05/03/2021

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Dodge & Cox Global Stock Fund’s 4th-Quarter Commentary

The Dodge & Cox World wide Inventory Fund had a overall return of 24.1% for the fourth quarter of 2020, compared to 14.% for the MSCI World Index. For 2020, the Fund had a complete return of 6.%, when compared to 15.9% for the MSCI Entire world.

Investment Commentary

In 2020, global fairness markets had been very unstable. Global stocks fell sharply in the spring as the coronavirus (COVID-19) pandemic developed, then rebounded speedily off of March lows and executed perfectly all through the next and third quarters. Immediately after the prosperous growth of effective COVID-19 vaccines, markets rebounded sharply all over again in November as traders appeared ahead to the probable for an financial restoration in 2021.

The industry reversals this calendar year illustrate the great importance of possessing a lengthy-term watch and being the system with one’s convictions. Markets can convert immediately, and heritage displays us that significant marketplace moves are episodic and unpredictable. As a result, missing even a couple times in the sector can make a huge change to overall returns.

In the fourth quarter, the Fund noticeably outperformed. The Fund is chubby in Electrical power and Financials, market laggards which grew to become sector leaders as world wide equities surged. Even so, when the MSCI Globe Benefit Index outperformed the MSCI Environment Advancement Index for the quarter,2 benefit nonetheless lagged advancement noticeably for the yr: the MSCI Planet Value was down 1% compared to up 34% for the MSCI Environment Development. The Fund, with its worth-oriented positioning, equally lagged the market place for the year. We feel we are even now in the early innings of a reversal in between value and growth general performance and a powerful case can be created for investing in price shares heading forward.

Initially, starting up valuations matter, and the valuation differential in between worth and expansion stocks stays wide by historical specifications, which creates ample possibilities for value-oriented investors like Dodge & Cox. The Fund trades at a significant lower price to the broad-based mostly industry: 13.2 instances forward earnings in contrast to 21. moments for the MSCI Globe.3 Traditionally, decreased beginning valuations have generated much more desirable extended-term returns.

Next, we are encouraged by the approval of COVID-19 vaccines. The parts of the current market impacted by COVID-19 need to go on to get better as far more of the inhabitants gets to be vaccinated. There is also the chance that curiosity prices boost as the economic system recovers, which would even more benefit several of the Fund’s holdings.

3rd, historical past has indicated it is challenging to remain a current market leader. Various pretty huge, high-valuation technological innovation companies have experienced a big influence on market returns. We think a lot of of them are overvalued and experience important worries, not only in justifying their valuations but also for the reason that of mounting competitive and regulatory threats. In addition, they would be disadvantaged by higher curiosity fees.

We have strong conviction in our portfolio positioning. Even just after the rebound, many stocks that were strike challenging by the financial penalties of the pandemic, for example in the Financials, Energy, Industrials, and Real Estate sectors, are continue to down substantially for the year. The Fund leans towards price and proceeds to have noteworthy overweights in Financials and Vitality.

The portfolio general is composed largely of firms with solid franchises that benefit from long-time period economic progress. We continue on to evaluate relative valuation prospects, weighing extensive-expression fundamentals towards current price ranges. For illustration, even though we additional to Financials and Electrical power before in the calendar year at frustrated valuations, in the fourth quarter we trimmed several Financials holdings that experienced outperformed and added to quite a few of the Fund’s holdings in Health Treatment.

We think endurance, persistence, and a extended- term financial commitment horizon are crucial to expense accomplishment. We really encourage our shareholders to choose a comparable extensive-expression watch. Thank you for your continued self confidence in Dodge & Cox.

Fourth Quarter Effectiveness Overview

The Fund outperformed the MSCI Entire world by 10.1 share details for the duration of the quarter.

Critical Contributors to Relative Success

Relative returns in the Financials sector (up 41% in comparison to up 24% for the MSCI Environment sector), blended with a greater normal weighting (29% versus 12%), experienced a favourable influence. Banco Santander (XMAD:SAN), ICICI Lender (ICICIBANK), Itau Unibanco (NYSE:ITUB), and BNP Paribas (XPAR:BNP) had been solid performers.

The Fund’s common overweight situation in the Energy sector (6% as opposed to 3%), and sturdy relative returns (up 50% when compared to up 27% for the MSCI Environment sector), aided outcomes. Occidental Petroleum (NYSE:OXY) contributed to outcomes. Glencore (LSE:GLEN) was an added contributor.

Critical Detractors from Relative Final results

Weaker relative returns from holdings in the Overall health Treatment sector (up 5% when compared to up 7% for the MSCI Environment sector) hurt results. Sanofi (NASDAQ:SNY), GlaxoSmithKline (GSK), and Alnylam Prescription drugs (ALNY) detracted.

Extra detractors involved Alibaba (BABA), Charter Communications (CHTR), and Dell Technologies (DELL).

2020 Efficiency Review

The Fund underperformed the MSCI Planet by 9.9 proportion points in 2020.

Key Detractors from Relative Final results

The Fund’s ordinary obese place in the Financials sector (28% compared to 13% for the MSCI World sector), merged with weaker relative returns (down 11% compared to down 3%), hurt success. Societe Generale (XPAR:GLE), UniCredit (MIL:UCG), Typical Chartered (LSE:STAN), and Wells Fargo (WFC) detracted from benefits.

Stock range (up 27% when compared to up 44% for the MSCI Planet sector), put together with the Fund’s ordinary underweight situation in the Details Technology sector (12% as opposed to 20%), detracted from effects.

Further detractors integrated Occidental Petroleum and Suncor Strength (TSX:SU).

Important Contributors to Relative Results

Relative returns in the Industrials sector (up 37% in contrast to up 12% for the MSCI Globe sector) had a good impact. FedEx (FDX) outperformed.

Sturdy returns in the Buyer Staples sector (up 55% as opposed to up 8% for the MSCI Earth sector) aided final results.

More contributors integrated JD.com (JD), Dell Systems (DELL), Microchip Technologies (MCHP), Dash (prior to its merger with T-Mobile US (TMUS)), Constitution Communications, and Qurate Retail (QRTEA).

Returns depict previous general performance and do not assure foreseeable future outcomes. Financial commitment return and share cost will fluctuate with market disorders, and investors may perhaps have a attain or loss when shares are bought. Fund overall performance improvements in excess of time and currently may perhaps be significantly reduce than said over. Overall performance is up to date and revealed month-to-month. Stop by the Fund’s web site at dodgeandcox.com or phone 800-621-3979 for current thirty day period-finish functionality figures.

Prior to investing in any Dodge & Cox Fund, you need to diligently think about the Fund’s financial commitment objectives, dangers, and costs and costs. To get hold of a Fund’s prospectus and summary prospectus, which comprise this and other important details, pay a visit to dodgeandcox.com or get in touch with 800-621-3979. Be sure to go through the prospectus and summary prospectus meticulously ahead of investing.

About the writer:

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. Observe me on Twitter! @gurusydneerg