Dodge & Cox Stock Fund market commentary for the second quarter ended June 30, 2015.

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Objectives

The Fund seeks long-term growth of principal and income. A secondary objective is to achieve a reasonable current income.

Strategy

The Fund invests primarily in a diversified portfolio of equity securities. In selecting investments, the Fund invests in companies that, in Dodge & Cox’s opinion, appear to be temporarily undervalued by the stock market but have a favorable outlook for long-term growth. The Fund focuses on the underlying financial condition and prospects of individual companies, including future earnings, cash flow, and dividends. Various other factors, including financial strength, economic condition, competitive advantage, quality of the business franchise, and the reputation, experience, and competence of a company’s management are weighed against valuation in selecting individual securities.

Risks

The Fund is subject to market risk, meaning holdings in the Fund may decline in value for extended periods due to the financial prospects of individual companies or due to general market and economic conditions. Please read the prospectus for specific details regarding the Fund’s risk profile.

Dodge & Cox Stock Fund

The Dodge & Cox Stock Fund had a total return of 2.6% for the second quarter of 2015, compared to 0.3% for the S&P 500 Index. For the six months ended June 30, 2015, the Fund had a total return of 1.4%, compared to 1.2% for the S&P 500. At quarter end, the Fund had net assets of $59.9 billion with net cash of 0.7%.

Dodge & Cox Stock Fund: Market Commentary

During the second quarter, the S&P 500 rose to a record high in May before retreating to end the quarter up slightly. After moderating in the first quarter, U.S. economic activity expanded in recent months: labor market conditions improved, household spending grew modestly, and the housing sector reached multi-year highs in existing home sales and building permits. However, these positive developments were tempered by concerns about Greece’s sovereign debt crisis and potential exit from the Eurozone. The escalating situation in Greece could continue to create market volatility.

Dodge & Cox Stock Fund

Indicative of a stronger U.S. economy, longer-term U.S. Treasury rates rose substantially in the second quarter: the 10-year U.S. Treasury yield increased from 1.9% to 2.4%. Despite the rise, interest rates remained low in the United States and around the world compared to their historical averages. 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.

Dodge & Cox Stock Fund

Despite trading above their long-term average, U.S. equity market valuations remain reasonable in our opinion: the S&P 500 traded at 17.5 times forward estimated earnings with a 2.1% dividend yield at quarter end. Given higher starting valuations, we continue to have a more tempered outlook for long-term equity returns. Corporate balance sheets and cash flows remain strong. Over our three- to five-year investment horizon, we continue to believe the Fund’s portfolio is well positioned to benefit from global growth opportunities and a normalization of interest rates. Acknowledging that markets can be volatile in the short term, we encourage shareholders to remain focused on the long term.

Dodge & Cox Stock Fund

Dodge & Cox Stock Fund: Second Quarter Performance Review

The Fund outperformed the S&P 500 by 2.3 percentage points for the quarter.

Key Contributors To Relative Results

  • The Fund’s average overweight position (25% versus 16%) and holdings in the Financials sector (up 8% compared to up 2% for the S&P 500 sector) contributed significantly to results. Capital One (up 12%), Goldman Sachs (up 11%), and Bank of America (up 11%) performed well.
  • The Fund’s average overweight position (12% versus 4%) and holdings in the Media industry (up 7% compared to up 5% for the S&P 500 industry) helped returns. Time Warner Cable (up 19%) was particularly strong.
  • Additional contributors included Celanese (up 29%), Cigna (up 25%), and Microsoft (up 9%).

Key Detractors From Relative Results

  • No sector detracted notably during the quarter. However, certain holdings were weak, including ADT Corp. (down 19%), Wal-Mart (down 13%), Corning (down 13%), NetApp (down 11%), and TE Connectivity (down 10%).

Dodge & Cox Stock Fund: Year-To-Date Performance Review

The Fund outperformed the S&P 500 by 0.1 percentage points year to date.

Key Contributors To Relative Results

  • Returns from holdings in the Financials sector (up 5% compared to flat for the S&P 500 sector) contributed to results. Charles Schwab (up 9%) and Capital One (up 8%) were particularly strong.
  • The Fund’s average overweight position (18% versus 15%) and holdings in the Health Care sector (up 12% compared to up 10% for the S&P 500 sector) aided performance. Key contributors included Cigna (up 57%), UnitedHealth Group (up 22%), and Sanofi (up 11%).
  • The Fund’s underweight position in the Utilities sector (no holdings versus average 3% for the S&P 500 sector), the weakest sector of the market (down 11%), helped results.
  • Additional contributors included Celanese (up 21%) and Time Warner Cable (up 19%).

Key Detractors From Relative Results

  • The Fund’s average overweight position (23% versus 20%) and holdings in the Information Technology sector (down 6% compared to up 1% for the S&P 500 sector) hurt returns. Hewlett-Packard (down 24%), NetApp (down 23%), and EMC (down 10%) performed poorly.
  • Returns from holdings in the Consumer Discretionary sector (up 3% compared to up 7% for the S&P 500 sector) detracted from results. Twenty-First Century Fox (down 15%) was particularly weak.
  • Additional detractors included National Oilwell Varco (down 25%), Wal-Mart (down 16%), and Apache (down 7%).

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