Diversified exposure to emerging markets, seeking to capture value and growth

The Fund normally invests at least 80% of its total assets in equity securities of companies located in emerging (less developed) markets and other investments that are tied economically to emerging markets. Generally these investments include common stock, preferred and preference stock, American Depositary Receipts, European Depositary Receipts, Global Depositary Receipts, and exchange-traded funds (“ETFs”) that invest in emerging markets securities.

Causeway uses a quantitative investment approach to purchase and sell investments for the Fund. Causeway’s proprietary computer model analyzes a variety of factors to assist in selecting securities. The model currently analyzes factors relating to valuation, earnings growth, technical indicators, macroeconomics, currency, countries and sectors.

YTD Return*
+10.45%
Nav*
$9.72, +0.05
Inception
March 30, 2007
Cusip
149498107
Benchmark
MSCI Emerging Markets
Minimum Investment
$1,000,000
Sales Charge
None
Net Expense Ratio
1.11%
Gross Expense Ratio
1.14%
*As of September 11, 2023
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Strategy overview

The portfolio managers discuss our Emerging Markets strategy.

Portfolio managers

Quantitative Portfolio Manager
Head of Quantitative Research
Quantitative Portfolio Manager
Quantitative Portfolio Manager
Quantitative Portfolio Manager

Performance

QTD YTD 1 year3 years5 years10 years Since inception
Fund 0.3%10.1%4.2%-0.4%0.6%2.9%3.2%
MSCI Emerging Markets -0.2%4.9%1.7%-1.0%1.4%3.4%3.2%
QTD YTD 1 year3 years5 years10 years Since inception
Fund 0.3%10.1%4.2%-0.4%0.6%2.9%3.2%
MSCI Emerging Markets -0.2%4.9%1.7%-1.0%1.4%3.4%3.2%
QTD YTD 1 year3 years5 years10 years Since inception
Fund 4.5%9.8%5.4%2.9%0.5%2.8%3.3%
MSCI Emerging Markets 1.0%5.1%2.2%2.7%1.3%3.3%3.2%
QTD YTD 1 year3 years5 years10 years Since inception
Fund 4.5%9.8%5.4%2.9%0.5%2.8%3.3%
MSCI Emerging Markets 1.0%5.1%2.2%2.7%1.3%3.3%3.2%
202220212020201920182017201620152014201320122011201020092008
Fund -23.0%-1.3%16.9%16.7%-17.9%39.8%9.2%-16.0%2.1%-2.6%25.8%-18.1%26.3%88.1%-58.4%
MSCI Emerging Markets -19.7%-2.2%18.7%18.9%-14.2%37.8%11.6%-14.6%-1.8%-2.3%18.6%-18.2%19.2%79.0%-53.2%
Fund
MSCI Emerging Markets
202220212020201920182017201620152014201320122011201020092008
-23.0%-1.3%16.9%16.7%-17.9%39.8%9.2%-16.0%2.1%-2.6%25.8%-18.1%26.3%88.1%-58.4%
-19.7%-2.2%18.7%18.9%-14.2%37.8%11.6%-14.6%-1.8%-2.3%18.6%-18.2%19.2%79.0%-53.2%

Portfolio (as of August 31, 2023)

Benchmark: MSCI Emerging Markets
Asset Allocation
Fund
Stocks 97.0%
Cash 3.0%
Fund Characteristics
Fund Benchmark
No. of holdings 188 1421
Weighted avg. market cap (US $MM) $59,628 $68,077
NTM price/earnings 7.4 11.8
Price/book value 1.1 1.6
NTM EPS revision (wtd. avg) 11.7 0.5
Net assets $999,467,363 -
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
Kia Corp. South Korea 1.9%
Banco do Brasil SA Brazil 1.8%
China Construction Bank Corp. China 1.5%
PetroChina Co., Ltd. China 1.1%
Oil & Natural Gas Corp. Ltd. India 1.1%
Vipshop Holdings China 1.1%
Novatek Microelectronics Corp. Taiwan 1.0%
ITC Ltd. India 1.0%
Gerdau SA Brazil 1.0%
Bank of Baroda India 1.0%

A "weighted average” measures a characteristic by the market capitalization of each stock. Price/book value is the weighted average of the price/book values of all the stocks in a portfolio. The P/B value of a company is calculated by dividing the market price of its stock by the company’s per-share book value. The price/earnings ratio is the weighted average of the price/earnings ratios of the stocks in a portfolio. “Earnings-per-share” is the portion of a company’s profit allocated to each outstanding share of common stock. “Earnings-per-share year-over-year estimate growth (next 12 months)” is the average next-12-month earnings-per-share estimate from one year ago for an individual company compared with that estimate today; note that this calculation is done on a company-by-company basis and is aggregated through a weighted average based on the individual company’s weight in the corresponding index. Also note that this characteristic is supplied directly by MSCI.

*Active defined as Fund weight minus MSCI EM Index weight. Holdings are subject to change.

SECTOR WEIGHTS
Sector Fund Benchmark
Information Technology 21.2% 20.6%
Financials 15.8% 21.8%
Consumer Discretionary 13.6% 13.9%
Industrials 11.6% 6.6%
Communication Services 8.7% 9.7%
Energy 7.4% 5.1%
Consumer Staples 5.3% 6.3%
Equity Funds 3.6% 0.0%
Health Care 3.5% 3.8%
Utilities 2.9% 2.5%
Materials 2.8% 7.9%
Real Estate 0.5% 1.8%
TOP 10 COUNTRIES
Country Fund Benchmark
China 31.7% 29.8%
Taiwan 17.0% 15.0%
India 15.5% 14.9%
South Korea 15.4% 12.2%
Brazil 5.0% 5.3%
Saudi Arabia 2.3% 4.2%
Turkey 1.9% 0.7%
Indonesia 1.8% 2.0%
Mexico 1.8% 2.8%
Thailand 1.3% 2.0%
Regional Allocation
  • Emerging Asia 82.8%
  • Emerging Latin America 7.4%
  • Emerging Europe, Middle East, Africa 6.8%

Commentary (As of August 31, 2023)

Highlights

  • Chinese equities underperformed in August amid slowing growth, weighing on emerging market stocks.
  • As part of our continuous effort to enhance our quantitative model, we aggregated two “top down” factors, country and sector, in August. This country-sector aggregate factor combines country and sector analysis, recognizing that many sectors are locally-oriented and may not be comparable across countries, while other sectors are global in nature.
  • Within EM, 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 was near the high end of the historical range at month-end.

Portfolio attribution

The Causeway Emerging Markets Fund (“Fund”), on a net asset value basis, outperformed the Index in August 2023. 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 factor categories, valuation, earnings growth, technical (price momentum), and competitive strength, were all positive indicators during the month. Of our top-down indicators, macroeconomic and currency were positive. Country and sector were negative indicators in August.

Economic outlook

Economic data in the US continue to suggest that inflation is moderating, lowering the likelihood of further rate increases by the US Federal Reserve (“Fed”). The dramatic size and pace of Fed interest rate increases over the last few years have been a headwind for EM assets. As we approach the end of the Fed’s current rate hiking cycle, the outlook for EM equities and currencies should improve. Within EM, the Central Bank of Brazil lowered its target rate by 50 basis points in August. With real interest rates near the highest level of all major countries globally, Brazil has ample room to reduce interest rates. Furthermore, like many developed countries, Brazilian inflation has been moderating. In contrast, Argentina’s currency fell during the month and the country’s central bank increased interest rates by 21 percent to combat rising prices in the country. Strong support for Javier Milei in the primary vote contributed to economic uncertainty as he has vowed to eliminate Argentina’s central bank and dollarize the economy. In the Fund, we have a small overweight position in Argentina expressed through two companies, both with relatively little exposure to Argentina. One company is an e-commerce business that derives most of its revenue from Brazil and the other is an integrated energy company whose performance is more correlated with global oil prices.

In emerging Asia, Chinese data continues to reflect an anemic recovery for the largest EM country’s economy. July retail sales and industrial production data fell short of expectations and Chinese authorities ceased reporting youth unemployment levels, reflecting a pessimistic view towards one of the weakest areas of the economy. Given the lackluster economic data and tame inflation, we believe Chinese authorities will further stimulate the economy. While significant monetary easing appears unlikely given the economy’s debt load, we anticipate incremental, target support as and when needed. Authorities have recently stimulated growth by cutting the stamp tax on stock transactions, encouraging local governments to address debt risks using special bonds, and vowing to increase housing options for first-time homebuyers. We are overweight Chinese stocks in the Fund due in part to compelling valuations, as we believe the growth concerns are more than discounted in share prices. While almost all sectors are trading at significant discounts to their historic valuations, we currently are finding the most attractive opportunities in energy, industrials, financials, and interactive media companies. We are underweight companies in China’s real estate sector, a particularly vulnerable segment of the country’s economy.

Investment outlook

As part of our continuous effort to enhance our quantitative model, we aggregated two “top down” factors, country and sector, in August. This country-sector aggregate factor combines country and sector analysis, recognizing that many sectors are locally-oriented and may not be comparable across countries, while other sectors are global in nature. For example, we believe comparing financials companies across countries has little predictive value as each country has its own central bank, interest rate dynamics, and macroeconomic drivers affecting the credit cycle. However, comparing energy or mining companies across different countries can be useful since these businesses tend to sell into a global marketplace. The country-sector aggregate factor has two components – self-relative valuation and earnings growth – and it has a 12.5% weight in the strategy’s alpha model.

Earnings growth upgrades for EM equities continue to lag those in ex-US developed markets. The sectors with the strongest net upgrades were consumer discretionary and communication services. Consumer discretionary’s strong upgrades reflect solid growth expectations for Chinese e-tailers, despite the slow rebound in Chinese growth. Communications services has been buoyed by a strong outlook for Chinese interactive media companies. On the negative side, net growth upgrades were weak for materials and information technology, reflecting slowing global growth. Within EM, 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 was near the high end of the historical range at month-end.

The market commentary expresses the portfolio managers’ views as of the date of this report and should not be relied on as research or investment advice regarding any stock. These views and the Fund holdings and characteristics are subject to change. There is no guarantee that any forecasts made will come to pass. Any securities identified and described in this report do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. Diversification does not protect against market loss. Current and future holdings are subject to risk. The Fund may invest in derivatives, which are often more volatile than other investments and may magnify the Fund's gains or losses. Investing in ETFs is subject to the risks of the underlying funds. International and emerging markets investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets and smaller companies involve additional risks and higher volatility.

Distributions

Dividends Short-term capital gains Long-term capital gains
2022 $0.4290 $0.0000 $0.0000
2021 $0.3956 $0.0000 $2.4046
2020 $0.2052 $0.0000 $0.0000
2019 $0.2650 $0.0000 $0.0000
2018 $0.2296 $0.0000 $0.0000
2017 $0.2232 $0.0000 $0.0000
2016 $0.1597 $0.0000 $0.0000
2015 $0.1620 $0.0000 $0.0000
2014 $0.2775 $0.0000 $0.0000
2013 $0.0825 $0.0000 $0.0000
2012 $0.2526 $0.0000 $0.0000
2011 $0.0778 $0.0000 $0.0000
2010 $0.2451 $0.0000 $0.0000
2009 $0.2830 $0.0000 $0.0000
2008 $0.1186 $0.0000 $0.0000
2007 $0.2002 $0.4003 $0.0000

Distributions are per share. Distribution amounts are based on gains and losses realized and income earned by the Fund through October 31 (or earlier under certain circumstances).

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