Sticking with a plain, vanilla index fund that follows the broad S&P 500 is a great way to keep things simple with your investment plan. That said, it’s always exciting to look to other options that may give you a better chance of beating the averages. Undoubtedly, there’s nothing wrong with passive investing, but things can get a whole lot more interesting if you go down the path of a more active investor.
While active investing does not necessarily mean better results over time, picking the right funds and managers can lead to a mix of investments that’s better for you.
Whether you’re a conservative investor and want a more conservative approach (with bonds and other lower-beta income-generating assets), seek a greater focus in a certain sector (think the tech scene to take advantage of emerging growth trends like AI), or specifically want more exposure to a corner within an industry (think semis), there’s likely an exchange-traded fund (ETF) product for that.
Further, concerns about valuations could grow louder if the S&P 500 continues its rally through the year.
Stop me if you’ve heard these before: the S&P 500 valuations are close to the loftiest they’ve been in recent memory, and the concentration risk of the index is rising due to the continued ascent of the Mag Seven stocks. While these are not necessarily a sign that 2025 will be a bear market year, I do think there’s an opportunity for investors to broaden their horizons with value-based funds that may have a shot to outdo the S&P 500 in 2025.
An old fund with an intriguing value strategy
In this piece, we’ll look at a value-oriented fund in the Dodge & Cox Stock Fund (DODGX), which may be worth a second look as the growth trade starts showing signs of taking a breather while the value trade gets a chance to catch up.
The DODGX is one of the older funds out there, starting all the way back in 1965, likely well before the average new investor was even born. The fund has an intriguing value-based investment approach, which allows management a greater degree of flexibility to pick and choose the stocks to put in the basket. While the fund is predominantly U.S.-focused, management has the option of investing a portion in international securities.
Undoubtedly, if you’re one of the many investors who’s growing concerned about the increasing concentration at the very top (think the Mag Seven stocks), perhaps the DODGX is a better fit for your long-term investment portfolio at a time like this. With the DODGX, you’re gaining broader exposure to value names and far less top-heaviness, with the top holdings comprising just 4% of the fund.
Compared to the S&P 500, the fund is heavier in the financial and healthcare stocks — which tend to boast more reasonable price-to-earnings (P/E) ratios — and much lighter on the tech. So, if you’re troubled by the extended valuation and rising concentration risk of the S&P 500, know that there are alternatives like the DODGX.
The DODGX was left behind by the S&P 500 in the past year
Over the past year, the DODGX has trailed the S&P 500 by a wide margin, gaining just shy of 7% while the S&P 500 delivered around 23%. Indeed, being underweight in the Mag Seven stocks didn’t help the cause, as it’s been these seven frontrunners that have done more than their share of the lifting of the broad markets.
In any case, the tables could be about to turn. As the Mag Seven names start showing some fragility, perhaps it’s best to rotate back into value plays that can withstand the correcting of any froth within the tech scene. Though the DODGX is value-oriented, it does have some exposure to the Mag Seven. Notably, Alphabet (NASDAQ:GOOG | GOOG Price Prediction), a stock I’ve praised as the cheapest of the group, is one of the larger holdings (3.3%) in the fund.
If 2025 is the year that tech and the Mag Seven fall, I like DODGX’s chances of beating the S&P 500. It’s a sleep-easier play for investors who are concerned the S&P 500 has gotten too expensive and top-heavy.
Top Gaining Stocks
Top Losing Stocks