Concentrated Equity Fund

Portfolio attribution

The Causeway Concentrated Equity Fund underperformed the Index during the month, due primarily to industry group allocation (a byproduct of our bottom-up stock selection process). Fund holdings in the capital goods, banks, and materials industry groups, as well as an underweight position in the technology hardware & equipment and retailing industry groups, contributed to relative performance. Holdings in the consumer services industry group, along with an overweight position in the pharmaceuticals & biotechnology and utilities industry groups and an underweight position in the energy and automobiles & components industry groups, offset some of the outperformance compared to the Index. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included banking & financial services company, UniCredit S.p.A. (Italy), travel & tourism technology company, Sabre Corp. (United States), online travel agency, Booking Holdings, Inc. (United States), and Takeda Pharmaceutical Co., Ltd. (Japan). The largest detractor was casino & resort company, Las Vegas Sands Corp. (United States). Additional notable detractors included technology conglomerate, Alphabet, Inc. (United States), pharmaceutical producer, Novartis AG (Switzerland), pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland), and business process outsourcing services provider, Genpact Ltd. (United States).

Investment outlook

As the global economy recovers from the pandemic, stocks in Covid-impacted industries performed well in September. We believe that many of the, in our view, world class companies in aviation, travel, leisure, and hospitality that we added to our clients’ portfolios in prior months should continue to outperform markets. With a turnaround in cash flows, many of these companies should be well positioned for a return to normalcy. We believe improvements to their cost structures, balance sheets, and competitive position (as weaker competitors lost market share) suggest that future levels of profitability should exceed pre-pandemic levels, even at lower volumes. After pausing dividends and share buybacks for much of the Covid era, key regulators in our investable universe have approved banks to resume capital returns in the fourth quarter. Many of these companies held in our client portfolios have accrued dividends throughout the pandemic, which we believe should result in not only normal dividend payments but also the return of excess capital. With dividend income constituting an important component of total return, we eagerly anticipate the normalization of dividend policy for portfolio companies that have maintained strong capital positions over the last year and a half. Finally, the prospect of global bond yields rising further—even to levels that are still low versus historical yields—should favor undervaluation and exposure to economic recovery.

Global Value Fund

Portfolio attribution

The Causeway Global Value Fund outperformed the Index during the month, due primarily to stock selection. Fund holdings in the capital goods, technology hardware & equipment, software & services, retailing, and materials industry groups contributed to relative performance. Holdings in the media & entertainment, pharmaceuticals & biotechnology, utilities, and consumer services industry groups, along with an underweight position in the automobiles & components industry group, offset some of the outperformance compared to the Index. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included oil exploration & production company, ConocoPhillips (United States), integrated oil & gas company, Total (France), banking & financial services company, UniCredit S.p.A. (Italy), and travel & tourism technology company, Sabre Corp. (United States). The largest detractor was casino & resort company, Las Vegas Sands Corp. (United States). Additional notable detractors included pharmaceutical producer, Novartis AG (Switzerland), technology conglomerate, Alphabet, Inc. (United States), Facebook, Inc. (United States), and electric, gas & renewables power generation & distribution company, Enel SpA (Italy).

Investment outlook

As the global economy recovers from the pandemic, stocks in Covid-impacted industries performed well in September. We believe that many of the, in our view, world class companies in aviation, travel, leisure, and hospitality that we added to our clients’ portfolios in prior months should continue to outperform markets. With a turnaround in cash flows, many of these companies should be well positioned for a return to normalcy. We believe improvements to their cost structures, balance sheets, and competitive position (as weaker competitors lost market share) suggest that future levels of profitability should exceed pre-pandemic levels, even at lower volumes. After pausing dividends and share buybacks for much of the Covid era, key regulators in our investable universe have approved banks to resume capital returns in the fourth quarter. Many of these companies held in our client portfolios have accrued dividends throughout the pandemic, which we believe should result in not only normal dividend payments but also the return of excess capital. With dividend income constituting an important component of total return, we eagerly anticipate the normalization of dividend policy for portfolio companies that have maintained strong capital positions over the last year and a half. Finally, the prospect of global bond yields rising further—even to levels that are still low versus historical yields—should favor undervaluation and exposure to economic recovery.

International Small Cap Fund

Portfolio attribution

The Causeway International Small Cap Fund (“Fund”) underperformed 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. Our value factors were flat in the month of September, though they posted positive returns in Q3 thanks to a strong July. Value has also been our best-performing alpha factor group over the last twelve months. The strategy’s earnings growth alpha factors delivered positive returns in September and Q3, and they are the best-performing factor group year-to-date in 2021. Our technical factors also delivered positive returns in September and the full quarter. Our competitive strength factor category delivered negative returns for the month and for Q3 as a whole. These factors have a quality tilt to them but offer good diversification to other bottom-up factors, particularly value. Our macroeconomic factors delivered negative returns in September and Q3 as countries exhibiting weaker metrics (such as Indonesia and Poland) outperformed those with relatively superior macroeconomic characteristics (such as Taiwan and China). However, returns to our country aggregate factors were positive for the month and Q3. All factor group returns remain positive from inception of the Fund (10/20/14) to the end of September.

Investment outlook

Though we analyze many different stock selection factors in our alpha model, value factors receive the largest weight on average. As of September 30, the Small Cap Growth Index traded at a 21.7x forward price-to-earnings multiple compared to 12.1x for the Small Cap Value Index, an 80% premium. At 12.1x forward earnings, the Value Index is also trading below its 10-year average which makes it an exception in today’s high-valuation backdrop.

Based on the Federal Open Market Committee’s (FOMC’s) September policy statement, it seems increasingly likely that the U.S. Federal Reserve (“Fed”) will begin tapering its bond purchases later this year. The U.S. 10-year has recently moved back up above 1.5%, and higher interest rates should continue to pressure growth stocks. Coupled with the current valuation mismatch, we believe there is far more “catching up” to come for value stocks.

International Opportunities Fund

Portfolio attribution

The Causeway International Opportunities Fund (“Fund”) outperformed the Index during the month, due primarily to stock selection. Fund holdings in the capital goods, banks, software & services, and technology hardware & equipment industry groups, as well as an overweight position in the energy industry group, contributed to performance relative to the Index. Holdings in the utilities, consumer durables & apparel, and health care equipment & services industry groups, along with an overweight position in the pharmaceuticals & biotechnology industry group and an underweight position in the telecommunication services industry group, offset a portion of the outperformance. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Additional top contributors included crude oil & natural gas company, BP Plc (United Kingdom), integrated oil & gas company, Total (France), travel & tourism information technology provider, Amadeus IT Group SA (Spain), and banking & financial services company, UniCredit S.p.A. (Italy). The largest detractor from absolute performance was electric, gas & renewables power generation & distribution company, Enel SpA (Italy). Additional top detractors included pharmaceutical producer, Novartis AG (Switzerland), business software & services provider, SAP SE (Germany), pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland), and pharmaceutical giant, Sanofi (France).

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, are negative. Our earnings growth factor is negative, and our macroeconomic factor is negative for emerging markets. Lastly, our risk aversion factor is neutral in our model.

Investment outlook

As the global economy recovers from the pandemic, stocks in Covid-impacted industries performed well in September. We believe that many of the, in our view, world class developed market companies in aviation, travel, leisure, and hospitality that we added to our clients’ portfolios in prior months should continue to outperform markets. With a turnaround in cash flows, many of these companies should be well positioned for a return to normalcy. We believe improvements to their cost structures, balance sheets, and competitive position (as weaker competitors lost market share) suggest that future levels of profitability should exceed pre-pandemic levels, even at lower volumes. After pausing dividends and share buybacks for much of the Covid era, key regulators in our investable universe have approved banks to resume capital returns in the fourth quarter. Many of these developed market companies held in our client portfolios have accrued dividends throughout the pandemic, which we believe should result in not only normal dividend payments but also the return of excess capital. With dividend income constituting an important component of total return, we eagerly anticipate the normalization of dividend policy for developed market portfolio companies that have maintained strong capital positions over the last year and a half. Finally, the prospect of global bond yields rising further—even to levels that are still low versus historical yields—should favor undervaluation and exposure to economic recovery.

Within EM, the MSCI EM Value Index outperformed the MSCI EM Growth Index in the third quarter and YTD. While our valuation factor performed well during the quarter, our exposure to stocks in the metals and mining industry detracted from relative performance. These stocks are attractive on most valuation metrics, but they were negatively impacted by weak commodity prices related to the slowdown in China. Our value-orientation is also reflected in our positioning in South Korea. While the Fed’s tapering program could pose a challenge for EM currencies, we believe the Korean won should fare relatively well due to the country’s current account surplus, low inflation, and strong fiscal situation.

Emerging Markets Fund

Portfolio attribution

The Causeway Emerging Markets Fund (“Fund”) underperformed the Index in September 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 bottom-up price momentum factor was our top performing indicator in September. Our bottom-up valuation, growth, and competitive strength factors were also positive indicators during the month. Of our top-down factors, country and currency were negative while macroeconomic and sector were positive indicators during the month.

Investment outlook

Earnings upgrades in EM have lagged developed markets, which have been buoyed by strong upgrades in the US. Within EM, the strongest sectors were energy, materials, and information technology. All three cyclical sectors reflect analyst optimism that the economic reopening will continue globally. From a country perspective, the major countries with the strongest net upgrades were Russia, Saudi Arabia and UAE, which are benefitting from rising oil prices. We are overweight Russian stocks in the Fund due in part to favorable valuation, growth, and price momentum characteristics. China, Thailand, and Indonesia have experienced the weakest earnings revisions. Supply chain issues related to Covid-19, leverage in the real estate sector, and regulatory scrutiny have weighed on Chinese stocks.

The MSCI EM Value Index outperformed the MSCI EM Growth Index in the third quarter and YTD. While our valuation factor performed well during the quarter, our exposure to stocks in the metals and mining industry detracted from relative performance. These stocks are attractive on most valuation metrics, but they were negatively impacted by weak commodity prices related to the slowdown in China. Our value-orientation is also reflected in our positioning in South Korea, one of the Fund’s largest country overweights. While the Fed’s tapering program could pose a challenge for EM currencies, we believe the Korean won should fare relatively well due to the country’s current account surplus, low inflation, and strong fiscal situation. We remain overweight South Korean stocks in the Fund due in part to valuation and macroeconomic considerations.

International Value Fund

Portfolio attribution

The Causeway International Value Fund (“Fund”) outperformed the Index during the month, due primarily to stock selection. Fund holdings in the capital goods, software & services, and transportation industry groups, as well as an overweight position in the banks and energy industry groups, contributed to performance relative to the Index. Holdings in the consumer services and utilities industry groups, along with an overweight position in the pharmaceuticals & biotechnology industry group and an underweight position in the automobiles & components and telecommunication services industry groups, offset a portion of the outperformance. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Additional top contributors included crude oil & natural gas company, BP Plc (United Kingdom), integrated oil & gas company, Total (France), banking & financial services company, UniCredit S.p.A. (Italy), and travel & tourism information technology provider, Amadeus IT Group SA (Spain). The largest detractor from absolute performance was integrated resort developer & operator, Sands China Ltd. (Hong Kong). Additional top detractors included electric, gas & renewables power generation & distribution company, Enel SpA (Italy), pharmaceutical producer, Novartis AG (Switzerland), business software & services provider, SAP SE (Germany), and pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland).

Investment outlook

As the global economy recovers from the pandemic, stocks in Covid-impacted industries performed well in September. We believe that many of the, in our view, world class companies in aviation, travel, leisure, and hospitality that we added to our clients’ portfolios in prior months should continue to outperform markets. With a turnaround in cash flows, many of these companies should be well positioned for a return to normalcy. We believe improvements to their cost structures, balance sheets, and competitive position (as weaker competitors lost market share) suggest that future levels of profitability should exceed pre-pandemic levels, even at lower volumes. After pausing dividends and share buybacks for much of the Covid era, key regulators in our investable universe have approved banks to resume capital returns in the fourth quarter. Many of these companies held in our client portfolios have accrued dividends throughout the pandemic, which we believe should result in not only normal dividend payments but also the return of excess capital. With dividend income constituting an important component of total return, we eagerly anticipate the normalization of dividend policy for portfolio companies that have maintained strong capital positions over the last year and a half. Finally, the prospect of global bond yields rising further—even to levels that are still low versus historical yields—should favor undervaluation and exposure to economic recovery.