Dodge & Cox Global Stock Fund 2nd-Quarter Commentary

The Dodge & Cox International Stock Fund had a complete return of 20.three% for the

The Dodge & Cox International Stock Fund had a complete return of 20.three% for the next quarter of 2020, as opposed to 19.four% for the MSCI Entire world Index. For the 6 months ended June thirty, 2020, the Fund had a complete return of –17.%, as opposed to –5.eight% for the MSCI Entire world.

Financial investment Commentary

In the first quarter of 2020, the coronavirus (COVID-19) pandemic developed into a global menace that disrupted significant economies and significantly improved volatility in the financial marketplaces. After declining sharply in the first quarter, the MSCI Entire world rebounded strongly in the next quarter, with every single sector and area posting constructive returns. Not shockingly, some of the hardest strike sectors in the first quarter—traditional price sectors this kind of as Strength, Resources, and Industrials— had been between the superior-undertaking sectors in the next quarter. Meanwhile, Info Technology, a longtime leader that has aided gasoline the “growth” facet of the marketplace, regained its place as the very best-undertaking sector of the MSCI Entire world. Industry sentiment benefited from massive federal government fiscal and financial stimulus packages, as nicely as optimism around opportunity health treatment solutions, even before earnings recovery materialized.

Around the very last 10 years, the MSCI Entire world Price Index2 has underperformed the MSCI Entire world Expansion Index by an astounding 142 proportion points cumulatively.three Through this demanding time period for price traders, the Fund has underperformed the wide-primarily based MSCI Entire world, but outperformed the MSCI Entire world Price Index by 31 proportion points and MSCI ACWI Price Index by 44 proportion points.four The valuation differential among price- and progress-oriented shares stays extremely large by historical specifications: the MSCI Entire world Price trades at fifteen.1 situations ahead earnings as opposed to 29.four situations for the MSCI Entire world Expansion.five This valuation disparity is just about 4 standard deviations underneath the historic regular and has developed ample expenditure possibilities for price-oriented traders like Dodge & Cox.

Our crew of global industry analysts has been hugely productive in these risky marketplaces, examining current portfolio holdings and presenting lots of new possibilities. This investigation has aided the International Fairness Financial investment Committee shift the portfolio primarily based on COVID-impacted fundamentals and valuations. Through the next quarter, we trimmed increased valuation regions of the portfolio that had done strongly (e.g., Wellbeing Care, a lot more high priced know-how-linked firms) and Strength holdings that had rebounded, although leaning even further into price possibilities in the marketplace this kind of as in Resources, Financials, and reduced valuation TMT. We additional to current holdings which includes Axis Bank (BOM:532215), Banco Santander (XMAD:SAN), Comcast (CMCSA), Itau Unibanco (NYSE:ITUB), and VMWare (NYSE:VMW).six We also begun 5 new positions in the Fund, which includes Facebook (NASDAQ:FB) (a social media conglomerate), LyondellBasell (NYSE:LYB) (a single of the world’s premier commodity chemical firms), and Nutrien (TSX:NTR) (the premier agricultural fertilizer producer in the globe).

Though the portfolio stays tilted toward Financials, Strength, Conversation Companies, and Wellbeing Care, the Fund stays diversified and has exposure to numerous expenditure motorists. We have solid conviction in our price-oriented, active expenditure solution and continue to believe that now is an opportune time to be invested in price shares.

All round, we continue being optimistic about the extensive-term outlook for the Fund, which trades at a substantial price cut to the general marketplace: 13.1 situations ahead earnings as opposed to 20.2 situations for the MSCI Entire world. Persistence, persistence, and a extensive-term expenditure horizon are crucial to extensive-term expenditure accomplishment. We really encourage our shareholders to just take a very similar look at. Thank you for your continued self confidence in Dodge & Cox.

Our views are with all the people today and families of those people who have experienced from COVID-19 and also with the devoted health treatment staff and first responders battling on the front traces. We desire every person all the very best in the course of these demanding situations.

Second Quarter General performance Assessment

The Fund outperformed the MSCI Entire world by .nine proportion points in the course of the quarter.

Critical Contributors to Relative Effects

  • Relative returns in the Strength sector (up 56% as opposed to up seventeen% for the MSCI Entire world sector), merged with a increased regular weighting (eight% versus three%), had a constructive impression. Ovintiv (TSX:OVV), Apache (APA), Occidental Petroleum (OXY), Hess (HES), and Baker Hughes (BHI) had been solid performers.
  • The Fund’s regular underweight place in the Consumer Staples sector (1% versus nine%) and stock variety (up 44% as opposed to up nine%) contributed to benefits.
  • Microchip Technology (MCHP), JD.com (JD), and Dell Technologies (DELL) had been supplemental contributors.

Critical Detractors from Relative Effects

  • The Fund’s regular underweight place in the Info Technology sector (13% versus 20%), merged with stock variety (up 26% as opposed to up 31%), detracted from benefits. HP Inc. (HPQ) lagged.
  • The Fund’s increased regular weighting in the Financials sector (28% versus 13%) harm benefits. Normal Chartered (LSE:STAN), Banco Santander, Wells Fargo (WFC), and Charles Schwab (SCHW) detracted from benefits.
  • Mitsubishi Electrical (TSE:6503) and Grupo Televisa (MEX:TLEVISACPO) had been supplemental detractors.

12 months-to-Day General performance Assessment

The Fund underperformed the MSCI Entire world by 11.2 proportion points yr to date.

Critical Detractors from Relative Effects

  • The Fund’s regular over weight place in the Financials sector (29% versus fourteen% for the MSCI Entire world sector), merged with stock variety (down 35% as opposed to down 23%), harm benefits. ICICI Bank (NSE:ICICIBANK), Societe Generale (XPAR:GLE), UniCredit (MIL:UCG), and Banco Santander lagged.
  • In the Info Technology sector, the Fund’s holdings (down four% as opposed to up fourteen% for the MSCI Entire world sector) and regular underweight place (twelve% versus 19%) detracted from benefits.
  • Occidental Petroleum and Grupo Televisa also detracted from benefits.

Critical Contributors to Relative Effects

  • Stock variety in the Industrials sector (down nine% as opposed to down 13%) as nicely as the Fund’s regular underweight place (7% versus ten%) aided benefits.
  • The Fund’s regular underweight place in the Genuine Estate sector (<1% versus 3%) contributed to results.
  • Supplemental contributors incorporated JD.com, Dash (S), Dell Technologies, Microchip Technology, Roche (XSWX:ROG), Prosus (XAMS:PRX), Naspers (JSE:NPN), and Charter Communications (CHTR).

Returns represent past general performance and do not promise long run benefits. Financial investment return and share selling price will fluctuate with marketplace problems, and traders could have a achieve or decline when shares are marketed. Fund general performance improvements above time and at this time could be noticeably reduced than said earlier mentioned. General performance is current and released every month. Stop by the Fund’s web page at dodgeandcox.com or contact 800-621-3979 for recent thirty day period-conclude general performance 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 life, but also have roots in New Mexico and Colorado. Comply with me on Twitter! @gurusydneerg