The Dodge & Cox Global Stock Fund had a total return of 0.8% for the second quarter of 2015, compared to 0.3% for the MSCI World Index. For the six months ended June 30, 2015, the Fund had a total return of 2.2%, compared to 2.6% for the MSCI World. At quarter end, the Fund had net assets of $6.5 billion with net cash of 1.7%.

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Dodge & Cox Global Stock Fund - Market Commentary

During the second quarter, global equity markets modestly declined in local currency terms. However, the U.S. dollar’s depreciation against developed market currencies (e.g., euro, British pound) was a slight tailwind to performance: the MSCI World Index was down 1% in local currency versus flat in U.S. dollars.

Dodge & Cox Global Stock Fund

In the United States (up 0.3%), economic activity expanded: labor market conditions improved, household spending grew, and existing home sales and building permits reached multi-year highs. Indicative of a stronger U.S. economy, the 10-year U.S. Treasury yield increased from 1.9% to 2.4%. The U.S. Federal Reserve (Fed) reaffirmed its target range for the federal funds rate and its intention to raise rates slowly. Many investors now expect the Fed to begin increasing rates in the second half of 2015. Japan (up 5% in local currency)—the strongest region of the market—also showed signs of economic progress supported by its aggressive stimulus program, increased capital expenditures, and improving business sentiment. Finally, Eurozone manufacturing activity strengthened to its highest level in four years; yet, Europe was down 4% in local currency on concerns about Greece, which could continue to create volatility.

Dodge & Cox Global Stock Fund

Emerging equity markets outperformed their developed market counterparts: the MSCI Emerging Markets Index increased 1% in both local currency and U.S. dollars. China was one of the best-performing emerging market countries for the quarter (up 6% in local currency), benefiting from stimulus measures (e.g., rate cuts, liquidity initiatives) and the government’s efforts to further liberalize capital markets. The Chinese equity market, however, has declined meaningfully from its peak in mid-June.

Dodge & Cox Global Stock Fund

While global equity valuations have trended higher, we believe they remain reasonable: the MSCI World traded at 16.1 times forward earnings (at its 20-year historical average) on June 30. As we look for long-term investment candidates in both developed and emerging markets, we continue to see attractive opportunities. Corporate balance sheets and cash flows remain strong. However, we have a more tempered outlook for long-term equity returns given higher valuations today. The Fund is invested in companies that we believe have favorable 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

Dodge & Cox Global Stock Fund - Second Quarter Performance Review

The Fund outperformed the MSCI World by 0.4 percentage points for the quarter.

Key Contributors To Relative Results

  • Within the Consumer Discretionary sector, the Fund’s average overweight position and holdings in the Media industry (up 7% compared to up 4% for the MSCI World industry) contributed to results. Time Warner Cable (up 19%) and Grupo Televisa (up 18%) were notable contributors.
  • Relative returns in the Energy sector (up 3% compared to down 1% for the MSCI World sector) aided performance. Petrobras (up 34%) was particularly strong.
  • The Fund’s holdings in the Financials sector (up 3% compared to up 2% for the MSCI World sector) also had a positive impact. Barclays (up 14%), Capital One (up 12%), and Charles Schwab (up 7%) helped results.
  • Additional contributors included Celanese (up 29%), Cigna (up 25%), MTN Group (up 11%), and Microsoft (up 9%).

Key Detractors From Relative Results

  • The Fund’s holdings in the Information Technology sector (down 3% compared to flat for the MSCI World sector) had a negative impact. Corning (down 13%), Samsung Electronics (down 12%), and TE Connectivity (down 10%) were notable detractors.
  • Relative returns in the Industrials sector (down 8% compared to down 1% for the MSCI World sector) also hurt results. ADT Corp. (down 19%) and Schneider Electric (down 9%) were weak performers.
  • Additional detractors included Teck Resources (down 27%), Kasikornbank (down 20%), and Wal-Mart (down 13%).

Dodge & Cox Global Stock Fund - Year-to-date Performance Review

The Fund underperformed the MSCI World by 0.4 percentage points year to date.

Key Detractors From Relative Results

  • The Fund’s holdings in the Information Technology sector (down 6% compared to up 2% for the MSCI World sector), combined with a higher average weighting (19% versus 13%), had a negative impact. Hewlett-Packard (down 24%), NetApp (down 23%), Baidu (down 13%), and Samsung Electronics (down 6%) were notable detractors.
  • Relative returns in the Financials sector (up 1% compared to up 2% for the MSCI World sector), especially in the emerging markets, hindered performance. BR Malls (down 22%), Kasikornbank (down 19%), and ICICI Bank (down 12%) detracted from results.
  • Weak returns in the Consumer Staples sector (down 8% compared to up 1% for the MSCI World sector) also hurt results. Wal-Mart (down 16%) lagged.
  • National Oilwell Varco (down 25%) was an additional notable detractor.

Key Contributors To Relative Results

  • The Fund’s holdings in the Consumer Discretionary sector (up 9% compared to up 7% for the MSCI World sector), combined with a higher average weighting (19% versus 13%), contributed to results. Nissan Motor (up 20%), Naspers (up 19%), and Time Warner Cable (up 19%) were notable contributors.
  • Relative returns in the Energy sector (flat compared to down 5% for the MSCI World sector), helped by the Fund’s lower average weighting in the Oil, Gas & Consumable Fuels industry (down 6% for the MSCI World industry), aided performance.
  • The Fund’s holdings in the Health Care sector (up 12% compared to up 10% for the MSCI World sector) also had a positive impact. Cigna (up 57%) and UnitedHealth Group (up 22%) were particularly strong.
  • Additional contributors included Nintendo (up 60%) and Standard Chartered (up 11%).

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