thanks Annex!

I went to the sites you linked and now I know that Dodge & Cox Stock is also an Equity-Income fund. For some reason I had it in my head that is was growth oriented.

Comparing the two side-by-side, I think Oakmark obviously appears to be the better fund. It has higher and more consistant returns for all holding periods, an equal risk-return profile and MUCH higher rankings as far as peer group goes. In fact, it's been in the top 10% for every ranking period over the past 10 years.

Your plan seems sound, especially considering that the overall allocation of the two funds overlap quite a bit in your portfolio.

Mandatory caveat, all these assessments are based on history alone. Also, one tax year does not make a fund inefficeint tax-wise. The fund managers may have been liquidating a position(s) to close out the year prior to further market declines.

i thought i might add,

there are many ways to save "an emergency fund". generally these are more likely found in cash equivalents. if we have an "emergency" we need access to the money. if you are having an emergency and (murphy foretells) that the market will also be in an emergency, then your cash is either less liquid (unlikely) or perhaps not available in the amounts you need.

so, if you really need 40K in an emergency fund, you would probably be better off having most of it in cash. of course, you can "layer" it as well ... but this again adds a risk component to what is normally thought of as protection AGAINST risk.

((ok brainiacs, i know it is peril, i am speaking in layman's terms))

if you have other lines to pull from (such as a HELOC) and the terms of that HELOC are tight, then you may need less in cash. you could then orient the extra amount you have saved to other goals.

oh well, my .02

Thanks Pricespector. You summarized the whole thing pretty well. I will sell of all positions tomorrow and invest 100$ in OAKBX.

Annex

Um, hold on a sec. The only analysis done was Dodge & Cox Stock vs. Oakmark. The other funds you own are like comparing apples to oranges as far as allocation goes. The greenlight I was insinuating was a trade of Dodge & Cox Stock for a full holding in Oakmark.

Are you sure want to move 100% of ALL assets? I mean, your big issue was with the D & Cox tax bill right? Don't you think that selling off an entire profolio in a taxable account could FAR exceed your annual bill that you received from Dodge & Cox?

.... oh lord!

Oops. Hope he checks the board again. :D

pricespector, I took DODGX as an example. I compared all funds in my portfolio to OAKBX and OAKBX is clearly the leader. As far as diversification goes, it is a 60/40 stock/bond fund.

Thanks 1_more for the suggestion. The beauty of OAKBX is - it does extremely well in bear markets and never had a negative return in last 20 years.

Thanks for coming back annex and letting us know your thought process. The Oakmark is a nice fund. Best wishes.

Thanks a lot pricespector and 1_more for your help and input

Annex

hey, can't figure out how to post on this site. Help please?

you got three on the board ... you must be doing something right.

This year when filing my tax return I noticed that DODGX had a huge capital gains distribution.
I think a lot of people experienced the very same thing. Cap gains distributions were up substantially, across the board this past year. It may have something to do with the big tax loss carryovers finally being used up. I know my gains were held pretty low for a few years after the '01-'02 bear market but jumped substantially last year. Having half my portfolio in tax free/deferred accounts helps. And I use munis in my taxable account for my most of my bond position. But still we got hammered. Quarterly estimated payments have jumped for this year as a result. I'm not planning on any major changes because of taxes though. In a year or so, when I start drawing down on my portfolio I'll look at pulling money out of the least tax efficient funds in the taxable account first.

The forums were kinda screwy before about posting...It is fixed now though