16 Jan 2013 Dodge & Cox - Q4 2012 Commentary ( Portfolio )
The broad equity market was flat for the fourth quarter, as optimism over the modestly growing U.S. economy was tempered by concerns over the slowing global economy, uncertainty around the outcome of U.S. political negotiations related to the so-called “fiscal cliff,” and mixed third quarter earnings results. Economic statistics revealed a modestly improving economy: existing home sales and consumer confidence reached multi-year highs and the labor market expanded. In addition, low interest rates supported the housing market. However, questions remain about the impact of political negotiations and a global economic slowdown on corporate earnings. Recessionary conditions in Europe and a growth slowdown in China and other emerging economies are of particular concern to multinational companies.

Although companies remain cautious in the near term in light of ongoing uncertainties, we believe the longer-term outlook for corporate earnings is positive. Many companies have improved operationally over the past several years, and technological innovations continue. Corporate profits are poised to grow when economic conditions improve globally. This, combined with reasonable valuation levels, provides the potential foundation for attractive equity returns. We believe the Fund’s holdings are well positioned to benefit from the long-term global growth opportunity. Our strategy is unchanged: we construct a diversified portfolio of investments in companies with strong franchises, long-term growth prospects, and attractive valuations. In 2012, this strategy resulted in strong absolute and relative returns for the Fund.