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Dodge & Cox Global Stock Fund 2nd-Quarter Commentary

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The Dodge & Cox International Stock Fund experienced a whole return of 20.three% for the 2nd quarter of 2020, compared to 19.four% for the MSCI Planet Index. For the six months finished June thirty, 2020, the Fund experienced a whole return of –17.%, compared to –5.eight% for the MSCI Planet.

Financial investment Commentary

In the very first quarter of 2020, the coronavirus (COVID-19) pandemic progressed into a world wide danger that disrupted major economies and greatly amplified volatility in the money markets. Just after declining sharply in the very first quarter, the MSCI Planet rebounded strongly in the 2nd quarter, with each individual sector and location publishing beneficial returns. Not shockingly, some of the hardest strike sectors in the very first quarter—traditional price sectors this kind of as Strength, Components, and Industrials— ended up between the better-executing sectors in the 2nd quarter. In the meantime, Information Technological innovation, a longtime leader that has served fuel the “growth” aspect of the sector, regained its posture as the most effective-executing sector of the MSCI Planet. Market place sentiment benefited from significant authorities fiscal and financial stimulus systems, as effectively as optimism about potential health and fitness care answers, even just before earnings recovery materialized.

More than the very last decade, the MSCI Planet Price Index2 has underperformed the MSCI Planet Progress Index by an astounding 142 proportion factors cumulatively.three Through this complicated period of time for price traders, the Fund has underperformed the wide-primarily based MSCI Planet, but outperformed the MSCI Planet Price Index by 31 proportion factors and MSCI ACWI Price Index by forty four proportion factors.four The valuation differential amongst price- and expansion-oriented stocks remains really huge by historical criteria: the MSCI Planet Price trades at 15.1 instances forward earnings compared to 29.four instances for the MSCI Planet Progress.five This valuation disparity is nearly 4 conventional deviations below the historic regular and has created sufficient expenditure alternatives for price-oriented traders like Dodge & Cox.

Our group of world wide field analysts has been highly successful in these volatile markets, reviewing existing portfolio holdings and presenting lots of new alternatives. This investigation has served the International Equity Financial investment Committee change the portfolio primarily based on COVID-impacted fundamentals and valuations. Through the 2nd quarter, we trimmed better valuation regions of the portfolio that experienced executed strongly (e.g., Well being Care, additional expensive technological innovation-linked organizations) and Strength holdings that experienced rebounded, when leaning further into price alternatives in the sector this kind of as in Components, Financials, and decreased valuation TMT. We added to existing holdings like Axis Lender (BOM:532215), Banco Santander (XMAD:SAN), Comcast (CMCSA), Itau Unibanco (NYSE:ITUB), and VMWare (NYSE:VMW).6 We also started 5 new positions in the Fund, like Facebook (NASDAQ:FB) (a social media conglomerate), LyondellBasell (NYSE:LYB) (a person of the world’s largest commodity chemical organizations), and Nutrien (TSX:NTR) (the largest agricultural fertilizer producer in the globe).

Although the portfolio remains tilted towards Financials, Strength, Conversation Products and services, and Well being Care, the Fund remains diversified and has exposure to many expenditure motorists. We have sturdy conviction in our price-oriented, energetic expenditure technique and continue on to think now is an opportune time to be invested in price stocks.

All round, we continue being optimistic about the prolonged-term outlook for the Fund, which trades at a major low cost to the over-all sector: thirteen.1 instances forward earnings compared to 20.2 instances for the MSCI Planet. Persistence, persistence, and a prolonged-term expenditure horizon are critical to prolonged-term expenditure results. We persuade our shareholders to get a similar see. Thank you for your ongoing confidence in Dodge & Cox.

Our views are with all the persons and people of those people who have experienced from COVID-19 and also with the committed health and fitness care staff and very first responders battling on the front strains. We would like anyone all the most effective throughout these complicated instances.

Second Quarter Functionality Review

The Fund outperformed the MSCI Planet by .9 proportion factors throughout the quarter.

Crucial Contributors to Relative Benefits

  • Relative returns in the Strength sector (up fifty six% compared to up seventeen% for the MSCI Planet sector), put together with a better regular weighting (eight% vs . three%), experienced a beneficial impression. Ovintiv (TSX:OVV), Apache (APA), Occidental Petroleum (OXY), Hess (HES), and Baker Hughes (BHI) ended up sturdy performers.
  • The Fund’s regular underweight posture in the Purchaser Staples sector (1% vs . 9%) and stock assortment (up forty four% compared to up 9%) contributed to results.
  • Microchip Technological innovation (MCHP), JD.com (JD), and Dell Technologies (DELL) ended up additional contributors.

Crucial Detractors from Relative Benefits

  • The Fund’s regular underweight posture in the Information Technological innovation sector (thirteen% vs . 20%), put together with stock assortment (up 26% compared to up 31%), detracted from results. HP Inc. (HPQ) lagged.
  • The Fund’s better regular weighting in the Financials sector (28% vs . thirteen%) damage results. Conventional Chartered (LSE:STAN), Banco Santander, Wells Fargo (WFC), and Charles Schwab (SCHW) detracted from results.
  • Mitsubishi Electric (TSE:6503) and Grupo Televisa (MEX:TLEVISACPO) ended up additional detractors.

12 months-to-Day Functionality Review

The Fund underperformed the MSCI Planet by 11.2 proportion factors calendar year to day.

Crucial Detractors from Relative Benefits

  • The Fund’s regular chubby posture in the Financials sector (29% vs . fourteen% for the MSCI Planet sector), put together with stock assortment (down 35% compared to down 23%), damage results. ICICI Lender (NSE:ICICIBANK), Societe Generale (XPAR:GLE), UniCredit (MIL:UCG), and Banco Santander lagged.
  • In the Information Technological innovation sector, the Fund’s holdings (down four% compared to up fourteen% for the MSCI Planet sector) and regular underweight posture (12% vs . 19%) detracted from results.
  • Occidental Petroleum and Grupo Televisa also detracted from results.

Crucial Contributors to Relative Benefits

  • Stock assortment in the Industrials sector (down 9% compared to down thirteen%) as effectively as the Fund’s regular underweight posture (7% vs . ten%) served results.
  • The Fund’s regular underweight posture in the Genuine Estate sector (<1% versus 3%) contributed to results.
  • Added contributors incorporated JD.com, Dash (S), Dell Technologies, Microchip Technological innovation, Roche (XSWX:ROG), Prosus (XAMS:PRX), Naspers (JSE:NPN), and Constitution Communications (CHTR).

Returns stand for previous effectiveness and do not promise long run results. Financial investment return and share price will fluctuate with sector problems, and traders may possibly have a obtain or decline when shares are offered. Fund effectiveness improvements more than time and at this time may possibly be substantially decreased than stated previously mentioned. Functionality is up-to-date and published every month. Go to the Fund’s website at dodgeandcox.com or phone 800-621-3979 for existing thirty day period-conclude effectiveness figures.

About the creator:

Sydnee Gatewood

I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my daily life, but also have roots in New Mexico and Colorado. Abide by me on Twitter! @gurusydneerg

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