Concentrated Equity Fund

Portfolio attribution

The Causeway Concentrated Equity Fund (“Fund”) outperformed the Index during the month, due primarily to stock selection. Fund holdings in the software & services and retailing industry groups, as well as an overweight position in the insurance and banks industry groups and an underweight position in the technology hardware & equipment industry group, contributed to relative performance. Overweight positions in the utilities and pharmaceuticals & biotechnology industry groups and underweight positions in the energy, diversified financials, and consumer services industry groups, offset some of the outperformance compared to the Index. The top contributor to return was travel & tourism technology company, Sabre Corp. (United States). Other notable contributors included financial services provider, ING Groep NV (Netherlands), insurer, AXA SA (France), technology conglomerate, Alphabet, Inc. (United States), and financial services technology company, Fiserv, Inc. (United States). The largest detractor was defense & information technology services provider, Leidos Holdings, Inc. (United States). Additional notable detractors included electric utility provider, RWE AG (Germany), utilities provider, Exelon Corp. (United States), clinical laboratory,Quest Diagnostics, Inc. (United States), and pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland).

Investment outlook

The emphasis we have placed on high-quality cyclical stocks continued to be beneficial in February. The reopening of economies globally will likely be supported, on a multi-year basis, by the greatest amount of government spending incurred since WWII. Rising bond yields should further support undervalued stocks in lieu of long-duration stocks with modest or negligible current cash flows. We focus our fundamental research efforts on well-managed companies that have utilized this crisis to their advantage by removing significant amounts of fixed costs within operating expenses. In our view, these improvements in efficiency will lead to a permanently lower cost base and thereby, improved operating leverage. As revenues recover, we anticipate many of these companies will achieve historically high operating margins, and this should translate into higher growth rates in earnings and cash flows. In particular, we expect companies experiencing the biggest drags on revenues from the pandemic—such as air travel and travel or hotel booking software—to transition from loss-making to generating substantial free cash flows. As the global population becomes vaccinated, this should stoke demand for travel and hospitality. In addition, we anticipate a resumption in dividends and share buybacks from many of our portfolio companies as free cash flow rises, an important component of total return.

The Fund leverages Causeway’s experience in rigorous, bottom-up fundamental stock selection and quantitative risk management abilities. Typically consisting of 25 to 35 value stocks, we believe the Fund has the potential for superior alpha generation. We designed this fund with a concentrated approach, employing Causeway’s proprietary quantitative risk controls. We believe this will allow us to maximize long-term returns while controlling for volatility.

Global Value Fund

Portfolio attribution

The Causeway Global Value Fund (“Fund”) outperformed the Index during the month, due primarily to stock selection. Fund holdings in the software & services, automobiles & components, insurance, pharmaceuticals & biotechnology, and utilities industry groups contributed to relative performance. Holdings in the semiconductors & semi equipment, technology hardware & equipment, and capital goods industry groups, along with an overweight position in the consumer services industry group and an underweight position in the food beverage & tobacco industry group, offset some of the outperformance compared to the Index. The top contributor to return was automobile manufacturer, Volkswagen AG (Germany). Other notable contributors included business services provider, Concentrix Corp. (United States), mortgage insurance provider, Essent Group (United States), utilities provider, Exelon Corp. (United States), and HVAC manufacturer, Carrier Global Corp. (United States). The largest detractor was products & services provider for the electronic components industry, SK hynix, Inc. (South Korea). Additional notable detractors included jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan), semiconductor company, Infineon Technologies AG (Germany), and airliner manufacturer, Airbus SE (France).

Investment outlook

With vaccination rates accelerating, investors turned their attention to undervalued stocks that were sharply sold off when the pandemic accelerated a year ago. Value stocks outpaced their growth peers during the first quarter, largely led by cyclical sectors such as industrials, materials, consumer discretionary, financials, and the more economically sensitive portion of technology. As high-quality cyclical stocks re-rate upward, we are using this opportunity to lower portfolio risk, measured as prospective volatility versus the benchmark. Consistent with prior market recoveries, stocks in economically defensive industries lag the overall markets. Several of these low beta stocks have risen to the top half of our risk-adjusted return ranking, making them potentially attractive portfolio candidates. A common theme for many of our portfolio companies, whether cyclical or defensive, is operational restructuring. We believe companies with experienced management teams can prove to the market that they have used the crisis to reduce expenses and boost efficiency. In our view, this effort should enhance operating leverage and facilitate higher levels of profitability from these well-positioned companies. As free cash flow rises, we believe companies will return capital to shareholders in the form of dividends and share buybacks, providing a critical boost to total return.

International Small Cap Fund

Portfolio attribution

Causeway International Small Cap Fund (“Fund”) outperformed the Index during the month. To evaluate stocks in our investable universe, our multi-factor quantitative model employs four bottom-up factor categories – valuation, earnings growth, technical indicators, and competitive strength – and two top-down factor categories assessing macroeconomic and country aggregate characteristics.

From a sector perspective, Fund holdings in consumer discretionary, industrials, and information technology contributed the most to performance relative to the Index. Fund holdings in the materials sector offset a portion of the outperformance; otherwise holdings in the energy and communication services sectors contributed the least. Relative performance for the month can be mostly attributed to stock selection. The largest contributor to performance was textile manufacturer, Hyosung TNC Corp. (South Korea). Additional top contributors included marine transportation services provider, Yang Ming Marine Transport Corp. (Taiwan), transportation and logistics solutions provider, SITC International Holdings Co., Ltd. (Hong Kong), retailer, JB Hi-Fi Ltd. (Australia), and semiconductor services provider, BE Semiconductor Industries NV (Netherlands). The largest detractor from performance was solar energy company, Daqo New Energy (China). Additional top detractors included plastics & polymers manufacturer, Korea Petrochemical Ind. Co., Ltd. (South Korea), rubber product producer, Sri Trang Agro-Industry Public Co. Ltd. (Thailand), rubber product producer, Kossan Rubber Industries Bhd. (Malaysia), and mortgage lender, Indiabulls Housing Finance Ltd. (India).

Investment outlook

Though we analyze many different stock selection factors in our alpha model, value factors receive the largest weight on average. Although value was under significant pressure in 2020, it has proven resilient in recent months. We believe there is far more “catching up” to come. Macroeconomic data is becoming increasingly supportive of value outperformance according to historical relationships. Higher interest rates favor value stocks since increasing discount rates will penalize longer duration growth stocks whose cash flows are expected farther in the future. Increasing inflation expectations and a steepening yield curve directly benefit financials (via net interest margins) but also support industrials and other cyclicals via strengthening growth expectations. Recovering commodity prices also signal improving growth prospects and directly benefit the materials and energy sectors. As of March 31, the Small Cap Growth Index traded at a 24.1x forward price-to-earnings multiple compared to 14.0x for the Small Cap Value Index, a 73% premium. We believe that value’s relative performance should improve as inflation expectations increase, the yield curve steepens, Covid-19 vaccine distribution accelerates, and economies reopen.

While value receives the largest weight on average, the sheer breadth of the international small cap universe means that the typical tradeoffs in portfolio characteristics do not necessarily apply. In addition to value, we look for favorable growth, momentum, and quality characteristics. We believe that, at many points in time, our portfolio has exhibited more attractive metrics relative to the Index across all factor categories simultaneously.

Smaller cap equities are currently exhibiting a higher long-term earnings-per-share growth trend than larger cap equities. Additionally, international smaller cap equities have exhibited greater valuation dispersion than larger cap equities on both a forward-earnings-yield basis and a price-to-bookvalue basis, indicating more information content in valuation ratios for these equities. This characteristic has allowed us to construct a portfolio with lower valuation ratios relative to the Index without, in our view, compromising quality.

International Opportunities Fund

Portfolio attribution

Equity markets continued to ascend in March amid a steady progression in vaccination rollouts, historically high levels of fiscal and monetary accommodation, and renewed optimism in the outlook for global growth. Emerging markets (“EM”) trailed developed market peers during the month. The top performing markets in our investable universe were Saudi Arabia, Ireland, Chile, Mexico, and Norway. The worst performing markets were Turkey, Peru, Egypt, China, and Indonesia. The best performing sectors in the MSCI ACWI ex US Index (“Index”) were utilities, consumer staples, and industrials. The worst performing sectors were communication services, information technology, and consumer discretionary. Every major currency except the Canadian dollar depreciated versus the US dollar during the period, thus diminishing overall returns on overseas assets for US dollar-based investors.

We use a proprietary quantitative equity allocation model that assists the portfolio managers in determining the weight of emerging versus developed markets in the Fund. Our allocation relative to the weight of emerging markets in the Index is currently overweight. We identify five primary factors as most indicative of the ideal allocation target: valuation, quality, earnings growth, macroeconomic, and risk aversion. Valuation is currently neutral for emerging markets in our model. Our quality metrics, which include such measures as profit margins and return on equity, are positive. Our earnings growth factor is negative, while our macroeconomic factor is positive for emerging markets. Lastly, our risk aversion factor is negative in our model.

Investment outlook

With vaccination rates accelerating, investors turned their attention to undervalued developed market stocks that were sharply sold off when the pandemic accelerated a year ago. Value stocks outpaced their growth peers during the first quarter, largely led by cyclical sectors such as industrials, materials, consumer discretionary, financials, and the more economically sensitive portion of technology. As high-quality cyclical stocks re-rate upward, we are using this opportunity to lower portfolio risk, measured as prospective volatility versus the benchmark. Consistent with prior market recoveries, stocks in economically defensive industries lag the overall markets. Several of these low beta stocks have risen to the top half of our risk-adjusted return ranking, making them potentially attractive portfolio candidates from a fundamental research perspective. A common theme for many of our developed market portfolio companies, whether cyclical or defensive, is operational restructuring. We believe companies with experienced management teams can prove to the market that they have used the crisis to reduce expenses and boost efficiency. In our view, this effort should enhance operating leverage and facilitate higher levels of profitability from these well-positioned companies. As free cash flow rises, we believe companies will return capital to shareholders in the form of dividends and share buybacks, providing a critical boost to total return.

Like their developed market counterparts, EM value stocks outperformed EM growth during the first quarter, buoyed by steepening global yield curves, the reopening of economies, and the Covid-19 vaccine rollout. Despite this outperformance, EM value stocks trade at a sizable discount to growth stocks. We emphasize value factors in our multi-factor investment process and we believe the value rebound is poised to continue as economic activity accelerates.

Emerging Markets Fund

Portfolio attribution

The Causeway Emerging Markets Fund (“Fund”) outperformed the Index in March 2021. We use both bottom-up “stock-specific” and top-down factor categories to seek to forecast alpha for the stocks in the Fund’s investable universe. Our valuation factor was a positive indicator in March and it was our strongest performing bottom-up indicator during the first quarter. Our bottom-up growth, price momentum, and competitive strength factors were also positive indicators during the month. Of our top-down factors, macroeconomic, country, and sector factors were positive indicators while currency was negative in March.

Investment outlook

Within EM, earnings growth upgrades have generally been strongest in cyclical sectors, particularly materials, energy, and information technology, according to analyst estimates. Growth upgrades for these sectors reflect analysts’ optimism that economies will continue to reopen and activity will normalize. We are overweight materials and information technology stocks in the Fund due to attractive growth and price momentum characteristics. We are modestly underweight energy stocks in the Fund due to valuation considerations. From a country perspective, net earnings growth upgrades were strongest in Russia, Saudi Arabia, Brazil, and Taiwan. Chinese stocks experienced net earnings downgrades relative to other countries. In China, banks and other cyclical stocks have experienced net upgrades. However, China’s large internet companies, which dominate the Index, have experienced muted analyst revisions. Many of these companies did well during the Covid-19 pandemic and have not benefited from the economic reopening to the same extent many cyclical stocks have. China’s large internet companies have also been negatively affected by the ongoing regulatory investigation into anti-competitive practices. We are underweight Chinese stocks in the Fund due primarily to valuation and growth considerations.

Buoyed by steepening global yield curves, the reopening of economies, and the Covid-19 vaccine rollout, EM value stocks outperformed during the month and the quarter. The MSCI EM Value Index outpaced the MSCI EM Growth Index by 3.7% in the first quarter in local currency terms. Despite this outperformance, EM value stocks trade at a sizable discount to growth stocks. We emphasize value factors in our multi-factor investment process and we believe the value rebound is poised to continue as economic activity accelerates.

International Value Fund

Portfolio attribution

The Causeway International Value Fund (“Fund”) outperformed the Index during the month, due primarily to country allocation (a byproduct of our bottom-up stock selection process). Fund holdings in the pharmaceuticals & biotechnology, automobiles & components, banks, materials, and insurance industry groups contributed to outperformance relative to the Index. Holdings in the capital goods, semiconductors & semi equipment, technology hardware & equipment, diversified financials, and media & entertainment industry groups offset a portion of the outperformance. The top contributor to return was automobile manufacturer, Volkswagen AG (Germany). Other notable contributors included financial services provider, ING Groep NV (Netherlands), banking & financial services company, Barclays Plc (United Kingdom), Takeda Pharmaceutical Co., Ltd.(Japan), and British American Tobacco Plc (United Kingdom). The largest detractor from absolute performance was financial services provider, Credit Suisse Group AG (Switzerland). Additional detractors included products & services provider for the electronic components industry, SK hynix, Inc. (South Korea), jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan), and internet services provider, Baidu (China).

Investment outlook

With vaccination rates accelerating, investors turned their attention to undervalued stocks that were sharply sold off when the pandemic accelerated a year ago. Value stocks outpaced their growth peers during the first quarter, largely led by cyclical sectors such as industrials, materials, consumer discretionary, financials, and the more economically sensitive portion of technology. As high-quality cyclical stocks re-rate upward, we are using this opportunity to lower portfolio risk, measured as prospective volatility versus the benchmark. Consistent with prior market recoveries, stocks in economically defensive industries lag the overall markets. Several of these low beta stocks have risen to the top half of our risk-adjusted return ranking, making them potentially attractive portfolio candidates. A common theme for many of our portfolio companies, whether cyclical or defensive, is operational restructuring. We believe companies with experienced management teams can prove to the market that they have used the crisis to reduce expenses and boost efficiency. In our view, this effort should enhance operating leverage and facilitate higher levels of profitability from these well-positionedcompanies. As free cash flow rises, we believe companies will return capital to shareholders in the form of dividends and share buybacks, providing a critical boost to total return.