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, banks, insurance, and pharmaceuticals & biotechnology industry groups, as well as an underweight position in the retailing industry group, contributed to relative performance. Holdings in the capital goods industry group, along with an underweight position in the food beverage & tobacco, real estate, household & personal products, and transportation industry groups, offset some of the outperformance compared to the Index. The top contributor to return was banking & financial services company, UniCredit S.p.A. (Italy). Additional top contributors included electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea), pharmaceutical producer, Novartis AG (Switzerland), business process outsourcing services provider, Genpact Ltd. (United States), and clinical laboratory, Quest Diagnostics, Inc.(United States). The weakest performer, though still delivering positive returns, was pharmaceutical company, Takeda Pharmaceutical Co., Ltd. (Japan). Additional weak performers, that also delivered positive returns included rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), HVAC manufacturer, Carrier Global Corp. (United States), paper & packaging solutions company, WestRock Co. (United States), and technology conglomerate, Alphabet, Inc. (United States).

Investment outlook

With policymakers on track to tighten monetary conditions, we expect a compression of the highest valuation multiples for speculative growth stocks. The sobering effect on equity markets as liquidity is removed should favor a disciplined valuation-based investing approach. As geographic borders reopen, we anticipate this pent-up demand from consumers to translate to revenue recovery for companies in aerospace, aviation, travel, and leisure-related industries. In our view, the best positioned companies in these industries operate in oligopolies with management teams who have used the pandemic crisis to meaningfully cut costs. We expect this to result in high profitability as revenues return to pre-Covid era levels. In all regions, we are most interested in companies undergoing operational restructuring; we routinely push management teams to focus on self-help to improve free cash flow generation and reward shareholders. Longer term, we believe one of the most enduring investment theme over the next several years will be decarbonization and climate amelioration. We believe companies in traditionally carbon-intensive industries that demonstrate the wherewithal to transition their operations to low or zero greenhouse gas emissions, without sacrificing returns, stand to benefit most from increased investor attention. Finally, while we expect some normalization of interest rates, we continue to emphasize companies rewarding shareholders via dividends and share buybacks. Though government bond yields may increase from current levels, capital returned to shareholders via dividends and share buybacks remain the most certain portion of total return.

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, semiconductors & semi equipment, banks, and consumer services industry groups, as well as an underweight position in the retailing industry group, contributed to relative performance. Holdings in the capital goods industry group, along with an underweight position in the health care equipment & services, real estate, household & personal products, and food beverage & tobacco industry groups, offset some of the outperformance compared to the Index. The top contributor to return was banking & financial services company, UniCredit S.p.A. (Italy). Additional top contributors included semiconductor manufacturer, Broadcom Corp. (United States), online travel agency, Booking Holdings, Inc. (United States), electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea), and pharmaceutical producer, Novartis AG (Switzerland). The largest detractor from absolute performance was global financial services giant, Citigroup, Inc.(United States). Additional detractors included enterprise management software provider, Oracle Corp. (United States), and power & healthcare conglomerate, General Electric Co. (United States). Other weak performers, though still delivering positive returns, included HVAC manufacturer, Carrier Global Corp. (United States), and defense & information technology services provider, Leidos Holdings, Inc. (United States).

Investment outlook

With policymakers on track to tighten monetary conditions, we expect a compression of the highest valuation multiples for speculative growth stocks. The sobering effect on equity markets as liquidity is removed should favor a disciplined valuation-based investing approach. As geographic borders reopen, we anticipate this pent-up demand from consumers to translate to revenue recovery for companies in aerospace, aviation, travel, and leisure-related industries. In our view, the best positioned companies in these industries operate in oligopolies with management teams who have used the pandemic crisis to meaningfully cut costs. We expect this to result in high profitability as revenues return to pre-Covid era levels. In all regions, we are most interested in companies undergoing operational restructuring; we routinely push management teams to focus on self-help to improve free cash flow generation and reward shareholders. Longer term, we believe one of the most enduring investment theme over the next several years will be decarbonization and climate amelioration. We believe companies in traditionally carbon-intensive industries that demonstrate the wherewithal to transition their operations to low or zero greenhouse gas emissions, without sacrificing returns, stand to benefit most from increased investor attention. Finally, while we expect some normalization of interest rates, we continue to emphasize companies rewarding shareholders via dividends and share buybacks. Though government bond yields may increase from current levels, capital returned to shareholders via dividends and share buybacks remain the most certain portion of 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. Our value factors were the best-performing factor group in December and the fourth quarter. Value was also our second best-performing alpha factor group for the full year. The strategy’s earnings growth alpha factors delivered positive returns in December and the fourth quarter, and they are the best-performing factor group in 2021. Our technical factors also delivered positive returns in December and the fourth quarter. Our competitive strength factor category delivered slightly negative returns for the month but generated the second-best returns in the fourth quarter as a whole. These factors have a quality tilt to them but offer good diversification to other bottom-up factors, particularly value. Our macroeconomic and country aggregate factors delivered positive returns in December and the fourth quarter, as countries exhibiting superior metrics (such as Sweden and the United Arab Emirates) outperformed those with relatively weaker macroeconomic characteristics (such as Brazil and Poland). All factor group returns remain positive from inception of the Fund (10/20/14) to the end of December.

Investment outlook

Though we analyze many different stock selection factors in our alpha model, value factors receive the largest weight on average. Despite December’s value rally, the MSCI ACWI ex USA Small Cap Growth Index (“Small Cap Growth Index”) traded at a 21.3x forward price-to-earnings multiple compared to 11.2x for the MSCI ACWI ex USA Small Cap Value Index (“Small Cap Value Index”), a 91% premium. At 11.2x forward price-to-earnings, the Small Cap 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) December meeting minutes, it seems increasingly likely that the U.S. Federal Reserve (“Fed”) will pursue additional Quantitative Tightening (“QT”) by reducing the size of its balance sheet more aggressively than previously thought. This is in addition to the multiple planned rate hikes expected in 2022. The U.S. 10-year Treasury yield has recently moved higher, 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 banks, software & services, pharmaceuticals & biotechnology, and automobiles & components industry groups, as well as an underweight position in the retailing industry group, contributed to performance relative to the Index. Holdings in the diversified financials, utilities, consumer durables & apparel, household & personal products, and food beverage & tobacco industry groups offset a portion of the outperformance. The top contributor to return was banking & financial services company, UniCredit S.p.A. (Italy). Additional top contributors included integrated oil & gas company, TotalEnergies SE (France), pharmaceutical producer, Novartis AG (Switzerland), business software & services provider, SAP SE (Germany), and robotics manufacturer, FANUC Corp. (Japan). The largest detractor from absolute performance was e-commerce company, JD.com Inc (China). Additional detractors included internet comer company, Alibaba Group Holding (China), biologics technology platform, Wuxi Biologics (Cayman), Inc. (China), lithium compound producer, Ganfeng Lithium Co., Ltd. (China), and battery manufacturer, Contemporary Amperex Tech Co., Ltd. (China).

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

With policymakers on track to tighten monetary conditions, we expect a compression of the highest valuation multiples for speculative growth stocks. The sobering effect on equity markets as liquidity is removed should favor a valuation-based investing approach. As borders reopen, we anticipate this pent-up demand from consumers to translate into revenue recovery for developed market companies in aerospace, aviation, travel, and leisure-related industries. In our view, some of the best positioned companies in these industries operate in oligopolies with management teams who have used the pandemic crisis to meaningfully cut costs. We expect this to result in high profitability as revenues return to pre-Covid era levels. Certain well-established laggards in the Chinese market may also provide competitive upside after a year of very poor performance. Fiscal and monetary stimulus in China may create a favorable climate for the, in our view, best-managed, best-capitalized Chinese companies with strong competitive moats. In all regions, we are most interested in those undergoing operational restructuring; from a fundamental perspective, we routinely push management teams to focus on self-help to improve free cash flow generation and reward shareholders. Longer term, we believe one of the most enduring investment themes over the next several years will be decarbonization and climate amelioration. We believe companies in traditionally carbon-intensive industries that demonstrate the wherewithal to transition their operations to low or zero greenhouse gas emissions, without sacrificing returns, stand to benefit most from increased investor attention. Finally, while we expect some normalization of interest rates, we continue to emphasize companies rewarding shareholders via dividends and share buybacks. Though government bond yields may increase from current levels, capital returned to shareholders via dividends and share buybacks remain the most certain portion of total return.

Within the EM portion of the Fund, EM sectors with the strongest earnings upgrades were energy, information technology, and financials. All three cyclical sectors reflect analyst optimism that global growth will continue to improve. Real estate, consumer discretionary, and communication services experienced the weakest net upgrades. While we incorporate growth expectations into our multi-factor investor process, we continue to emphasize valuation in our approach. The risk of economic shutdowns due to new Covid-19 variants remains a risk to value stocks; however, a rising rate environment should provide a tailwind for value if global growth remains steady. Offering substantial price discounts relative to history and attractive dividend yields, we believe EM value stocks provide compelling risk-adjusted return potential.

Emerging Markets Fund

Portfolio attribution

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

Investment outlook

Within EM, the sectors with the strongest earnings upgrades were energy, information technology, and financials. All three cyclical sectors reflect analyst optimism that global growth will continue to improve. We are overweight information technology and energy stocks in the Fund due in part to attractive growth characteristics. Real estate, consumer discretionary, and communication services experienced the weakest net upgrades. We are underweight these three sectors in the Fund due in part to low growth expectations. From a country perspective, the major countries with the strongest net upgrades were Turkey, Russia, and Chile. The Central Bank of the Republic of Turkey eased monetary policy in 2021, which should benefit Turkish companies, particularly exporters, due to Turkish lira depreciation. However, the country’s macroeconomic challenges diminish this positive effect. Russia’s oil-linked economy has benefitted from strong oil prices. While we incorporate growth expectations into our multi-factor investor process, we continue to emphasize valuation in our approach. The risk of economic shutdowns due to new Covid-19 variants remains a risk to value stocks; however, a rising rate environment should provide a tailwind for value if global growth remains steady. Offering substantial price discounts relative to history and attractive dividend yields, we believe EM value stocks provide compelling risk-adjusted return potential.

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 banks, software & services, technology hardware & equipment, pharmaceuticals & biotechnology, and semiconductors & semi equipment industry groups contributed to performance relative to the Index. Holdings in the capital goods, diversified financials, and transportation industry groups, along with an overweight position in the utilities industry group and an underweight position in the food beverage & tobacco industry group, offset a portion of the outperformance. The top contributor to return was banking & financial services company, UniCredit S.p.A. (Italy). Additional top contributors included electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea), integrated oil & gas company, TotalEnergies SE (France), pharmaceutical producer, Novartis AG (Switzerland), and business software & services provider, SAP SE (Germany). The largest detractor from absolute performance was freight rail operator, Canadian National Railway Co (Canada). Other weak performers, though still delivering positive returns, included banking & financial services provider, Swedbank AB (Sweden), financial services company, PT Bank Mandiri (Persero) Tbk (Indonesia), semiconductor company, Infineon Technologies AG (Germany), and financial services provider, ING Groep NV (Netherlands).

Investment outlook

With policymakers on track to tighten monetary conditions, we expect a compression of the highest valuation multiples for speculative growth stocks. The sobering effect on equity markets as liquidity is removed should favor a disciplined valuation-based investing approach. As geographic borders reopen, we anticipate this pent-up demand from consumers to translate to revenue recovery for companies in aerospace, aviation, travel, and leisure-related industries. In our view, the best positioned companies in these industries operate in oligopolies with management teams who have used the pandemic crisis to meaningfully cut costs. We expect this to result in high profitability as revenues return to pre-Covid era levels. In all regions, we are most interested in companies undergoing operational restructuring; we routinely push management teams to focus on self-help to improve free cash flow generation and reward shareholders. Longer term, we believe one of the most enduring investment theme over the next several years will be decarbonization and climate amelioration. We believe companies in traditionally carbon-intensive industries that demonstrate the wherewithal to transition their operations to low or zero greenhouse gas emissions, without sacrificing returns, stand to benefit most from increased investor attention. Finally, while we expect some normalization of interest rates, we continue to emphasize companies rewarding shareholders via dividends and share buybacks. Though government bond yields may increase from current levels, capital returned to shareholders via dividends and share buybacks remain the most certain portion of total return.