The Dodge & Cox Stock Fund had a total return of 18.5% in 2006, compared to a total return of 15.8% for the Standard & Poor’s 500 Index (S&P 500). At year end, the Fund had net assets of $66.2 billion and a cash position of 4.4%.
While we remain optimistic about the long-term prospects for the world economy and confident in our ability to continue to implement our investment approach, the past seven years (roughly since the peak of the technology bubble) have been exceptional for the Stock Fund compared to the broad market. Since the end of 1999 the Fund has returned an annualized 12.8% per year compared to 1.1% for the S&P 500. Over this time period, what were lower valuation stocks (primarily in the Industrials, Materials and Energy sectors) have outperformed what turned out to be overvalued stocks (primarily in the Information Technology, Media, Telecommunications and Health Care sectors). Today, with valuations across all sectors of the market much more homogeneous, the possibility of the Fund outperforming the S&P 500 by such a wide margin going forward is remote. Indeed, outperforming the S&P 500 at all given this valuation landscape will be a formidable challenge.
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While we remain optimistic about the long-term prospects for the world economy and confident in our ability to continue to implement our investment approach, the past seven years (roughly since the peak of the technology bubble) have been exceptional for the Stock Fund compared to the broad market. Since the end of 1999 the Fund has returned an annualized 12.8% per year compared to 1.1% for the S&P 500. Over this time period, what were lower valuation stocks (primarily in the Industrials, Materials and Energy sectors) have outperformed what turned out to be overvalued stocks (primarily in the Information Technology, Media, Telecommunications and Health Care sectors). Today, with valuations across all sectors of the market much more homogeneous, the possibility of the Fund outperforming the S&P 500 by such a wide margin going forward is remote. Indeed, outperforming the S&P 500 at all given this valuation landscape will be a formidable challenge.
Read the complete commentary
