The Dodge & Cox Balanced Fund: Evolving our Approach to Building a Balanced Portfolio

In 1934, the Annual Report for the Dodge & Cox Balanced Fund¹ explained the Fund’s two objectives: providing a “continuous safeguard of the shareholders’ principal value and purchasing power” and offering “the opportunity for aggressive participation in business recovery and inflation.” We believe these concepts are just as important to Fund shareholders today, but investors face different risks and opportunities that require expanded capabilities and deep focus. That is why we have continued to enhance our investment tools and processes, and believe these improvements will have meaningful benefits for the Balanced Fund in the years ahead.
        We have managed the Balanced Fund over the past nine decades using our bottom-up investment approach. Our analysts seek to uncover opportunities where current valuations do not reflect their long-term outlook for underlying fundamentals, and then advocate their recommendations to our U.S. Equity and Fixed Income Investment Committees, which currently manage the Balanced Fund. Our Investment Committees debate each investment advocacy, ultimately deciding on both the position size for each holding and the optimum balance between asset classes.
        Over this time, we have expanded our investment capabilities across our integrated research teams. In particular, we have broadened and deepened our research coverage globally, added asset allocation expertise, and enhanced our risk management tools. The result for the Balanced Fund is a diversified portfolio of predominantly equity and fixed income securities designed to help preserve capital, generate income, and deliver growth over the long term.
        The Fund has a strong track record over longer time periods.² In recent years, the Fund has benefited as we have positioned the portfolio to participate more aggressively in business recovery and growth, particularly following the great financial crisis of 2008-09 and the initial impact of the COVID pandemic in 2020. More recently, we have reduced the Fund’s equity exposure in light of higher equity valuations and modestly more attractive bond yields.

A New, Dedicated Balanced Fund Investment Committee

To ensure that we fully utilize our expanded risk management and asset allocations tools, in early 2021 we created a dedicated seven-member working group to review Balanced Fund advocacies in greater depth. Its members bring the breadth of investment experience necessary to address investment questions that span asset classes. The group has helped the U.S. Equity and U.S. Fixed Income Investment Committees holistically consider the risks and return potential of each investment and the entire portfolio.
        Given the quality of analysis and advocacies we have observed within the working group, we plan to transition this team to a dedicated Balanced Fund Investment Committee, which will take over management of the Fund from the current Committees, effective May 1, 2022. We believe the focus of a dedicated Committee—combining expertise across asset classes, risk management, and asset allocation—will enhance portfolio construction and ensure diversification across industries and sectors to benefit our clients and Fund shareholders. Specifically, the Committee will enhance our ability to holistically evaluate investment advocacies for individual holdings, analyze portfolio risk and return scenarios, and determine issuer position sizing and asset allocation across equity, fixed income, and cash. In addition, the Committee’s size aligns more closely with the Investment Committees responsible for managing each of our other Funds.
        The new Balanced Fund Investment Committee has significant experience with an average tenure of 15 years at Dodge & Cox, and its membership overlaps with the Committees currently managing the Fund. Three members also serve on our U.S. Equity Investment Committee. One serves on both of our U.S. and Global Fixed Income Investment Committees, and one serves on the Global Fixed Income Investment Committee. The other two members are analysts from our Portfolio Strategy group, which focuses on risk and asset allocation research. All of the Balanced Fund Investment Committee’s members have contributed to the Fund’s investment process for many years.

The Balanced Fund Investment Committee³

 ^{*Years of experience at Dodge & Cox / Years of industry experience.}

In Closing

Established in 1931, the Dodge & Cox Balanced Fund is one of the longest-standing mutual funds in the world. Many of its shareholders have used it to meet their investment goals—often across generations—and to benefit from the Fund’s long-term record of success. We thank you for your continued confidence in Dodge & Cox, and we look forward to sharing with you in upcoming shareholder letters how we continue to manage the Fund to participate in growth, while safeguarding shareholders’ principal and purchasing power.