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 capital goods, banks, insurance, technology hardware & equipment, and materials industry groups contributed to relative performance. Holdings in the pharmaceuticals & biotechnology and utilities industry groups, along with an underweight position in the energy, semiconductors & semi equipment, and telecommunication services 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). Other notable contributors included rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), business process outsourcing services provider, Genpact Ltd. (United States), life insurer, Prudential Plc (United Kingdom), and global financial services giant, Citigroup, Inc. (United States). The largest detractor was travel & tourism technology company, Sabre Corp. (United States). Additional notable detractors included pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland), electric, gas & renewables power generation & distribution company, Enel SpA (Italy), technology conglomerate, Alphabet, Inc. (United States), and business software & services provider, SAP SE (Germany).

Investment outlook

As signs emerge that inflation is becoming embedded globally, we expect central banks to continue tightening monetary policy. Earnings and margins have come under pressure amid rising interest rates, and valuation multiples have generally returned to more accurately reflect growth in profitability and cash flow. We welcome renewed investor focus on valuation and continue seeking to identify companies engaged in operational restructuring (“self-help”) to generate robust cash flows. As economies slow in response to tight monetary policy, the most efficient and best competitively positioned companies should fare relatively better than overall markets. We are interested in buying, in our view, well-managed businesses supported by improving valuations, thereby increasing potential upside for share prices as economic conditions improve. Year-to date, energy has led global markets, followed by defensive sectors such as healthcare, utilities, and consumer staples. Information technology has been one of the worst performers, a stark contrast from recent years. Within technology, we prefer companies with sticky revenues as their customers hesitate to incur the costs of switching software or hardware providers. Companies providing mission-critical technology to their customers should be considerably less susceptible to a significant erosion in profitability than others. Within tech, valuation multiples have declined, often before earnings downgrades, which we believe will soon follow. If past cycles are any indication, a bear market reflecting the prospect of recession in the developed world sets the stage globally for a recovery that typically favors the most cyclical companies across all sectors whose fortunes are tied to economic recovery. Our investment research, guided by Causeway’s risk-adjusted return ranking of stocks, allows us to build portfolios from the bottom up, embedding diversification, a key component in all equity market regimes. Risk control is likely to be especially important in the next several quarters as financial liquidity contracts.

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 banks, capital goods, consumer services, technology hardware & equipment, and energy industry groups contributed to relative performance. Holdings in the media & entertainment, pharmaceuticals & biotechnology, and commercial & professional services industry groups, along with an underweight position in the semiconductors & semi equipment and telecommunication services 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). Other notable contributors included integrated oil & gas company, TotalEnergies SE (France), rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), business process outsourcing services provider, Genpact Ltd. (United States), and airport & rail station concessionaire, SSP Group Plc (United Kingdom). The largest detractor was travel & tourism technology company, Sabre Corp. (United States). Additional notable detractors included pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland), social media giant, Meta Platforms, Inc. (United States), Waste Management, Inc. (United States), and business services provider, Concentrix Corp. (United States).

Investment outlook

As signs emerge that inflation is becoming embedded globally, we expect central banks to continue tightening monetary policy. Earnings and margins have come under pressure amid rising interest rates, and valuation multiples have generally returned to more accurately reflect growth in profitability and cash flow. We welcome renewed investor focus on valuation and continue seeking to identify companies engaged in operational restructuring (“self-help”) to generate robust cash flows. As economies slow in response to tight monetary policy, the most efficient and best competitively positioned companies should fare relatively better than overall markets. We are interested in buying, in our view, well-managed businesses supported by improving valuations, thereby increasing potential upside for share prices as economic conditions improve. Year-to date, energy has led global markets, followed by defensive sectors such as healthcare, utilities, and consumer staples. Information technology has been one of the worst performers, a stark contrast from recent years. Within technology, we prefer companies with sticky revenues as their customers hesitate to incur the costs of switching software or hardware providers. Companies providing mission-critical technology to their customers should be considerably less susceptible to a significant erosion in profitability than others. Within tech, valuation multiples have declined, often before earnings downgrades, which we believe will soon follow. If past cycles are any indication, a bear market reflecting the prospect of recession in the developed world sets the stage globally for a recovery that typically favors the most cyclical companies across all sectors whose fortunes are tied to economic recovery. Our investment research, guided by Causeway’s risk-adjusted return ranking of stocks, allows us to build portfolios from the bottom up, embedding diversification, a key component in all equity market regimes. Risk control is likely to be especially important in the next several quarters as financial liquidity contracts.

International Small Cap Fund

Portfolio attribution

The 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. Value was the best-performing factor group in May, and value is now the top-performing factor group in 2022YTD and over the last twelve months as well. The strategy’s earnings growth alpha factors also had positive returns in May, and they are the second-best-performing factor group YTD and over the past twelve months. Our technical factors delivered modestly negative returns in May. Our competitive strength factor category delivered negative returns for the month. 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 both delivered positive returns in May as countries exhibiting superior top-down metrics outperformed those with relatively weaker characteristics. All factor group returns remain positive from inception of the Fund (10/20/14) to the end of May.

Investment outlook

The sheer breadth and inefficiency of the International Small Cap (ISC) universe create the opportunity to build a portfolio without the typical tradeoffs in stock characteristics. We believe Causeway’s ISC strategy, harnessing multiple sources of alpha, has achieved an attractive combination of portfolio characteristics. Valuation matters, even in small caps, amidst global economic fears and rising interest rates. To learn more about our unique approach to International Small Cap portfolio construction, please read our recent publication “No Tradeoffs Required” available at www.causewaycap.com/insights.

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, capital goods, energy, food beverage & tobacco, and pharmaceuticals & biotechnology industry groups contributed to performance relative to the Index. Holdings in the materials, commercial & professional services, telecommunication services, and insurance industry groups, along with an underweight position in the semiconductors & semi equipment industry group, offset some of the outperformance versus the Index. 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), rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), financial services provider, ING Groep NV (Netherlands), and banking & financial services company, Barclays (United Kingdom). The largest detractor from absolute performance was pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland). Other notable detractors included steel producer, Tata Steel (India), integrated aluminum producer & copper manufacturer, Hindalco Industries (India), print & publishing company, RELX Plc (United Kingdom), and financial services provider, Fubon Financial Holding Co (Taiwan).

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 positive in our model.

Investment Outlook

More than a decade of intense global central bank quantitative easing (culminating in an explosion of monetary stimulus during Covid) pushed asset prices higher as too much money chased too few opportunities. That 10-year money geyser resulted in very low, and in some regions, negative, interest rates and developed market equity valuation multiples that rose sharply, often outpacing earnings (or the prospect of earnings at some future date). We believe a new monetary policy regime has begun—one that will likely lead to the opposite result with earnings and multiples under pressure as investors once again focus on valuation. From a fundamental perspective, we are most interested in identifying companies with strong balance sheets and pricing power combined with effective cost-cutting measures that can protect their profit margins. We seek to add, in our view, high-quality, competitively well-positioned, cash-generative companies to our client portfolios, including those that we believe will benefit from a complete re-opening of the global economy, investment in energy independence in Europe, and the building of onshore manufacturing in many developed markets to mitigate supply chain vulnerabilities. We typically look for dividend income and share buybacks as an indication of management’s resolve to reward shareholders and maintain efficient capital structures. We want that dividend income compounding, providing an important component of total return for our clients.

Regarding the EM portion of the Fund, earnings growth upgrades for EM equities continue to lag those in developed markets. EM sectors with the weakest earnings upgrades were communication services, consumer discretionary, and real estate. All three of these sectors are dominated by Chinese stocks, which were impacted by the Covid lockdowns. The sectors with the strongest earnings upgrades were energy, information technology, and financials. Energy benefitted from strong oil prices and information technology benefitted from positive revisions for a few larger capitalization stocks. Financials benefitted from rising interest rates. The countries with the weakest net upgrades include China, India, and Thailand. While Covid containment policies have weighed on Chinese stocks, rising commodity prices have dampened the growth outlook for Indian equities. The countries with the strongest net upgrades include Taiwan, Turkey, and Mexico. Positive revisions for larger capitalization companies drove strength in Taiwan. Mexican stocks have benefitted from economic linkages with the US. While we incorporate growth expectations into our multi-factor investment process, we continue to emphasize valuation in our approach. With a balance of favorable valuation, growth, and price momentum characteristics relative to the Index, we believe the portfolio provides outperformance potential looking forward.

Emerging Markets Fund

Portfolio attribution

The Causeway Emerging Markets Fund (“Fund”) outperformed the Index in May 2022. 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 valuation and competitive strength factors were positive indicators during the month while growth and price momentum were negative. Of our top-down factors, our country and currency factors were positive. Our macroeconomic and sector factors were negative indicators in May.

Investment outlook

Earnings growth upgrades for EM equities continue to lag those in developed markets. EM sectors with the weakest earnings upgrades were communication services, consumer discretionary, and health care. The communication services and consumer discretionary sectors are dominated by Chinese stocks, which have been impacted by the country’s economic restrictions. We are underweight communication services and consumer discretionary stocks in the Fund due to growth and price momentum considerations. The growth outlook for health care stocks deteriorated recently due, in part, to inflationary cost pressures. The sectors with the strongest earnings upgrades were energy, information technology, and industrials. Energy stocks have benefitted from strong oil prices and select large information technology companies have experienced positive growth forecast revisions. Lastly, industrials companies have been supported by resilient global growth and robust freight rates in the shipping industry. While we incorporate growth expectations into our multi-factor investment process, we continue to emphasize valuation in our approach. Trading at attractive valuations and supported by rising interest rates globally, we believe that EM value stocks offer compelling risk-adjusted return potential looking forward.

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, capital goods, food beverage & tobacco, and automobiles & components industry groups, as well as an overweight position in the energy industry group, contributed to performance relative to the Index. Holdings in the consumer services, semiconductors & semi equipment, materials, and commercial & professional services industry groups, along with an underweight position in the telecommunication services industry group, offset some of the outperformance versus the Index. 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), rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), as well as financial services providers, ING Groep NV (Netherlands) and Barclays (United Kingdom). The largest detractor from absolute performance was integrated resort developer & operator, Sands China Ltd. (Hong Kong). Other notable detractors included pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland), print & publishing company, RELX Plc (United Kingdom), banking & financial services provider, Swedbank AB (Sweden), and travel & tourism information technology provider, Amadeus IT Group SA (Spain).

Investment outlook

As signs emerge that inflation is becoming embedded globally, we expect central banks to continue tightening monetary policy. Earnings and margins have come under pressure amid rising interest rates, and valuation multiples have generally returned to more accurately reflect growth in profitability and cash flow. We welcome renewed investor focus on valuation and continue seeking to identify companies engaged in operational restructuring (“self-help”) to generate robust cash flows. As economies slow in response to tight monetary policy, the most efficient and best competitively positioned companies should fare relatively better than overall markets. We are interested in buying, in our view, well-managed businesses supported by improving valuations, thereby increasing potential upside for share prices as economic conditions improve. Year-to date, energy has led global markets, followed by defensive sectors such as healthcare, utilities, and consumer staples. Information technology has been one of the worst performers, a stark contrast from recent years. Within technology, we prefer companies with sticky revenues as their customers hesitate to incur the costs of switching software or hardware providers. Companies providing mission-critical technology to their customers should be considerably less susceptible to a significant erosion in profitability than others. Within tech, valuation multiples have declined, often before earnings downgrades, which we believe will soon follow. If past cycles are any indication, a bear market reflecting the prospect of recession in the developed world sets the stage globally for a recovery that typically favors the most cyclical companies across all sectors whose fortunes are tied to economic recovery. Our investment research, guided by Causeway’s risk-adjusted return ranking of stocks, allows us to build portfolios from the bottom up, embedding diversification, a key component in all equity market regimes. Risk control is likely to be especially important in the next several quarters as financial liquidity contracts.