Global Value Fund

Portfolio Attribution

The Causeway Global Value Fund (“Fund”), on a net asset value basis, outperformed the Index during the month, due primarily to stock selection. On a gross return basis, Fund holdings in the capital goods, pharmaceuticals & biotechnology, and automobiles & components industry groups contributed to relative performance. Holdings in the technology hardware & equipment, media & entertainment, and consumer services industry groups offset some of the outperformance compared to the Index. The top contributor to return was rolling stock, signaling, & services provider for the rail industry, Alstom SA (France). Other notable contributors included jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), and Analog Devices, Inc. (United States). The largest detractor was airport & rail station concessionaire, SSP Group Plc (United Kingdom). Additional notable detractors included electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea), and media & entertainment conglomerate, The Walt Disney Co. (United States).

Quarterly Investment Outlook

European equities, on a sector-neutral basis, are trading at valuation discounts to the US not seen since sovereign debt concerns roiled the region in 2011. We are increasing exposure to well-vetted European-listed stocks across various sectors, including information technology, materials, industrials, and consumer discretionary. Valuations in Japan have risen, catalyzed by earnings upgrades in certain export-related industries, capital inflows redirected away from Chinese markets, and optimism for improving corporate governance. Causeway’s investment team remains focused on identifying long-term winners in Japan’s efforts to improve shareholder returns, conducting more than ten research trips there over the past three quarters. However, the long-term challenges persist, namely, delivering consistently improving returns on capital.

We continue to identify companies we believe are creating value in their businesses through operational restructuring. Conservative assumptions and our interactions with company managements build our conviction in the share price upside from strengthening underearning businesses, generating more cash flow, and increasing profitability. In our clients’ fundamental portfolios, we aim to balance these restructuring holdings with competitively positioned companies, such as those operating in oligopolistic markets with sustaine pricing power, trading at reasonable valuations. Given positive real interest rates in most regions, dividends and buybacks currently are an especially meaningful component of total return. Though we have been net sellers of banks year-to-date, we hold those with the highest risk-adjusted returns and anticipate portfolios should continue to benefit from their capital return programs. Positive real interest rates should continue to support our value investment style underpinned by our rigorous fundamental research.

International Small Cap Fund

Portfolio Attribution

The Causeway International Small Cap Fund (“Fund”), on a net asset value basis, outperformed the Index during the month. To evaluate stocks in our investable universe, our multi-factor quantitative model employs five bottom-up factor categories – valuation, sentiment, technical indicators, quality (formerly labelled competitive strength), and corporate events – and two top-down factor categories assessing macroeconomic and country aggregate characteristics. The strategy’s value factors delivered flat returns in May, though value remains the best-performing factor group over the last twelve months. Our sentiment and technical factors posted positive returns in the month, and the technical factor category has produced the highest returns year to date. Although our quality factors produced negative returns over the last month, returns over the last twelve months and YTD are positive. Our Corporate Events factor, added at the end of February, delivered positive returns in May. Our macroeconomic factors also delivered positive monthly returns as countries exhibiting more attractive characteristics (such as Sweden) outperformed those with relatively weaker characteristics (such as India). However, our country aggregate factors generated flat returns. All factor groups remain positive on an inception to date basis.

Quarterly Investment Outlook

We made several enhancements to our alpha model in the first quarter, reflecting the efforts to continue the productivity of our research agenda. Within our newly labeled quality factor category, we added a variety of financial strength factors, including several bank-specific metrics, to complement our existing competitive strength factors. We also introduced a new factor category, corporate events, in late February. This new set of factors is intended to capture the typical market reaction to a wide range of corporate events including management changes, financing events, buyback/dividend changes, and delayed earnings/filings, among other events.

Though we analyze many different stock selection factors in our alpha model, value factors receive the largest weight on average. Even if the U.S. Federal Reserve begins cutting policy rates soon, interest rates should remain elevated for some time, and a higher cost of capital should translate into a continued preference for value stocks. As of the end of May, the MSCI ACWI ex USA Small Cap Growth Index traded at a 17.8x forward price-to-earnings (P/E) multiple compared to 10.8x for the MSCI ACWI ex USA Small Cap Value Index, a 64% premium.

We believe another attractive feature of international small caps is that they exhibit greater valuation dispersion than large caps on both a forward earnings yield and B/P basis. This indicates more information content in the valuation ratios of small caps. In addition to exhibiting greater valuation dispersion, small caps exhibit a higher long-term earnings per share growth trend.

International Opportunities Fund

Portfolio Attribution

The Causeway International Opportunities Fund (“Fund”), on a net asset value basis, outperformed the Index during the month. On a gross return basis, fund holdings in the capital goods, banks, and semiconductors & semi equipment industry groups contributed to relative performance. Holdings in the energy, household & personal products, and financial services industry groups detracted from relative performance. The top individual contributors to absolute returns were rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), and banking & financial services company, Barclays PLC (United Kingdom). The largest individual detractors from absolute returns were crude oil & natural gas company, BP (United Kingdom), robotics manufacturer, Fanuc Corp.(Japan), and electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea).

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 underweight. We identify five primary factors as most indicative of the ideal allocation target: valuation, quality, earnings growth, macroeconomic, and risk aversion. Valuation is currently positive for emerging markets in our model. Our quality metrics, which include such measures as profit margins and return on equity, and our earnings growth factor are neutral. Our risk aversion and macroeconomic indicators are negative for emerging markets.

Quarterly Investment Outlook

European equities, on a sector-neutral basis, are trading at valuation discounts to the US not seen since sovereign debt concerns roiled the region in 2011. We are increasing exposure to well-vetted European-listed stocks across various sectors, including information technology, materials, industrials, and consumer discretionary. Valuations in Japan have risen, catalyzed by earnings upgrades in certain export-related industries, capital inflows redirected away from Chinese markets, and optimism for improving corporate governance. Causeway’s investment team remains focused on identifying long-term winners in Japan’s efforts to improve shareholder returns, conducting more than ten research trips there over the past three quarters. However, the long-term challenges persist, namely, delivering consistently improving returns on capital. Within the developed markets portion of the Fund, we continue to identify companies we believe are creating value in their businesses through operational restructuring. Conservative assumptions and our interactions with company managements build our conviction in the share price upside from strengthening underearning businesses, generating more cash flow, and increasing profitability. We aim to balance these restructuring holdings with competitively positioned companies, such as those operating in oligopolistic markets with sustained pricing power, trading at reasonable valuations. Given positive real interest rates in most regions, dividends and buybacks currently are an especially meaningful component of total return. Positive real interest rates should continue to support a value investment style underpinned by rigorous fundamental research.

Within EM, the recent Indian general election produced unexpected results that have significant implications for the country’s political landscape. The Narendra Modi-led Bharatiya Janata party (“BJP”) underperformed in the Indian general election, despite exit polls forecasting a strong win. For Modi’s upcoming third term, economic reforms may be harder to implement as Modi will need alliance support, potentially leading to more populist measures like subsidies and cash handouts. We remain confident in our India exposure due to valuation support—the portfolio’s Indian stocks currently trade at significant price-to-earnings discounts versus the MSCI India Index. Market volatility may provide repositioning opportunities. Within EM more broadly, we continue to identify, in our view, attractive investment opportunities in small cap companies. Historically, our investment process has uncovered EM small cap stocks with alpha potential. The Fund’s allocation to small cap stocks remains near the high end of the historical range.

Emerging Markets Fund

Portfolio attribution

The Causeway Emerging Markets Fund (“Fund”), on a net asset value basis, outperformed the Index in May 2024. 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, technical (price momentum), competitive strength, growth, and corporate events factors were positive indicators in May. Our top-down macroeconomic and currency factors were positive indicators, while country/sector aggregate was a negative indicator during the month.

Quarterly Investment Outlook

The South Korean government has introduced its Corporate Value-Up program with the goal of increasing valuations for companies trading significantly below book value. However, given the voluntary nature of the program, we believe the long-term efficacy of the initiative remains questionable. While the Fund has an overweight position in South Korean stocks, we have been reducing exposure due in part to valuation considerations. In Turkey, the central bank hiked its target interest rate by 500 basis points in March, signaling its commitment to reigning in inflation. This action helped to allay concerns that President Recep Erdogan would interfere with the central bank’s price stability objective in order to spur slowing growth. The Fund was overweight Turkish stocks at quarter-end as compelling bottom-up characteristics more than offset the country’s challenging, but improving, top-down headwinds.

The Fund is also overweight Indian stocks, reflecting attractive bottom-up and top-down characteristics in the country. The recent Indian general election produced unexpected results that have significant implications for the country’s political landscape. The Narendra Modi-led Bharatiya Janata party (“BJP”) underperformed in the Indian general election, despite exit polls forecasting a strong win. For Modi’s upcoming third term, economic reforms may be harder to implement as Modi will need alliance support, potentially leading to more populist measures like subsidies and cash handouts. We remain confident in our India exposure due to valuation support—the portfolio’s Indian stocks currently trade at significant price-to-earnings discounts versus the MSCI India Index. Market volatility may provide repositioning opportunities. Within EM more broadly, we continue to identify, in our view, attractive investment opportunities in small cap companies. Historically, our investment process has uncovered EM small cap stocks with alpha potential. The Fund’s allocation to small cap stocks remains near the high end of the historical range.

International Value Fund

Portfolio Attribution

The Causeway International Value Equity Fund (“Fund”), on a net asset value basis, outperformed the Index during the month, due primarily to stock selection. Fund holdings in the capital goods and semiconductors & semi equipment industry groups, as well as an underweight position in the automobiles & components industry group, contributed to relative performance. Holdings in the technology hardware & equipment, energy, and household & personal products industry groups offset some of the outperformance compared to the Index. The top contributor to return was rolling stock, signaling, & services provider for the rail industry, Alstom SA (France). Other notable contributors included jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), and banking & financial services company, Barclays PLC (United Kingdom). The largest detractor was electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea). Additional notable detractors included crude oil & natural gas company, BP (United Kingdom) and robotics manufacturer, Fanuc Corp. (Japan).

Quarterly Investment Outlook

European equities, on a sector-neutral basis, are trading at valuation discounts to the US not seen since sovereign debt concerns roiled the region in 2011. We are increasing exposure to well-vetted European-listed stocks across various sectors, including information technology, materials, industrials, and consumer discretionary. Valuations in Japan have risen, catalyzed by earnings upgrades in certain export-related industries, capital inflows redirected away from Chinese markets, and optimism for improving corporate governance. Causeway’s investment team remains focused on identifying long-term winners in Japan’s efforts to improve shareholder returns, conducting more than ten research trips there over the past three quarters. However, the long-term challenges persist, namely, delivering consistently improving returns on capital.

We continue to identify companies we believe are creating value in their businesses through operational restructuring. Conservative assumptions and our interactions with company managements build our conviction in the share price upside from strengthening underearning businesses, generating more cash flow, and increasing profitability. In our clients’ fundamental portfolios, we aim to balance these restructuring holdings with competitively positioned companies, such as those operating in oligopolistic markets with sustaine pricing power, trading at reasonable valuations. Given positive real interest rates in most regions, dividends and buybacks currently are an especially meaningful component of total return. Though we have been net sellers of banks year-to-date, we hold those with the highest risk-adjusted returns and anticipate portfolios should continue to benefit from their capital return programs. Positive real interest rates should continue to support our value investment style underpinned by our rigorous fundamental research.