At The Motley Fool, we understand that it often pays to zig when Wall Street zags. Still, that doesn't mean we blithely ignore what leading fund managers are buying and selling. And hedge funds, which aren't always in lockstep with the broader market, can be a particularly valuable source of insight.

Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Securities and Exchange Commission Form 13F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets. To help us make use of 13F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that tracks hedge fund public disclosures and develops investment strategies based on them.

Q4 2010 update
Dodge & Cox was founded in 1930 and manages five no-load mutual funds. The funds offer a simple, low-cost way to own a broadly diversified portfolio of stocks and/or fixed-income securities. They focus on long-term investments selected through a rigorous research process. The total market value of Dodge & Cox's disclosed equity holdings at Dec. 31, 2010, was $83.7 billion across 172 holdings. Here's a snapshot of the portfolio's industry allocations.

The fund's 10 largest positions (shares held) and associated changes as of Dec. 31 were:

  1. Schlumberger (NYSE: SLB) -- reduced 13.9%.
  2. Novartis (NYSE: NVS) -- reduced 1.9%.
  3. Hewlett-Packard (NYSE: HPQ) -- increased 0.4%.
  4. GlaxoSmithKline (NYSE: GSK) -- reduced 0.3%.
  5. Wells Fargo (NYSE: WFC) -- increased 7%.
  6. Comcast (Nasdaq: CMCSA) -- reduced 1.6%.
  7. Vodafone (NYSE: VOD) -- reduced 4.1%.
  8. General Electric (NYSE: GE) -- reduced 1%.
  9. Capital One Financial (NYSE: COF) -- reduced 0.3%.
  10. News Corp. (Nasdaq: NWS) -- reduced 2%.

During the quarter, besides the top 10 holdings, the fund added to its positions in Genworth Financial, Gilead Sciences, and Dish Network, among others. On the sell side, the fund exited positions in 10 holdings, among them Synopsys, Telefonica, and Praxair, and reduced its stake in Wellpoint, Eaton, and Macy's, among others.

Following Dodge & Cox 
Is it worth paying attention to Dodge & Cox's moves? According to AlphaClone's back-test simulation, anyone who invested in Dodge & Cox's 10 largest holdings at the time they were disclosed publicly each quarter would have returned 39.8% since 2000, versus 9.4% for the S&P 500 (including dividends) as of March 23. Here's a chart showing AlphaClone's back-test model:

The strategy above buys/sells its holdings each quarter, five trading days after the SEC's filing window for Form 13-F closes.

Selected Q4 2010 Commentary
Dodge & Cox is primarily focused on the services sector -- it makes up 24.2% of the total portfolio. The technology, health care, financial, and energy sectors have almost equal weighting in the portfolio at 16.5%, 16.4%, 15.3%, and 11.4%, respectively. Here's where the firm is winning and losing currently and where it's making big new bets:

Current winners
Schlumberger was a big winner in the fourth quarter, having gained 36%. This stock accounts for 4.4% of the entire portfolio. Schlumberger is the world's leading oil services company. The company reported total revenue of $27.4 billion and its stock trades at a TTM price-to-earnings ratio of 27.7. Schlumberger also has a five-star rating (out of five) in Motley Fool CAPS.

Current loser
GlaxoSmithKline's stock price slid 1% in the fourth quarter of 2010, although a dividend payment gave the stock an overall positive total return. In October 2010, the pharma giant agreed to pay $750 million to resolve criminal and civil allegations regarding the sale of contaminated drugs by one of the company's subsidiaries.

New bets
The fund started six new positions during the quarter, including McGraw-Hill, Jacobs Engineering, and Devon Energy.

So there you have it, the blow by blow of Dodge & Cox's latest moves and why it can matter to your portfolio. Tell us what you think in the comments below.

Company data provide by AlphaClone LLC, a San Francisco-based research and investment management firm that tracks hedge fund public disclosures. For more information on the firm's investment approach, click here to visit AlphaClone.


Backtesting is the process of evaluating a core strategy by applying it to historical data. Backtested performance results are provided for purposes of illustrating historical performance had a core strategy had been available during the relevant period. Backtested performance results are hypothetical and have inherent limitations. AlphaClone makes no representation that any core strategy will achieve performance similar to any backtested performance results. Actual results could differ materially from backtested performance and future results could differ materially from backtested performance. Past performance is no indication or guarantee of future results.

Vodafone Group and WellPoint are Motley Fool Inside Value picks. Gilead Sciences is a Motley Fool Stock Advisor choice. GlaxoSmithKline and Novartis are Motley Fool Global Gains selections. The Fool owns shares of Devon Energy, GlaxoSmithKline, Schlumberger, Telefonica, and Wells Fargo. The Motley Fool has a disclosure policy.