Dodge & Cox Global Stock Fund market commentary for the first quarter ended March 31, 2015.
The Dodge & Cox Global Stock Fund had a total return of 1.4% for the first quarter of 2015, compared to 2.3% for the MSCI World Index. At quarter end, the Fund had net assets of $6.3 billion with net cash of 2.9%.
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Dodge & Cox Global Stock Fund: Market Commentary
During the first quarter, global equity markets were strong. All developed markets and most emerging markets appreciated in local currency. However, the U.S. dollar’s sharp appreciation (e.g., up 13% versus the euro during the quarter) cut returns by more than half: the MSCI World and MSCI Emerging Markets were both up 5% in local currency, compared to up 2% in U.S. dollars. In the United States, there were many positive economic developments: the unemployment rate continued to decline, lower oil prices aided household purchasing power, and businesses invested more in fixed assets. Overall, however, U.S. economic growth moderated slightly as these benefits were offset by the slow recovery in the housing sector and weak export growth.
Around the globe, interest rates remained low as central banks continued to support their economies. In developed markets, the European Central Bank launched a quantitative easing program and the Bank of Japan decided to maintain its aggressive stimulus program. Various emerging market countries (including India, Russia, and Turkey) cut interest rates to bolster lackluster growth.
We continue to identify attractive long-term global equity opportunities. Although reasonable, global equity valuations have increased, and we have a more modest outlook for long-term equity returns. At quarter end, the MSCI World traded at 16.6 times forward estimated earnings with a 2.4% dividend yield. Corporate balance sheets and cash flows continue to be strong. The Fund is invested in companies that we believe have favorable long-term prospects over our three- to five-year investment horizon. Acknowledging that both share prices and currencies can be volatile in the short term, we encourage shareholders to remain focused on the long term.
Dodge & Cox Global Stock Fund: First Quarter Performance Review
The Fund underperformed the MSCI World by 0.9 percentage points for the quarter.
Key Detractors From Relative Results
- Weak returns from the Fund’s holdings in the Information Technology sector (down 3% compared to up 2% for the MSCI World sector) hurt results. Hewlett-Packard (down 22%), NetApp (down 14%), EMC Corp. (down 14%), and Microsoft (down 12%) were notable detractors.
- The Fund’s holdings in the Financials sector (down 1% compared to up 1% for the MSCI World sector), especially in the emerging markets, hindered performance. Sabanci Holding (down 18%), BR Malls (down 14%), Bank of America (down 14%), and ICICI Bank (down 10%) detracted from results.
- Weak returns from the Fund’s holdings in the Consumer Staples sector (down 4% compared to up 2% for the MSCI World sector) also detracted. Anadolu Efes (down 14%) was a weak performer.
- Selected additional detractors included National Oilwell Varco (down 23%) and Petrobras (down 20%).
Key Contributors To Relative Results
- The Fund’s underweight position in the Utilities sector (no holdings versus average 3% for the MSCI World sector), the weakest sector of the market (down 5%), contributed to results.
- The Fund’s higher average weighting in the Consumer Discretionary sector (19% versus 13% for the MSCI World sector), especially the higher average weighting in the Automobiles industry (5% versus 2%), helped performance. Naspers (up 18%) and Nissan Motor (up 17%) were notable contributors.
- The Fund’s holdings in the Health Care sector (up 9% compared to up 8% for the MSCI World sector), combined with a higher average weighting (15% versus 13%), also had a positive impact. Cigna (up 26%), UnitedHealth Group (up 17%), and Novartis (up 8%) helped results.
- Selected additional contributors included Nintendo (up 41%), Baker Hughes (up 14%), TE Connectivity (up 14%), Standard Chartered (up 12%), and Samsung Electronics (up 8%).
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