Redirection Confirmation

You'll be re-directed to the Financial Professional site.

For Financial Professionals

This site is owned and operated by Dodge & Cox on behalf of Dodge & Cox Worldwide Funds plc. Before continuing, please read the following important information and confirm that you have read and agree to these provisions and the Terms and Conditions of Use of this website.
 

This site is not intended for U.S. persons. If you are trying to find information about the Dodge & Cox Funds registered for sale in the United States or any other country, click on the country listing at the top of the page to change the country site version.

This site uses "cookies" as described in the Privacy Policy in order for Dodge & Cox to remember your personal preferences and to provide you with a better browsing experience. By continuing, you will be deemed to have accepted the site's use of cookies for this limited purpose. If you do not want this site to place cookies on your computing device, you can manage your web browser's cookie settings by navigating to the program's options menu.
 

TERMS & CONDITIONS OF USE

Use of the Dodge & Cox website ("Site"), owned and operated by Dodge & Cox®, signifies that you accept the following Terms of Use. Nothing contained in these Terms of Use is intended to modify or amend any other written agreement, if any, that may currently be in effect between you and Dodge & Cox or any funds managed by Dodge & Cox. Dodge & Cox may periodically modify these Terms of Use, and any such modifications will be effective immediately upon posting. We suggest that you periodically check these Terms of Use for modifications. If you do not agree to the Terms of Use, do not use this Site.

We suggest that you check the Terms of Use periodically for changes. The Terms of Use can be accessed from the link at the bottom of the Site pages. Dodge & Cox expressly reserves the right to monitor any and all use of this Site, without liability.


PRIVACY

Dodge & Cox expressly reserves the right to monitor any and all use of this Site; any such monitoring will be used for Dodge & Cox’s internal business purposes without liability. Dodge & Cox is committed to maintaining the confidentiality, integrity, and security of your personal and financial data. We consider this information to be private and held in confidence between you and Dodge & Cox. We would like you to know about our policies to protect the privacy of this information.

We may collect personal information about you from:

  • You or your representative in writing, electronically or by phone (e.g., in account applications or requests for forms or literature);
  • Transactions initiated by you or made on your behalf; and
  • Information we receive from third parties, such as financial advisers, consumer reporting agencies, consultants and custodians.

We do not disclose personal information about current or former clients or shareholders to any third parties except as necessary to effect a transaction, administer your account, or as otherwise permitted by law. For example, the Dodge & Cox Funds and Dodge & Cox Worldwide Funds use third-party transfer agents and third-party providers of systems who use your information only to process or analyze transactions you have requested. Contracts with these organizations contain provisions restricting their use of your personal information to those purposes for which they were hired.

We restrict access to personal information about you to those employees and service providers involved in administering or servicing your account(s) or helping us meet our regulatory obligations. We maintain physical, electronic, and procedural safeguards that comply with federal standards to protect your personal information. In addition, our Code of Ethics, which applies to all Dodge & Cox employees, restricts the use of your personal information.

For more information about privacy, please read the Dodge & Cox Privacy Policy.

LIMITED LICENSE AND RESTRICTIONS ON USE


Dodge & Cox grants you a limited, revocable, nonexclusive, nontransferable license to view, store, bookmark, download, and print the pages within this Site solely for your personal, informational, and noncommercial use or as expressly authorized by Dodge & Cox in writing. You are responsible for obtaining and maintaining all equipment, services, and other materials that you need to access this Site. Dodge & Cox reserves all rights not expressly granted in these Terms of Use. Except as otherwise stated in these Terms of Use as expressly authorized by Dodge & Cox in writing, you may not:

  • Modify, copy, distribute, transmit, post, display, perform, reproduce, publish, broadcast, license, create derivative works from, transfer, sell, or exploit any reports, data, information, content, software, RSS and podcast feeds, products, services, or other materials on, generated by or obtained from this Site, whether through links or otherwise (collectively, "Materials");
  • Redeliver any page, text, image or Materials on this Site using "framing" or other technology;
  • Engage in any conduct that could damage, disable, or overburden (i) this Site, (ii) any Materials or services provided through this Site, or (iii) any systems, networks, servers, or accounts related to this Site, including without limitation, using devices or software that provide repeated automated access to this Site, other than those made generally available by Dodge & Cox;
  • Probe, scan, or test the vulnerability of any Materials, services, systems, networks, servers, or accounts related to this Site or attempt to gain unauthorized access to Materials, services, systems, networks, servers, or accounts connected or associated with this Site through hacking, password or data mining, or any other means of circumventing any access-limiting, user authentication or security device of any Materials, services, systems, networks, servers, or accounts related to this Site;
  • Modify, copy, obscure, remove or display the Dodge & Cox, Dodge & Cox Funds, or Dodge & Cox Worldwide Funds name, logo, trademarks, text, notices, or images without Dodge & Cox’s express written permission. To obtain such permission, you may e-mail us at website@dodgeandcox.com; or
  • Include the term "Dodge & Cox®," or any Dodge & Cox trademark or executive's name, or any variation of the foregoing, as a meta-tag, hidden textual element, or any other indicator that creates an impression of affiliation, sponsorship, or endorsement by Dodge & Cox.

COPYRIGHT POLICY, NOTICE AND CLAIM INFORMATION

Dodge & Cox owns and operates this Site. All Materials on this Site, whether separate or compiled, including but not limited to, text, graphics, and audio clips. Logos, buttons, images, digital downloads, data compilations, software, icons, html code and xml code, as well as all copyright, patent, trademark, trade dress, and other rights therein, are owned or licensed by Dodge & Cox® and its third-party information providers, and are protected by United States and international intellectual property laws.

Pursuant to Section 512(c)(2) of the U.S. Copyright Revision Act, as enacted through the Digital Millennium Copyright Act, Dodge & Cox designates an agent as described below to receive notifications of claimed copyright infringement by mail: 
Roberta R. Kameda, Esquire, General Counsel, Dodge & Cox, 555 California Street, 40th Floor, San Francisco, CA 94104.

The designated copyright agent can also be reached by telephone at (800) 254-8494, by fax at (415) 986-1369, and by e-mail at website@dodgeandcox.com.


LINKING CONDITIONS

You may not link to this Site unless you comply with these linking conditions ("Linking Conditions"). Dodge & Cox grants you a limited, revocable, nonexclusive right to create a hyperlink to this Site ("Link"), provided you comply at all times with the following conditions:

  • The Link must be made to the Funds' home page at www.dodgeandcox.com.
  • The text of the Link must read either “Dodge & Cox”, “Dodge & Cox Funds”, “Dodge & Cox Worldwide Funds”,  or dodgeandcox.com. You may not use any Dodge & Cox logo or graphic or any other Dodge & Cox trademark, as part of the Link without Dodge & Cox's express written permission; and 
  • The Link and surrounding context on the linking site must not: (a) falsely represent or misrepresent any relationship between the linking site and Dodge & Cox, including suggestions of affiliation, endorsement, or sponsorship; (b) portray Dodge & Cox or its affiliates or their products or services, in a false, misleading, derogatory, or otherwise offensive manner; or (c) deliver the Materials in a framed environment or alter the layout, content, look, or feel of the Site.

If you have created a Link that conforms to these Linking Conditions, then you also may include one or more Links to any internal or subsidiary page of this Site that is located one or several levels down from the homepages (known as "deep links"), provided, however, that all such deep links must be in close physical proximity to the Link that conforms to the Linking Conditions. You may not maintain numerous or pervasive Links to this Site.

DATA, INFORMATION AND CONTENT

The Materials on this Site are for information, education, and noncommercial purposes only. Although Dodge & Cox may provide data, information, and content relating to investment approaches and opportunities to buy or sell securities and/or mutual funds, you should not construe any such information or other content available through this Site as legal or tax advice. You alone will bear the sole responsibility of evaluating the merits and risks associated with the use of any Materials on this Site before making any decisions based on such Materials. In exchange for using such Materials, you agree not to hold Dodge & Cox or its affiliates and their directors (trustees), officers, employees, or third-party information providers liable for any possible claim for damages arising from any decision you make based on the Materials made available to you through this Site. By providing access to other websites, neither Dodge & Cox nor any of its affiliates is recommending the purchase or sale of the stock issued by any company, nor are they endorsing services provided by any website's sponsoring organization.

OWNERSHIP OF OTHER MATERIALS

All trademarks, service marks, and logos appearing on this Site are the exclusive property of their respective owners.

All Dodge & Cox graphics, logos, page headers, and service names are trademarks, service marks, or trade dress of Dodge & Cox. Dodge & Cox's trademarks, service marks and trade dress may not be used in connection with any product or service that is not Dodge & Cox's, in any manner that is likely to cause confusion among customers or investors, or in any manner that disparages or discredits Dodge & Cox. Nothing contained on this Site should be construed as granting any license or right in or to any trademarks, service marks, or trade dress of Dodge & Cox.


THIRD-PARTY CONTENT

Data and other materials appearing on this Site that are provided by third parties are believed by Dodge & Cox to be obtained from reliable sources, but Dodge & Cox cannot guarantee and is not responsible for their accuracy, timeliness, completeness, or suitability for use. Dodge & Cox is not responsible for, and does not prepare, edit, or endorse, the content, advertising, products, or other materials on or available from any website owned or operated by a third party that is linked to this Site via hyperlink. The fact that Dodge & Cox has provided a link to a third party's website does not constitute an implicit or explicit endorsement, authorization, sponsorship, or affiliation by Dodge & Cox with respect to such website, its owners, providers, or services.  You will use any such third-party content at your own risk.
 

WARRANTY DISCLAIMERS

YOU EXPRESSLY UNDERSTAND AND AGREE THAT:

THERE ARE NO IMPLIED OR EXPRESSED WARRANTIES ON THE MATERIALS IN THIS SITE; THE MATERIALS ARE PROVIDED "AS IS" AND "AS AVAILABLE BASIS." DODGE & COX, AFFILIATES, AGENTS, DIRECTORS (AND TRUSTEES), OFFICERS, EMPLOYEES, LICENSORS AND ANY THIRD-PARTY INFORMATION PROVIDERS AND VENDORS DISCLAIM, TO THE FULLEST EXTENT UNDER APPLICABLE LAW, ANY WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER RELATING TO THIS SERVICE, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND ALL WARRANTIES REGARDING SECURITY, CURRENCY, CORRECTNESS, QUALITY, ACCURACY, COMPLETENESS, RELIABILITY, PERFORMANCE, TIMELINESS, OR CONTINUED AVAILABILITY, WITH RESPECT TO (I) THE SITE; (II) ANY MATERIALS, PRODUCTS, OR SERVICES AVAILABLE ON OR THROUGH THE SITE; (III) USE OF THE SITE, MATERIALS, PRODUCTS, OR SERVICES; AND (IV) THE RESULTS OF THE USE OF THE SITE, MATERIALS, PRODUCTS, OR SERVICES. FURTHER, DODGE & COX, AFFILIATES, DIRECTORS (AND TRUSTEES), OFFICERS, EMPLOYEES, AGENTS, LICENSORS, AND ANY THIRD-PARTY INFORMATION PROVIDERS AND VENDORS EXPRESSLY DISCLAIM ALL WARRANTIES WITH RESPECT TO ANY DELAYS OR ERRORS IN THE TRANSMISSION OR DELIVERY OF ANY MATERIALS, PRODUCTS, OR SERVICES AVAILABLE THROUGH THIS SITE. EXCEPT AS PROVIDED BY LAW, NEITHER DODGE & COX NOR ITS THIRD-PARTY INFORMATION PROVIDERS AND VENDORS HAS ANY RESPONSIBILITY TO MAINTAIN THE MATERIALS, PRODUCTS, OR SERVICES OFFERED ON THE SITE OR TO SUPPLY CORRECTIONS, UPDATES, OR RELEASES FOR THE SAME. USE OF THIS SERVICE IS AT YOUR OWN RISK. REFERENCE TO A FUND OR SECURITY ANYWHERE ON THIS WEB SITE IS NOT A RECOMMENDATION TO BUY, SELL, OR HOLD THAT OR ANY OTHER SECURITY. IF YOU LIVE IN A STATE THAT DOES NOT ALLOW DISCLAIMERS OF CERTAIN WARRANTIES, SOME OF THE ABOVE EXCLUSIONS MAY NOT APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS, AND MAY HAVE OTHER RIGHTS, WHICH VARY FROM JURISDICTION TO JURISDICTION.

LIABILITY AND INDEMNITY

ANY MATERIALS DOWNLOADED OR OTHERWISE OBTAINED THROUGH THIS SITE ARE DONE AT YOUR OWN RISK. YOU ARE SOLELY RESPONSIBLE FOR ANY DAMAGE TO YOUR COMPUTER SYSTEM OR OTHER EQUIPMENT, OR LOSS OF DOWNLOADED OR OBTAINED DATA THAT RESULTS FROM SUCH DOWNLOAD.

NEITHER DODGE & COX NOR ITS AFFILIATES, DIRECTORS (AND TRUSTEES), OFFICERS, EMPLOYEES, AGENTS, LICENSORS, OR ANY THIRD-PARTY INFORMATION PROVIDERS AND VENDORS WILL BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, PUNITIVE, OR EXEMPLARY DAMAGES, INCLUDING BUT NOT LIMITED TO, DAMAGES FOR LOSS OF PROFITS, REVENUE, INCOME, GOODWILL, USE, DATA, OR OTHER INTANGIBLE LOSSES, OR DAMAGES CAUSED BY THEFT, UNAUTHORIZED ACCESS, SYSTEMS FAILURE, OR COMMUNICATIONS LINE FAILURE, OR THE COST OR PROCURING SUBSTITUTE GOODS OR SERVICES, CAUSED BY THE USE OF OR INABILITY TO USE THE SITE, MATERIALS OR ANY PRODUCTS OR SERVICES PROVIDED HEREIN, OR ANY OTHER MATTER RELATING TO THIS SITE, EVEN IF DODGE & COX HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE EXCLUSIONS OR LIMITATIONS MAY NOT APPLY TO YOU. TO THE EXTENT THAT A JURISDICTION DOES NOT PERMIT THE EXCLUSION OR LIMITATION OF LIABILITY AS SET FORTH HEREIN, THE LIABILITY OF DODGE & COX AND ITS AFFILIATES, SUBSIDIARIES, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, LICENSORS, AND ANY THIRD-PARTY INFORMATION PROVIDERS AND VENDORS IS LIMITED TO THE EXTENT PERMITTED BY LAW IN SUCH JURISDICTIONS.

You agree to indemnify, defend, and hold harmless Dodge & Cox, its affiliates, and each of its and their officers, directors (and trustees), employees, and agents, from and against all claims, demands, liabilities, damages, losses, or expenses, including attorney's fees and costs, arising out of or related to your improper access to or use of this Site, or any violation by you of these Terms of Use.

Dodge & Cox does not claim that materials in this Site are appropriate or available for use in all locations. Because of the global nature of the Internet, you agree to comply with all local rules with respect to your online conduct, including all laws, rules, codes, and regulations of the country in which you reside and the country from which you access this Site, including without limitation, all laws, rules, codes, regulations, decrees, acts, orders, directives, legislation, bills, and statutes pertaining to tax, contracts, intellectual property, securities, e-commerce, banking, technology, computers, fraud, and privacy.

Each investment product and service referred to on this Site is intended to be made available only to persons where that product or service is registered and/or licensed for sale or where such registration or licensing is not required. This Site will not be considered a solicitation for or offering of any investment product or service to any person in any jurisdiction where such solicitation or offering would be illegal.

TIMELINESS OF CONTENT

All content on this Site is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.


TERMINATION

The rights granted to you herein terminate immediately if you fail to comply with the Terms of Use. Dodge & Cox, in its sole discretion, reserves the right to temporarily or permanently terminate your access to and use of this Site at any time and for any reason whatsoever, without notice or liability. Dodge & Cox will not be liable to you or any third party for any termination of your access to or use of this Site.
 

INTEGRATION AND SEVERABILITY

If any provision of these Terms of Use is deemed unlawful, void, or for any reason unenforceable, then that provision will be deemed severable from these Terms of Use and will not affect the validity and enforceability of the remaining provisions. The preceding Terms of Use represent the entire agreement between Dodge & Cox and the user relating to the subject matter herein.

Terms of Use as of: February 2022

Skip to main content
 

Podcast

How A Long-Term Value Investor Assesses Macro Factors Amid COVID-19

September 2020

 
Transcript

Scot Hoffman: Welcome to another edition of Dodge & Cox Investment Perspectives. I’m Scot Hoffman in Communications. Reflecting back on the last five months amid COVID-19, it has been an unprecedented period in the markets, for our industry, and for our firm, and we continue to work from home for the foreseeable future, as that continues to function very well. With much uncertainty still surrounding COVID-19 and with a number of questions from clients about the macro environment, we thought this would be a good time to take a step back. But before we do that, on behalf of Dodge & Cox our thoughts are with the millions of people and their families around the world who have suffered from the health and economic impacts of the virus. We will spend a few minutes discussing why and how macroeconomic research fits into our bottom-up research process at Dodge & Cox. Macro, among other areas, is one where we have built out expertise as we have globalized our investment research capabilities over the last several decades, and some of our clients may not be as familiar with where it fits into our investment process. To talk about this, I’m joined by Chairman and CIO Charles Pohl and CEO and President Dana Emery, both of whom are 37-year veterans of the firm. Charles is a member of our U.S., International, and Global Equity Investment Committees, and Dana is a member of our U.S. and Global Fixed Income Investment Committees. We are also joined by Macroeconomist and Global Fixed Income Investment Committee member Jose Ursua, who is an expert in analyzing the impact of pandemics. Welcome, Dana, Charles, and Jose.

Dana Emery: Thank you.

Charles Pohl: Thanks, Scot.

Jose Ursua: Glad to be here.

Scot Hoffman: Let’s begin by setting some context. Charles, can you describe our Macro team’s work and how it fits within our investment decision-making process as an active manager, who focuses on fundamental, bottom-up analysis of equity and debt securities?

Charles Pohl: Well, let me start by saying we haven’t changed our investment process. Our primary focus is on fundamental, bottom-up analysis of companies and securities. But the key question is how does macro analysis help us in that effort? Over the last several decades, we have globalized and integrated our research process and expanded our capabilities across equity and fixed income. I’ll spend a minute on equity and I’ll turn it over to Dana to address fixed income. We’ve expanded the depth and breadth of our research skills and coverage. We call our analysts “global industry analysts” because they are truly covering companies on a global basis. To understand the opportunities and threats for Cisco, for example, you need to understand the business model of Huawei. That knowledge also translates into the value of new investment opportunities and vehicles; for example, the launch of 2 our international and global equity and global fixed income strategies. On top of that, you need to understand local economies and where they fit within the global economy. Take China, for example, where we have been building out a bench of native Mandarin speakers, who understand the culture and economic drivers that will impact the earnings and cash flow growth prospects of Chinese companies. That also gives us deeper insight into what is often the opaqueness of corporate governance.

Scot Hoffman: Dana, what would you add to that?

Dana Emery: Just adding to Charles’ comments, beginning back in 2006 we started to build out our macro expertise in a more formal way at Dodge & Cox. We brought in academics and industry consultants to help us evaluate ways to assess FX risk in our international equity strategies, and we were worried about the U.S. dollar cycle. This work resulted in several successful FX hedging decisions for both our international and global equity strategies, and since then, we’ve gradually built out a dedicated team of inhouse Macro Analysts, such as Jose, and added Research Associates to support them and many new data sources as they built out our proprietary models and dashboards to help us evaluate Macro exposures. They provide an important input to all of our strategies and especially our global fixed income strategy that was launched in 2014. In Macro analysis, we focus on three main areas: sovereign credit, rates, and FX. The Macro analysis provided by this group can be front and center to our decision-making as in sovereign and other government related credit decisions, rates positioning and FX positioning, both long and hedging decisions, in our fixed income as well as in our equity strategies. They are also a very important input to our bottom-up security selection in both equity and fixed income credits; for example, in the emerging markets. So macro can be both a driver and an important tool for our analysts as they evaluate bottom-up investment opportunities in equity and fixed income. This expertise also complements our deep analyst and trading team in structured products, derivatives, and other government-related securities.

Scot Hoffman: Jose, let’s turn to you. You’re a macroeconomist by training and, perhaps fortuitously, an expert in pandemics. How did you develop an interest in this field?

Jose Ursua: It started during grad school at Harvard, where I became interested in the area of intersection between macroeconomics and finance, in particular, in the study of rare disasters, which are infrequent events that happen with low probability but can have severe consequences. These matter from a macroeconomic standpoint because they shape key dynamics related to growth, inflation, investment, productivity, and other macro variables. And they affect asset prices too, including equities, debt securities, currencies, and commodities. So, after reconstructing historical macro data for many countries, Professor Robert Barro and I discovered that in addition to wars and financial crises, large macroeconomic contractions could also be associated with pandemics. And the best example of that was the Great Influenza Pandemic of 1918 through 1920. This research caught a lot of attention because we wrote it before the H1N1 pandemic of 2009 through 2010. And of course, COVID-19 and its associated macroeconomic disasters in 2020 have reignited interest in the field. From our perspective as investment managers, it has helped us inform the outlook ahead from a macro and financial standpoint.

Scot Hoffman: As you’ve reminded us, Jose, COVID-19 was a major shock that no one predicted, especially its severity or depth of disruption. What are the scenarios we are evaluating as you think about this uncertain environment and the macro picture?

Jose Ursua: We’ve followed some basic principles to construct three macro scenarios for our long-term investment horizon. These include 1) Distinguishing what we actually know from what we ignore, meaning basing our assessments on the data; 2) Being broadminded about the wide range of possible outcomes; 3) Having a focus on the long term, which matches our investment horizon; 4) Expressing views in probabilistic terms, not deterministically; and 5) Thinking dynamically, not statically, considering all the moving parts of the outlook. So we first sketched these three scenarios in March, and while we have refined them to take into account new data, the gist of them remains unchanged because they’re multiyear horizons. In particular, we continue to focus on what we identified as the four main drivers of the outlook. First, the evolution of the virus; second, progress around lockdown policies; third, the behavior of financial markets; and fourth, policy decisions around support measures like monetary or fiscal. So at the center of the distribution of outcomes, we’ve played for a “baseline” scenario, which we think is most likely and is tracking as expected according to the data. This envisions a U-shaped recovery in the third quarter and fourth quarter of 2020, and strong 2021–2022 pick-ups in growth. The key drivers include the gradual fading of the virus by the winter, no re-imposition of generalized lockdowns, and continued monetary and fiscal support. Around that baseline, we’ve penciled in two additional scenarios. On the one hand, a strong scenario where the recovery happens faster, recessions in 2020 are shallower, and growth recovers to trend in 2021. On the other hand, we have also outlined a weak scenario, where the recovery is incomplete, delayed until 2022, recessions last longer, and longer-lasting depressions are likely and concerning. Overall, it’s been important for us to discuss these views thoroughly among our fixed income and equity Analysts and Investment Committees, to make sure we’ve asked all the relevant questions, and that we’re working together as a team considering or using a consistent set of assumptions.

Scot Hoffman: Thank you, Jose. Charles, I’d like to come back to you for a minute and link what Jose was talking about here to our equity portfolios. And we’ve talked about how the portfolios assume economic growth over the long term; we emphasized this at the end of last year in the context of the debate between value versus growth stocks. That is still very much the case, so what are the implications of the scenarios that Jose laid out and how are the Investment Committees really factoring these scenarios?

Charles Pohl: Well, we continue to believe that over the long term, looking out over our investment horizon, that we will see economic growth. But we’re really investing in companies whose strong fundamentals are not reflected in the valuations. I’ll make three points that illustrate why it is so important to look at valuations, using Financials, Energy, and Technology. First, let’s look at Financials. Banks have been an important part of the solution for regulators and policymakers in this crisis and we’re in a much stronger capital and liquidity position as we entered shelter in place. Having said that, the banks have performed poorly as rates moved to multidecade lows and GDP growth dropped off a cliff. Our analysts incorporate into their models our views that dividends will be suppressed and that earnings will be challenged over the next few years, as rates are likely to stay low for a prolonged period of time and credit costs are likely to rise as a result of the impact of shelter-at-home policies in the wake of COVID-19. We believe that valuations of our bank holdings incorporate significant pessimism about the future. However, we believe the long-term earnings power is considerable, and that over the long term they represent a significant investment opportunity. Second, low oil demand due to economic weakness has had a significant adverse impact on our Energy holdings. While the valuations of these companies reflect significant pessimism, in our opinion, they do not reflect the long-term investment opportunity. Capital spending in the Energy sector has been sharply curtailed to a point where supply is unlikely to keep up with demand as the economy continues to recover. We believe this could result in significantly higher oil prices and result in strong performance by our Energy holdings. Third, as we have discussed in many venues, the stock market in recent years has been driven by the high-growth technology companies, leaving most of the rest of the market behind. We think there are many opportunities for bottom-up fundamental security selectors with a valuation focus and a long time horizon like Dodge & Cox.

Scot Hoffman: We’ve seen significant policy responses from governments around the world. Dana, what do you see as the longerterm impact of these policy responses?

Dana Emery: Yes. First, let me give a little context about the policy responses and then I’ll talk a bit about the potential consequences for markets. The Federal Reserve acted very quickly and decisively in the wake of the market and economic dislocations in March, as the shelter-at-home policies were implemented. They brought short-term rates to near zero. They reimplemented significant quantitative easing programs to help control long-term rates and ease financial conditions. They added security purchase programs to support the credit and structured products markets, in particular, and this all went a long way to calm the markets and mitigate the economic impact of the shelter-at-home policies. We believe that the Fed and the central banks around the world will continue to do whatever it takes to help mitigate the impact of COVID, and the policies that are implemented to combat it. This means that rates will likely stay low for a prolonged period. The Fed and other central banks will continue to build their balance sheets. The Fed also introduced recently an inflation averaging policy, meaning they would let inflation run above their 2% target and unemployment would run lower than in the past to jumpstart and sustain economic growth. On the fiscal side, governments around the world have approved large stimulus packages to support their citizens and companies navigate this very challenging period. Examples are above-the-line tax and spending measures, and below-the-line measures like loan and credit guarantees. And while there are benefits of these policies in the short term, over the long term there are significant costs, such as higher deficits and much larger debt stocks, which will likely impact economic growth for long periods as taxes are increased and spending is cut to help pay back the debt incurred. These views for slower economic growth and rates remaining low for longer, especially in the short end of the yield curve, are incorporated in our base and downside scenarios when evaluating investment opportunities in equity and fixed income and setting our overall portfolio structures. So taking the impact of the policy responses into account, we see considerable value in our ability to find attractive investments on a relative basis in our portfolios. We are confident in our current portfolios but we’re cautious that the total returns are likely to be low in the broad markets on an historical basis, given the current valuations, and an overlay of significant economic and geopolitical uncertainty. In fixed income you have low starting rates and narrow credit yield premiums, and in equities, the traditional valuation metrics have risen above pre-COVID levels, metrics such as price-to-sales, price-to-book, price-to-earnings, and equity markets have recovered significantly.

Scot Hoffman: When we’re talking about the macro environment, there are possible other large issues and risks that contribute to the uncertain economic picture. How are we thinking about these issues?

Charles Pohl: In addition to COVID-19, we’ve been paying close attention to other macro forces that can shape the investment outlook over our long time horizon. Jose, you’ve mapped out three horizons from a macro perspective.

Jose Ursua: That’s right, Charles, mainly near, medium and long term. In the nearer term, developments around the U.S. elections in November, tensions around the U.S.-China relationship, ongoing Brexit negotiations, OPEC decisions, and geopolitical risks matter a lot. These can change policy decisions materially, and affect the recovery from COVID-19 in unexpected ways. In the medium-term, we are focusing on plausible paths for over-extended monetary and fiscal policies around the world, the thing I just described; on the monetary side, because aggregate demand and supply dynamics may shift the distributions of risks around inflation; and on the fiscal side, because the unraveling of debt build-ups has traditionally involved fiscal tightening through higher taxes. In the longer term, our analysts are actively evaluating possible behavioral changes post-COVID-19: shifts in supply chains and trade patterns, technological developments, environmental policies, risks from populism, and even demographics, which are topics you and I have discussed in the past, Charles.

Charles Pohl: Indeed. We think these macro considerations complement and enhance our bottom-up research, to strengthen as best as we can our investment decision-making.

Scot Hoffman: For our last question, given all these macro-crosscurrents that we’ve been discussing, what makes you optimistic about the positioning of our investment portfolios going forward? Let’s start with you, Charles, and wrap up with a few comments from you, Dana.

Charles Pohl: We are obviously very concerned and sympathetic to the people affected by this horrible disease. But as a fiduciary, we continue to assess our current holdings and actively seek out new opportunities that come from the market dislocation. Keep in mind the pandemic of 1918— the worst in history— only lasted 18 months. COVID-19 won’t last forever. It will either be brought under control with a vaccine or it will slowly fade away. We are already seeing many signs of economic growth returning. We have portfolios of securities, most of which are selling at modest valuations, and which we believe will benefit significantly from the economic recovery.

Dana Emery: I would add that we’re confident in our investment process and in our focus on the long term. As a team, we’ve had significant experience navigating many challenging economic and market environments successfully, and this period is really no exception. And we believe we’re well positioned for the long-term opportunities in a wide variety of scenarios across our portfolios. That gives us optimism about the relative long-term return opportunities. And we would end by just encouraging investors to stay focused on the long term and on achieving their long-term investment goals by staying invested.

Scot Hoffman: Thank you, Dana, Charles, and Jose for an excellent discussion, and thank you for listening. If you have any questions or comments, we encourage you to reach out to us.

Scot Hoffman: This podcast was posted in September 2020. Statements in this podcast represent the opinions of the speakers expressed at the time the podcast was recorded, are not a complete analysis of every material fact concerning any market, industry or investment, and may change based on market and other conditions without notice. The statements are not intended to forecast or guarantee future events or results for any product or service or serve as investment advice or a recommendation to buy, sell or hold any security. Any securities identified are subject to change without notice and do not represent a fund’s entire holdings. This podcast should not be copied, distributed, published or reproduced in whole or in part without express permission of Dodge & Cox. Before investing in any Dodge & Cox Fund, you should carefully consider the Fund’s investment objectives, risks and charges and expenses. To obtain a Fund’s prospectus and summary prospectus, which contain this and other important information, or for current month and performance figures, visit dodgeandcox.com or call 1-800-621-3979. Please read the prospectus and summary prospectus carefully before investing.

Speakers

Image of Charles Pohl

Chairman, Investment Committee Member

Dana Emery
Chair and Chief Executive Officer, Investment Committee Member, D&C Board Member
Jose Ursua
Investment Committee Member, Fixed Income Analyst

Disclosures

Statements in this presentation represent the opinions of the speakers expressed at the time the presentation was recorded, and may change based on market and other conditions without notice. The statements are not intended to forecast or guarantee future events or results for any product or service, or serve as investment advice.

The information provided is not a complete analysis of every material fact concerning any market, industry or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. The information provided is historical and does not predict future results or profitability. This is not a recommendation to buy, sell, or hold any security and is not indicative of Dodge & Cox’s current or future trading activity. Any securities identified are subject to change without notice and do not represent a Fund’s entire holdings.

This information should not be considered a solicitation or an offer to purchase shares of Dodge & Cox Worldwide Funds plc or a solicitation or an offer by Dodge & Cox Worldwide Investments and its affiliates to provide any services in any jurisdiction. The views expressed herein represent the opinions of Dodge & Cox Worldwide Investments and its affiliates and are not intended as a forecast or guarantee of future results for any product or service. To obtain more information about the Funds, please refer to the Funds’ prospectus at dodgeandcoxworldwide.com.