Dodge & Cox Stock Fund 2nd-Quarter Commentary

The Dodge & Cox Inventory Fund had a complete return of twenty.% for the next quarter of 2020, in contrast to twenty.five% for the S&P 500 Index. For the 6 months ended June thirty, 2020, the Fund had a complete return of –15.%, in contrast to –3.one% for the S&P 500.

Financial commitment Commentary

In the course of the initially fifty percent of 2020, the spread of the coronavirus (COVID-19) evolved into a global pandemic that disrupted major economies, increased fiscal industry volatility, and abruptly ended the longest stock industry bull operate in U.S. heritage. The U.S. equity industry executed strongly in the next quarter recovering off March lows, even with the continuing general public wellbeing crisis and existing economic downturn. Each sector of the S&P 500 posted good returns.

With the financial system accomplishing so inadequately, why has the stock industry recovered so dramatically? The U.S. government’s massive fiscal and financial stimulus systems, coupled with optimism concerning anticipated wellbeing treatment methods and some corporate earnings restoration, have bolstered investor self-assurance. Not insignificantly, just about 70% of the S&P 500 is comprised of enterprises that are mostly immune to the economic impression of the pandemic (we imagine of them as “COVID defensive”) the vast majority of these businesses are in the Information and facts Technology, Shopper Staples, Utilities, and Health and fitness Care sectors. The other thirty% of the S&P 500 has been strike hard by the economic penalties of the pandemic (“COVID cyclical”), typically in the Financials, Power, Industrials, Elements, Shopper Discretionary (ex-world-wide-web retail), and True Estate sectors. Current market actions and valuation improvements can occur quickly and without having warning, as evidenced by the powerful rebound in Power and Elements, two of the hardest strike parts of the industry in the initially quarter. These sectors have been between the prime performers in the next quarter, beating the S&P 500’s return.

About the past ten years, U.S. expansion stocks have outperformed worth stocks2 by an astounding cumulative 221 percentage factors.three In the course of this hard period for worth traders, the Fund has underperformed the broad-dependent S&P 500, but outperformed the U.S. worth investment decision universe by 33 percentage factors.four The valuation differential amongst worth- and expansion-oriented stocks has produced ample chances for valueoriented traders like Dodge & Cox.

Our investment decision team has been really productive in these unstable marketplaces, reviewing existing portfolio holdings and recommending new investments. This analysis has helped the U.S. Equity Financial commitment Committee shift the portfolio dependent on COVID-impacted fundamentals and valuations. In the course of the next quarter, we trimmed increased valuation parts of the portfolio that had executed strongly, this sort of as Prescription drugs and far more costly technology-similar businesses, and leaned more into worth parts of the industry this sort of as Financials, Power, Elements, Industrials, and minimal-valuation technology businesses. We recently extra to existing holdings this sort of as American Categorical (NYSE:AXP), Provider (NYSE:CARR), Celanese (NYSE:CE), Hewlett Packard Enterprise (NYSE:HPE), HP Inc. (NYSE:HPQ), MetLife (NYSE:Achieved), VMware (NYSE:VMW), and