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In global small cap markets, not all cheap stocks are good opportunities. As Andy Liu, Senior Quantitative Research Analyst at Causeway, explains in this two-minute video, fundamental review plays a meaningful role in excluding companies that quantitative models alone might miss.
Since inception, Causeway’s global small cap strategy has excluded 44 stocks after fundamental review. Many of these exclusions stem from issues like unprofitable U.S. small caps, risky pre-revenue biotechs, over-levered balance sheets, and management teams with a history of value destruction.
While quantitative models are powerful tools for forecasting average stock returns, they can overlook the “worst of the worst.” That’s where Causeway’s fundamental research team steps in—to assess business quality, sustainability, and long-term prospects.
The takeaway: In US small cap investing, where unprofitable “zombie” firms and speculative biotechs abound, we believe combining quantitative insight with disciplined fundamental review is essential.
Disclosures
This market commentary expresses Causeway’s views as of November 2025 and should not be relied on as research or investment advice regarding any stock. These views and any portfolio holdings and characteristics are subject to change. There is no guarantee that any forecasts made will come to pass. Forecasts are subject to numerous assumptions, risks, and uncertainties, which change over time, and Causeway undertakes no duty to update any such forecasts. Information and data presented has been developed internally and/or obtained from sources believed to be reliable; however, Causeway does not guarantee the accuracy, adequacy, or completeness of such information.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. For further information on the risks regarding investing in Causeway’s strategies, please go to https://www.causewaycap.com/wp-content/uploads/Risk-Disclosures.pdf.
The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.
The MSCI ACWI ex USA Small Cap Index captures small cap representation across 22 of 23 Developed Markets countries (excluding the US) and 24 Emerging Markets countries.
MSCI and the London Stock Exchange Group plc have not approved, reviewed, or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI or LSEG data or use it as a basis for other indices or investment products.
