Dodge & Cox Balanced Fund Q3 2024 Shareholder Letter

Performance¹

Total Returns (%) Average Annual Total Returns

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Returns represent past performance and do not guarantee future results. Investment return and share price will fluctuate with market conditions, and investors may have a gain or loss when shares are sold. Mutual Fund performance changes over time and currently may be significantly lower than stated above. Performance is updated and published monthly. Current month-end performance can be obtained atdodgeandcox.com or by calling 800-621-3979.

Market Commentary

U.S. equity markets reached all-time highs during the third quarter of 2024 with the S&P 500 posting its best year-to-date performance in nearly 30 years. Investors were encouraged by improving inflation indicators, a resilient economy, and the Federal Reserve’s (Fed’s) 50 basis points rate cut, signaling the start of a rate easing cycle.

U.S. value stocks outperformed growth stocks for the first quarter since 2022, and the valuation disparity between value and growth stocks declined, but still remains wide. Reversing trends from the first half of the year, the Information Technology and Communication Services sectors were among the worst performers in the third quarter, though their returns were still positive. Meanwhile, Utilities and Real Estate were the best-performing sectors.

Within fixed income markets, the combination of substantially lower interest rates and strong performance from “spread” (i.e., non-Treasury) sectors fueled the Bloomberg U.S. Agg’s 5.2% third quarter return. This was the Index’s second-best quarterly return in more than 20 years. Receding recession fears, dovish Fed commentary, and continued robust flows into the asset class influenced performance.

Portfolio Strategy

We regularly assess the appropriate asset allocation for the Fund, which we manage based on our long-term outlook for the Fund’s equity and fixed income securities. As of September 30, the Fund held 47.0% in U.S. equities, 15.6% in non-U.S. equities, and 37.4% in fixed income securities plus cash.

During the third quarter, we made several adjustments to the equity portion of the Fund in light of changing valuations. For example, we established new positions in Air Products & Chemicals (APD), a leader in the industrial gas industry, and SBA Communications (SBAC), a Real Estate Investment Trust (REIT) that owns and operates wireless communications infrastructure for telecommunications companies.² We also initiated a small position in Akzo Nobel (OTCQX:AKZOF)(OTCQX:AKZOY), a large global paint and coatings producer, which was trading at an attractive valuation. We believe the company participates in a solid industry, generates strong returns on capital, and has an opportunity for significant margin expansion. Notwithstanding these new positions, the equity portfolio’s largest exposures remain in Financials and Health Care, comprised of individually selected holdings with attractive risk/reward profiles.

Within the fixed income segment of the portfolio, we modestly reduced the Fund’s Credit exposure, a continuation of the trend over the past several quarters and a reflection of our caution about the historically tight valuation environment. Nevertheless, the Fund maintains substantial Credit exposure because we believe the portfolio’s individually selected credit securities are fundamentally sound, diversified across multiple dimensions, and offer attractive long-term return potential.

We remain confident in our investment approach and are optimistic about the Fund’s prospects over our multi-year investment horizon and across a wide range of economic scenarios. We believe patience, persistence, and a long-term perspective are essential for investment success. Thank you for your continued confidence in Dodge & Cox.

Performance Review (Fund’s Class I Shares)

Third Quarter

Equity sector allocation was the primary driver of the Fund’s relative outperformance.

Equity Portfolio (vs. S&P 500)

Key contributors to relative results included the portfolio’s:

• Information Technology underweight and stock selection, including underweight position Microsoft (MSFT);
• Stock selection in Health Care;
• Consumer Staples stock selection, notably Haleon (HLN)(OTCPK:HLNCF); and
• Positions in Fiserv (FI) and Alibaba (BABA)(OTCPK:BABAF).

Key detractors from relative results included the portfolio’s:

• Energy overweight and holdings, mainly Occidental Petroleum (OXY); and
• Positions in Charles Schwab (SCHW), FedEx (FDX), and Humana (HUM).

Fixed Income Portfolio (vs. Bloomberg U.S. Agg)

Key contributors to relative results included the portfolio’s:

• Agency³ mortgage-backed securities (MBS) holdings, which outperformed the MBS in the benchmark;
• Credit security selection, most notably Pemex, Prosus (OTCPK:PROSY)(OTCPK:PROSF), and British American Tobacco (BTI)(OTCPK:BTAFF); and
• Underweight position to U.S. Treasuries and overweight position to corporate bonds.

Key detractors from relative results included the portfolio’s:

• Below-benchmark duration position.

Year to Date

Equity sector allocation and security selection were the main drivers of the Fund’s relative underperformance. This was partially offset by fixed income security selection and sector allocation, which benefited relative results.

Equity Portfolio (vs. S&P 500)

Key contributors to relative results included the portfolio’s:

• Stock selection and underweight position in Consumer Discretionary;
• Industrials holdings, notably RTX (RTX); and
• Positions in Fiserv, Coherent (COHR), and BNY Mellon.

Key detractors from relative results included the portfolio’s:

• Health Care overweight and holdings, particularly CVS Health (CVS);
• Stock selection and underweight position in Information Technology;
• Stock selection in Communication Services, primarily Charter Communications (CHTR); and
• Position in Occidental Petroleum and Charles Schwab.

Fixed Income Portfolio (vs. Bloomberg U.S. Agg)

Key contributors to relative results included the portfolio’s:

• Credit security selection, most notably Pemex, British American Tobacco, TC Energy (TRP), and Prosus;
• Agency MBS holdings, which outperformed the MBS in the benchmark; and
• Underweight position to U.S. Treasuries and overweight position to corporate bonds.

There were no notable fixed income detractors during the period.

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* Dodge & Cox has contractually agreed to reimburse the Fund for all ordinary expenses to the extent necessary to maintain Total Annual Fund Operating Expenses of the Fund’s Class X shares at 0.42% until April 30, 2026. This agreement cannot be terminated prior to April 30, 2026 other than by resolution of the Fund’s Board of Trustees. For purposes of the foregoing, ordinary expenses shall not include nonrecurring shareholder account fees, fees and expenses associated with Fund shareholder meetings, fees on portfolio transactions such as exchange fees, dividends and interest on short positions, fees and expenses of pooled investment vehicles that are held by the Fund, interest expenses and other fees and expenses related to any borrowings, taxes, brokerage fees and commissions and other costs and expenses relating to the acquisition and disposition of Fund investments, other expenditures which are capitalized in accordance with generally accepted accounting principles, and other non-routine expenses or extraordinary expenses not incurred in the ordinary course of the Fund’s business, such as litigation expenses. The term of the agreement will automatically renew for subsequent three-year terms unless terminated with at least 30 days’ written notice by either party prior to the end of the then-current term. The agreement does not permit Dodge & Cox to recoup any fees waived or payments made to the Fund for a prior year.

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