Seeking diversified exposure to international small cap companies

The Fund invests primarily in common stocks of companies with smaller market capitalizations located in developed and emerging markets outside the US. The Fund normally invests at least 80% of its total assets in equity securities of companies with smaller market capitalizations. Smaller market capitalization companies are companies with market capitalizations that do not exceed the highest market capitalization of a company within the Fund’s benchmark, the MSCI ACWI ex USA Small Cap Index (Gross), at the time of purchase. Some of these companies, although small by US standards, might be large companies in their local markets. The Fund may continue to hold securities of a portfolio company that appreciate above the smaller market capitalization threshold and thus may from time to time hold less than 80% of its total assets in equity securities of companies with smaller market capitalizations. The Fund may invest in a wide range of industries. The Fund’s investment objective is to seek long-term growth of capital.

YTD Return*
-10.52%
Nav*
$10.21, +0.06
Inception
October 20, 2014
Cusip
14949P703
Benchmark
MSCI ACWI ex USA Small Cap
Minimum Investment
$1,000,000
Sales Charge
None
Net Expense Ratio
1.12%
Gross Expense Ratio
1.53%
*As of October 29, 2020
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Strategy overview

The portfolio managers discuss our International Small Cap strategy.

Portfolio managers

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

Performance

QTD YTD 1 year3 years5 years Since inception
Fund 11.5%-8.8%0.6%-3.7%4.7%4.2%
MSCI ACWI ex USA Small Cap 10.6%-3.3%7.4%1.3%7.2%5.8%
QTD YTD 1 year3 years5 years Since inception
Fund 11.5%-8.8%0.6%-3.7%4.7%4.2%
MSCI ACWI ex USA Small Cap 10.6%-3.3%7.4%1.3%7.2%5.8%
QTD YTD 1 year3 years5 years Since inception
Fund 11.5%-8.8%0.6%-3.7%4.2%
MSCI ACWI ex USA Small Cap 10.6%-3.3%7.4%1.3%5.8%
QTD YTD 1 year3 years5 years Since inception
Fund 11.5%-8.8%0.6%-3.7%4.2%
MSCI ACWI ex USA Small Cap 10.6%-3.3%7.4%1.3%5.8%
20192018201720162015
Fund 18.8%-21.1%34.7%3.3%4.7%
MSCI ACWI ex USA Small Cap 22.9%-17.9%32.1%4.3%3.0%
Fund
MSCI ACWI ex USA Small Cap
20192018201720162015
18.8%-21.1%34.7%3.3%4.7%
22.9%-17.9%32.1%4.3%3.0%

Portfolio (as of September 30, 2020)

Benchmark: MSCI ACWI ex USA Small Cap
Asset Allocation
Fund
Stocks 98.1%
Cash 1.9%
Fund Characteristics
Fund Benchmark
No. of holdings 135 4055
Weighted avg. market cap (US $MM) $1,762 $1,753
FY2 price/earnings 9.5 14.7
Price/book value 1.2 1.3
Net assets $51,665,057 -
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
Radiant Opto-Electronics Corp. Taiwan 2.0%
Huaxin Cement Co China 1.9%
General Interface Solution (GIS) Holding Ltd. Taiwan 1.9%
JB Hi-Fi Ltd. Australia 1.9%
Capcom Co., Ltd. Japan 1.9%
Granules India Ltd. India 1.8%
ASR Nederland NV Netherlands 1.8%
HASEKO Corp. Japan 1.8%
TAG Immobilien AG Germany 1.7%
Centamin Plc United Kingdom 1.7%

A “weighted average” measures a characteristic by the market capitalization of each stock. Price/book ratio is the weighted average of the price/book ratios of all the stocks in a portfolio. The P/B ratio 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. The FY2 P/E ratio is a forward P/E ratio using a next-twenty-four months EPS estimate in the denominator.

*Active defined as Fund weight minus MSCI ACWI ex USA Small Cap Index weight. Holdings are subject to change.

SECTOR WEIGHTS
Sector Fund Benchmark
Industrials 15.1% 19.9%
Information Technology 14.4% 12.4%
Health Care 12.7% 8.1%
Consumer Discretionary 12.0% 12.5%
Financials 11.9% 9.5%
Consumer Staples 8.8% 6.4%
Communication Services 7.6% 4.5%
Materials 6.7% 10.2%
Real Estate 6.1% 11.1%
Utilities 2.3% 3.3%
Energy 0.4% 2.0%
TOP 10 COUNTRIES
Country Fund Benchmark
Japan 17.7% 22.4%
United Kingdom 10.5% 11.7%
Taiwan 8.9% 5.0%
Sweden 8.7% 5.5%
China 6.5% 2.7%
South Korea 5.9% 4.0%
Netherlands 5.8% 1.6%
Australia 5.1% 6.1%
Canada 4.2% 6.5%
Germany 4.0% 4.1%
Regional Allocation
  • Europe – other 38.1%
  • Emerging Asia 26.4%
  • Pacific 25.4%
  • North America 4.2%
  • Emerging Latin America 2.9%
  • Emerging Europe, Middle East, Africa 1.1%

Commentary (As of September 30, 2020)

Highlights

  • Equities declined in September—the first month of negative returns since the market shock in March at the onset of the coronavirus pandemic. Value stocks underperformed growth stocks.
  • Until a vaccine, therapies, and widespread testing are available and economies fully reopen, we believe further stimulus packages will be needed to bolster the recovery in most regions.
  • We believe that value’s relative performance should improve once COVID-19 uncertainty abates, especially given the discount offered by value stocks currently. Notably our value alpha factors performed well in September despite the Small Cap Value Index underperforming the Small Cap Growth Index.

Portfolio attribution

In our view, the most compelling companies in the developed market value universe are those engaged in operational restructuring, using the disruption of the pandemic to lean out their cost bases and shed non-core assets. This ensuing boost in operating leverage may position these forward-thinkers well for an upturn in revenues as recovery develops.

From a sector perspective, Fund holdings in the health care, communications services, and financials contributed the most to performance relative to the Index. Fund holdings in the consumer discretionary, real estate, and information technology sectors offset a portion of the performance. Relative performance for the month can be mostly attributed to stock selection. The largest contributor to performance was pharmaceutical company, Granules India Ltd. (India). Additional top contributors included biopharmaceutical company, Pharma Mar SA (Spain), plastics & polymers manufacturer, Korea Petrochemical Ind. Co., Ltd. (South Korea), recreational products company, Capcom Co., Ltd. (Japan), and social and professional networking company, Mixi, Inc. (Japan). The top detractor from performance was electronics retailer, JB Hi-Fi Ltd. (Australia). Additional top detractors included semiconductor services provider, BE Semiconductor Industries NV (Netherlands), food distributor, Metcash Ltd. (Australia), lithium battery producer, Simplo Technology Co., Ltd. (Taiwan), and gaming company, NetEnt AB (Sweden).

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 22.8x forward price-to-earnings multiple compared to 14.0x for the Small Cap Value Index. This 63% premium is well above the 27% average premium over the last 15 years. We believe that value’s relative performance should improve once COVID-19 uncertainty abates, especially given the discount offered by value stocks currently. Notably our value alpha factors performed well in September despite the Small Cap Value Index underperforming the Small Cap Growth Index. However, the sheer breadth of the international small cap universe means that the typical tradeoffs in portfolio characteristics do not necessarily apply. In addition to value, we look for favorable growth, momentum, and quality characteristics. We believe that at most points in time our portfolio has exhibited more attractive metrics relative to the Index across all factor categories simultaneously. Smaller cap equities are currently exhibiting a higher long-term earnings-per-share growth trend than larger cap equities. Additionally, international smaller cap equities have exhibited greater valuation dispersion than larger cap equities on both a forward-earnings-yield basis and a price-to-book value basis, indicating more information content in valuation ratios for these equities. This characteristic has allowed us to construct a portfolio with lower valuation ratios relative to the Index without, in our view, compromising quality.

We continue to observe several intriguing features in the smaller cap landscape. We believe the intersection of international equities and smaller cap companies creates a recipe for inefficiency. Additionally, international smaller cap stocks are an underappreciated asset class that we believe can offer meaningful diversification benefits with the potential to reduce portfolio volatility. Finally, smaller cap stocks are typically less exposed to the potential risk of rising barriers to trade, given their home country revenue exposure. Despite the potential benefits, we believe many investors may be underallocated to the asset class despite its meaningful growth and diversification prospects. Causeway’s international small cap strategy combines the flexibility and breadth of quantitative analysis with our global industry knowledge, which we believe will benefit long-term investors in the Fund.

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 will be subject to risk. 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
2019 $0.4390 $0.0000 $0.0000
2018 $0.3165 $0.0000 $0.0000
2017 $0.3792 $0.2375 $0.4794
2016 $0.2901 $0.0000 $0.0000
2015 $0.2407 $0.0000 $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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