Morningstar - Q4 2020 - 96

Ten Questions

Lucy Johns of Dodge & Cox focuses
on the fundamentals.
Laura Lallos, managing editor of Morningstar
magazine, interviewed Johns in August.
1. What distinguishes Dodge & Cox's approach

to fixed income?

Our team decision-making process, emphasis
on bottom-up research, value orientation,
total-return mindset, and long-term investment
horizon set us apart.
2. How have you taken advantage of volatility

in 2020?

Staying focused on fundamentals and long-term
valuation in the midst of periods of market
panic is critical. That was particularly important
in March and April, when dislocations
in the credit markets created some highly
attractive opportunities.
3. What are the most attractive opportunities today?

Lucy Johns is a vice president at Dodge & Cox
and was named associate director of fixed
income in January. Johns is a longtime
member of the investment committees that run
Dodge & Cox Income DODIX and Dodge
& Cox Global Bond DODLX, both of which have
Morningstar Analyst Ratings of Gold.
Johns joined Dodge & Cox as a research
assistant in 1998 and rejoined the firm in 2004
after receiving her MBA from UCLA
Anderson School of Management. She has
a B.A. from Williams College.
Photography by David Lees.

96

Morningstar Q4 2020

Falling oil prices have led to particularly
poor recent performance for the bonds of energy
companies and commodity-exporting countries.
We've sifted through the rubble to find
specific issuers that we believe will be survivors,
even in a prolonged downturn, such as
leading pipeline companies Kinder Morgan KMI
and TC Energy TRP. In our Global Bond Fund, which
can invest beyond the U.S., we are finding
opportunities in several emerging-market countries,
where inflation-adjusted yields are higher and
currency valuations look attractive.

5. What are you optimistic about?

Policymakers have moved quickly and decisively
to provide support for the markets. In particular,
the Fed's participation in the corporate
bond market has reduced tail risks and supported
our conviction for the significant holdings we
have in this sector.
6. What lessons from past crises apply today?

Our investment teams have worked together
through previous crises and learned it is
critical to play both offense-taking advantage
of disconnects that materialize between
short-term sentiment and long-term fundamentals-and defense-mitigating downside
risk. To differentiate among investment opportunities, there is no substitute for thorough
research. Our analyst team stress-tests all our
investments, by, for example, analyzing
liquidity and funding sources, debt maturities,
cash flows, and the overall balance sheet
strength of companies to assess whether they
could navigate a prolonged downturn.
7. What's the best advice you've received?

Be humble-both as an investor and in life.
8. What do you enjoy doing when you aren't investing?

Spending time with my family (I have 9-yearold twins), getting outdoors, and following some
athletic pursuits. The physical and mental
challenge of a full Ironman is on my bucket list.

4. What are the biggest challenges?

9. What is your favorite place in San Francisco?

The low level of yield tempers future return
expectations, providing little cushion against price
declines if rates or spreads move higher.
Given this risk, we have positioned our portfolios
with a moderate duration (that is, less interestrate risk than most benchmarks) and have carefully
built incremental yield through purchases
of spread product, such as corporate, securitized,
and emerging-market bonds.

Given my love of the outdoors, I think the Presidio
is hard to beat.
10. Is there a cause that you support?

I am passionate about improving equity in
education. I am a supporter and board member
of Breakthrough Collaborative, a national
leader in improving student outcomes and creating
a diverse and talented teacher pipeline.



Morningstar - Q4 2020

Table of Contents for the Digital Edition of Morningstar - Q4 2020

Contents
Morningstar - Q4 2020 - CT1
Morningstar - Q4 2020 - CT2
Morningstar - Q4 2020 - Cover1
Morningstar - Q4 2020 - Cover2
Morningstar - Q4 2020 - 1
Morningstar - Q4 2020 - 2
Morningstar - Q4 2020 - Contents
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Morningstar - Q4 2020 - Cover3
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