Dodge & Cox Global Stock Fund 2nd-Quarter Commentary

The Dodge & Cox World-wide Inventory Fund had a complete return of 20.3% for the 2nd quarter of 2020, in contrast to 19.four% for the MSCI Entire world Index. For the 6 months finished June 30, 2020, the Fund had a complete return of –17.%, in contrast to –5.eight% for the MSCI Entire world.

Investment Commentary

In the 1st quarter of 2020, the coronavirus (COVID-19) pandemic progressed into a world threat that disrupted big economies and enormously greater volatility in the economic markets. Immediately after declining sharply in the 1st quarter, the MSCI Entire world rebounded strongly in the 2nd quarter, with each individual sector and region putting up positive returns. Not amazingly, some of the toughest strike sectors in the 1st quarter—traditional value sectors this kind of as Strength, Components, and Industrials— had been amid the greater-undertaking sectors in the 2nd quarter. In the meantime, Info Know-how, a longtime chief that has assisted gasoline the “growth” facet of the industry, regained its situation as the best-undertaking sector of the MSCI Entire world. Market place sentiment benefited from massive governing administration fiscal and financial stimulus applications, as perfectly as optimism about prospective wellness care remedies, even in advance of earnings restoration materialized.

Around the very last 10 years, the MSCI Entire world Worth Index2 has underperformed the MSCI Entire world Advancement Index by an astounding 142 share points cumulatively.3 All through this demanding time period for value investors, the Fund has underperformed the broad-centered MSCI Entire world, but outperformed the MSCI Entire world Worth Index by 31 share points and MSCI ACWI Worth Index by 44 share points.four The valuation differential in between value- and advancement-oriented shares stays exceptionally vast by historical expectations: the MSCI Entire world Worth trades at 15.1 situations ahead earnings in contrast to 29.four situations for the MSCI Entire world Advancement.5 This valuation disparity is almost 4 conventional deviations beneath the historic normal and has designed ample investment decision prospects for value-oriented investors like Dodge & Cox.

Our group of world sector analysts has been extremely effective in these unstable markets, examining existing portfolio holdings and presenting many new prospects. This assessment has assisted the World-wide Equity Investment Committee shift the portfolio centered on COVID-impacted fundamentals and valuations. All through the 2nd quarter, we trimmed increased valuation regions of the portfolio that had executed strongly (e.g., Health and fitness Treatment, far more costly technological innovation-relevant businesses) and Strength holdings that had rebounded, while leaning further more into value prospects in the industry this kind of as in Components, Financials, and decreased valuation TMT. We extra to existing holdings together with Axis Financial institution (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, together with Facebook (NASDAQ:FB) (a social media conglomerate), LyondellBasell (NYSE:LYB) (one of the world’s largest commodity chemical businesses), and Nutrien (TSX:NTR) (the largest agricultural fertilizer producer in the earth).

Whilst the portfolio stays tilted towards Financials, Strength, Interaction Products and services, and Health and fitness Treatment, the Fund stays diversified and has publicity to several investment decision motorists. We have sturdy conviction in our value-oriented, active investment decision method and go on to feel now is an opportune time to be invested in value shares.

In general, we continue to be optimistic about the very long-expression outlook for the Fund, which trades at a sizeable low cost to the all round industry: thirteen.1 situations ahead earnings in contrast to 20.2 situations for the MSCI Entire world. Tolerance, persistence, and a very long-expression investment decision horizon are crucial to very long-expression investment decision achievements. We really encourage our shareholders to consider a identical check out. Thank you for your continued confidence in Dodge & Cox.

Our views are with all the individuals and households of people who have experienced from COVID-19 and also with the committed wellness care employees and 1st responders battling on the entrance lines. We want everyone all the best for the duration of these demanding situations.

2nd Quarter Efficiency Assessment

The Fund outperformed the MSCI Entire world by .9 share points for the duration of the quarter.

Crucial Contributors to Relative Benefits

  • Relative returns in the Strength sector (up 56% in contrast to up 17% for the MSCI Entire world sector), merged with a increased normal weighting (eight% as opposed to 3%), had a positive affect. Ovintiv (TSX:OVV), Apache (APA), Occidental Petroleum (OXY), Hess (HES), and Baker Hughes (BHI) had been sturdy performers.
  • The Fund’s normal underweight situation in the Consumer Staples sector (1% as opposed to 9%) and inventory selection (up 44% in contrast to up 9%) contributed to results.
  • Microchip Know-how (MCHP), JD.com (JD), and Dell Systems (DELL) had been added contributors.

Crucial Detractors from Relative Benefits

  • The Fund’s normal underweight situation in the Info Know-how sector (thirteen% as opposed to 20%), merged with inventory selection (up 26% in contrast to up 31%), detracted from results. HP Inc. (HPQ) lagged.
  • The Fund’s increased normal weighting in the Financials sector (28% as opposed to thirteen%) harm results. Typical Chartered (LSE:STAN), Banco Santander, Wells Fargo (WFC), and Charles Schwab (SCHW) detracted from results.
  • Mitsubishi Electrical (TSE:6503) and Grupo Televisa (MEX:TLEVISACPO) had been added detractors.

Calendar year-to-Day Efficiency Assessment

The Fund underperformed the MSCI Entire world by 11.2 share points calendar year to date.

Crucial Detractors from Relative Benefits

  • The Fund’s normal obese situation in the Financials sector (29% as opposed to fourteen% for the MSCI Entire world sector), merged with inventory selection (down 35% in contrast to down 23%), harm results. ICICI Financial institution (NSE:ICICIBANK), Societe Generale (XPAR:GLE), UniCredit (MIL:UCG), and Banco Santander lagged.
  • In the Info Know-how sector, the Fund’s holdings (down four% in contrast to up fourteen% for the MSCI Entire world sector) and normal underweight situation (twelve% as opposed to 19%) detracted from results.
  • Occidental Petroleum and Grupo Televisa also detracted from results.

Crucial Contributors to Relative Benefits

  • Inventory selection in the Industrials sector (down 9% in contrast to down thirteen%) as perfectly as the Fund’s normal underweight situation (seven% as opposed to 10%) assisted results.
  • The Fund’s normal underweight situation in the Genuine Estate sector (<1% versus 3%) contributed to results.
  • Added contributors involved JD.com, Sprint (S), Dell Systems, Microchip Know-how, Roche (XSWX:ROG), Prosus (XAMS:PRX), Naspers (JSE:NPN), and Charter Communications (CHTR).

Returns depict earlier functionality and do not assurance potential results. Investment return and share price will fluctuate with industry conditions, and investors might have a obtain or loss when shares are bought. Fund functionality improvements above time and at present might be significantly decreased than said previously mentioned. Efficiency is updated and printed month-to-month. Go to the Fund’s site at dodgeandcox.com or phone 800-621-3979 for current thirty day period-close functionality 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 existence, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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