The Portfolio 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. All of our alpha factor categories delivered positive returns in October. The strategy’s value factors produced positive returns in October, and value remains the best-performing factor in 2023 and over the last twelve months. Our earnings growth and technical factors also posted positive returns last month. Competitive strength generated the highest returns among our bottom-up alpha factor categories in October, and it is the second-best performing factor group over the year-to-date period. Our macroeconomic and country aggregate factors delivered positive monthly returns as countries exhibiting stronger metrics (such as Japan) outperformed those with relatively weaker characteristics (such as Australia). All factor groups remain positive on an inception-to-date basis.
Excluding Australia, major Developed Market central banks, including the US Federal Reserve Bank, The Bank of England, The European Central Bank and The Bank of Japan, voted to leave rates unchanged at their most recent meetings. The global manufacturing output PMI slipped 0.9 points to 48.9 last month, a level consistent with a 0.5% annual rate contraction in factory output. The standout positive in the October PMIs was the US, with a rise in both the output (+0.5 points) and new orders (+1.4 points) indexes. However, China stepped down, and the Euro area PMI remains stuck at a recessionary level.
According to JP Morgan, mainland China’s global PMI slipped to 48.8 likely reflecting the ongoing drags from the real estate sector and domestic demand weakness and raising questions about the resilience of the end-of-third quarter momentum.
Though we analyze many different stock selection factors in our alpha model, value factors receive the largest weight on average. As of the end of October, the MSCI ACWI ex USA Small Cap Growth Index traded at a 15.7x forward price-to-earnings (P/E) multiple compared to 9.6x for the MSCI ACWI ex USA Small Cap Value Index, a 63% premium, which is the smallest it has been all year.
Another attractive feature of global small caps is that they exhibit greater valuation dispersion than large caps on both a forward earnings yield and B/P basis. This indicates more information content in the valuation ratios of small caps. In addition to exhibiting greater valuation dispersion, small caps exhibit a higher long-term earnings per share growth trend.
The Portfolio outperformed the Index during the month. To evaluate stocks in our investible universe, our multi-factor quantitative model employs five bottom-up factor categories – valuation, sentiment, technical indicators, quality, and corporate events – and two top-down factor categories assessing macroeconomic and country aggregate characteristics. Alpha factor performance was mixed in June. Monthly returns to our valuation factors were negative, though value is the second-best performing factor group over the last twelve months. Our technical indicator factors delivered positive returns in June and were the best-performing bottom-up factor group last month. Our corporate events factors were the best-performing factor group over the last twelve months. Returns to our macroeconomic factors were positive in June as countries exhibiting stronger metrics (such as Korea and China) outperformed those with relatively weaker characteristics. However, our country aggregate factors delivered slightly negative monthly returns. All factor groups remain positive on an inception-to-date basis.
Despite tariff tensions recently cooling with the market expecting additional U.S. tariff deals to be announced in July, the potential remains for growing barriers to global trade. Generally speaking, we believe small cap stocks should be less impacted than their larger peers due to greater focus on their home market. We currently estimate that constituents of the Index derive, on average, approximately 65% of their revenue from their home market, compared to just approximately 43% for constituents of the ACWI ex US Index.
In South Korea, Democratic Party nominee Lee Jae Myung won the June presidential election. In addition to removing a source of uncertainty, the election ushered in a significant set of legislative proposals that are minority shareholder friendly. The most notable of these is the proposed amendment to the Korea Commercial Act, which expands companies’ boards of directors’ fiduciary duties to also consider the interests of minority shareholders. Other shareholder friendly proposals include the separate taxation of dividends which should increase Korean companies’ anemic dividend yields, an inheritance tax amendment, the mandatory cancellation of treasury shares, and a discovery system which would give shareholders access to internal company documents. At the end of the second quarter, Korea was the Portfolio’s largest country overweight due in part to attractive valuations and favorable top-down characteristics.
International small caps continue to trade at a rare discount to their larger-cap (ACWI ex USA Index) peers on a forward P/E basis. In addition to the attractive relative valuation of the asset class overall, Causeway’s International Small Cap portfolio continues to trade at a substantial discount to the Index while simultaneously exhibiting more favorable growth, quality, momentum, and positive estimate revisions than the Index. We believe that this attractive combination of characteristics better insulates our portfolio from future volatility.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the consumer durables & apparel, consumer services, and technology hardware & equipment industry groups contributed to relative performance. Holdings in the pharmaceuticals & biotechnology, semiconductors & semi equipment, and telecommunication services industry groups offset some of the outperformance compared to the Index. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included multinational luxury conglomerate, Kering SA (France), and cruise ship operator, Carnival Corp. (United States). The largest detractor was alcoholic beverage distributor, Diageo Plc (United Kingdom). Additional notable detractors included pharmaceutical company, AstraZeneca PLC (United Kingdom), and pharmaceutical & consumer healthcare company, GSK Plc (United Kingdom).
The de-escalation of tariff threats has been instrumental in alleviating global trade tensions. Additionally, the removal of Section 899 from the U.S. federal budget, along with other nations’ decision to refrain from imposing extraterritorial taxes on U.S. firms, has further eased tensions. Combined with stable crude oil prices and the absence of significant domestic labor shortages, U.S. inflationary pressures have remained stable.
In Europe, we anticipate substantial economic benefits to begin materializing in 2026, as both the public and private sectors intensify investments in defense, security, energy, and infrastructure. The region’s initiatives to harmonize regulations and establish a unified, liquid capital market have the potential to significantly accelerate innovation and drive sustained economic growth. Moreover, the trade-weighted U.S. dollar has declined to early 2022 levels, erasing its late 2024 gains. Continued depreciation could provide even more currency boost to dollar-based investors’ foreign holdings.
Causeway’s global and international value portfolios focus on identifying undervalued stocks rather than positioning around macroeconomic trends. Despite the narrowing valuation gap between U.S. and non-U.S. markets, we continue to see compelling investment opportunities across international markets. Our focus remains on identifying companies that offer durable value, characterized by pricing power, iconic brands, or robust product pipelines. Even the highest quality businesses can encounter temporary dislocations, which we view as opportunities to increase positions at attractive valuations. Recent external shocks have created such opportunities among select-high quality companies. The pharmaceutical industry faces a considerable list of challenges including US pricing, global trade restrictions, China’s economic slowdown, and uncertainties in drug pipelines. These challenges have created, in our view, value opportunities in some of the world’s top pharmaceutical firms where we remain confident in their ability to sustain cash flow, profit margins, and innovation over time. If European leaders implement the competitiveness reforms proposed by Mario Draghi last year, our existing two-year price targets could prove conservative, particularly for portfolio holdings most sensitive to European economic growth. We continue to take a disciplined approach, favoring investments at current valuations rather than paying a premium for potential future positive developments. Across sectors, Causeway targets companies we believe are improving efficiency, driving earnings, and boosting cash flows.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the consumer services, consumer durables & apparel, and insurance industry groups contributed to relative performance. Holdings in the pharmaceuticals & biotechnology and semiconductors & semi equipment industry groups, along with an overweight position in the food beverage & tobacco industry group, offset some of the outperformance compared to the Index. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included multinational luxury conglomerate, Kering SA (France), and integrated circuit manufacturer, Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan). The largest detractor was alcoholic beverage distributor, Diageo Plc (United Kingdom). Additional notable detractors included payment service provider, Worldline SA (France), and pharmaceutical company, AstraZeneca PLC (United Kingdom).
The de-escalation of tariff threats has introduced a measure of stability into global trade tensions. The removal of Section 899 from the U.S. federal budget, along with other nations’ decision to refrain from imposing extraterritorial taxes on U.S. firms, has further contributed to an easing of tensions. This would be a positive development for export-oriented EM countries like China, South Korea, and Taiwan. In South Korea, Democratic Party nominee Lee Jae Myung won the June presidential election. In addition to removing a source of uncertainty, the election ushered in a significant set of legislative proposals that appear to be minority shareholder friendly. The most notable one is the proposed amendment to the Korea Commercial Act, which expands companies’ boards of directors’ fiduciary duties to also consider the interests of minority shareholders. The Portfolio is overweight South Korean stocks due in part to attractive valuations and favorable top-down characteristics. In China, data continues to reflect disinflationary trends and gross domestic product (“GDP”) growth is expected to slow into the low four percent range. Chinese authorities appear likely to refrain from aggressive spending to boost consumption. The Portfolio is overweight Chinese stocks due in part to attractive valuations, but we have trimmed our consumer holdings as lackluster consumer demand is weighing on earnings growth expectations.
In Europe, both public and private sector investment in defense, security, energy, and infrastructure is expected to accelerate, with meaningful economic benefits likely to emerge by 2026. The region is working to harmonize regulations and launch a unified, liquid capital market – efforts that could significantly accelerate innovation and drive long-term economic growth. Moreover, the trade-weighted U.S. dollar has declined to early 2022 levels, erasing its late 2024 gains. Continued depreciation could provide even more currency boost to dollar-based investors’ foreign holdings. Although the valuation gap between U.S. and non-U.S. markets has narrowed, we continue to find attractive investment opportunities across international markets. In the developed markets portion of the portfolio, our focus remains on companies offering durable value, characterized by pricing power, iconic brands, or robust product pipelines. We continue to take a disciplined approach, preferring investments at current valuations rather than paying a premium for potential future positive developments. Across sectors, Causeway targets companies improving efficiency, driving earnings, and boosting cash flows.
Within EM, the South Korean Democratic Party nominee Lee Jae Myung won the June presidential election. In addition to removing a source of uncertainty, the election ushered in a significant set of legislative proposals that appear to be minority shareholder friendly. The most notable one is the proposed amendment to the Korea Commercial Act, which expands companies’ boards of directors’ fiduciary duties to also consider the interests of minority shareholders. Other shareholder friendly proposals include the separate taxation of dividends which should increase Korean companies’ anemic dividend yields, an inheritance tax amendment, the mandatory cancellation of treasury shares, and a discovery system which would give shareholders access to internal company documents. The Portfolio is overweight South Korean stocks due in part to attractive valuations and favorable top-down characteristics. In China, data continues to reflect disinflationary trends and gross domestic product (“GDP”) growth is expected to slow into the low four percent range. Chinese authorities appear likely to refrain from aggressive spending to boost consumption. The Portfolio is overweight Chinese stocks due in part to attractive valuations, but we have trimmed our consumer holdings as lackluster consumer demand is weighing on earnings growth expectations.
The Portfolio outperformed the Index in June 2025. We use both bottom-up “stock-specific” and top-down factor categories to seek to forecast alpha for the stocks in the Portfolio’s investable universe. Our bottom-up growth, technical (price momentum), valuation, and corporate events factors were positive indicators in June, while competitive strength was a negative indicator during the month. Our top-down country/sector aggregate was a positive indicator. Macroeconomic and currency were negative indicators.
The US Federal Reserve was on hold in the second quarter and Chairman Powell has been reluctant to cut interest rates as he is wary of the inflationary effects of tariffs. Meanwhile, most EM currencies rallied relative to the US dollar during the quarter. Even though real rates are positive in the US, many investors are questioning the sustainability of massive US deficits and debt. A backdrop of stable to falling rates in the US coupled with US dollar weakness is typically a positive environment for EM assets. With the Trump Administration announcing escalating tariffs, particularly with China, EM trade with the US was materially diminished earlier this year. However, the tariff tensions appear to have cooled and the market generally expects tariff deals to be announced in July. This would be a positive development for export-oriented EM countries like China, South Korea, and Taiwan.
In South Korea, Democratic Party nominee Lee Jae Myung won the June presidential election. In addition to removing a source of uncertainty, the election ushered in a significant set of legislative proposals that appear to be minority shareholder friendly. The most notable one is the proposed amendment to the Korea Commercial Act, which expands companies’ boards of directors’ fiduciary duties to also consider the interests of minority shareholders. Other shareholder friendly proposals include the separate taxation of dividends which should increase Korean companies’ anemic dividend yields, an inheritance tax amendment, the mandatory cancellation of treasury shares, and a discovery system which would give shareholders access to internal company documents. The Portfolio is overweight South Korean stocks due in part to attractive valuations and favorable top-down characteristics. In China, data continues to reflect disinflationary trends and gross domestic product (“GDP”) growth is expected to slow into the low four percent range. Chinese authorities appear likely to refrain from aggressive spending to boost consumption. The Portfolio is overweight Chinese stocks due in part to attractive valuations, but we have trimmed our consumer holdings as lackluster consumer demand is weighing on earnings growth expectations.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the consumer durables & apparel, consumer services, and banks industry groups contributed to relative performance. Holdings in the semiconductors & semi equipment, utilities, and food beverage & tobacco industry groups offset some of the outperformance compared to the Index. The top contributor to return was enterprise management software provider, Oracle Corp. (United States). Other notable contributors included jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), and cruise ship operator, Carnival Corp. (United States). The largest detractor was power utility, PG&E Corp. (United States). Additional notable detractors included alcoholic beverage distributor, Diageo Plc (United Kingdom), and pharmaceutical company, AstraZeneca PLC (United Kingdom).
The de-escalation of tariff threats has been instrumental in alleviating global trade tensions. Additionally, the removal of Section 899 from the U.S. federal budget, along with other nations’ decision to refrain from imposing extraterritorial taxes on U.S. firms, has further eased tensions. Combined with stable crude oil prices and the absence of significant domestic labor shortages, U.S. inflationary pressures have remained stable.
In Europe, we anticipate substantial economic benefits to begin materializing in 2026, as both the public and private sectors intensify investments in defense, security, energy, and infrastructure. The region’s initiatives to harmonize regulations and establish a unified, liquid capital market have the potential to significantly accelerate innovation and drive sustained economic growth. Moreover, the trade-weighted U.S. dollar has declined to early 2022 levels, erasing its late 2024 gains. Continued depreciation could provide even more currency boost to dollar-based investors’ foreign holdings.
Causeway’s global and international value portfolios focus on identifying undervalued stocks rather than positioning around macroeconomic trends. Despite the narrowing valuation gap between U.S. and non-U.S. markets, we continue to see compelling investment opportunities across international markets. Our focus remains on identifying companies that offer durable value, characterized by pricing power, iconic brands, or robust product pipelines. Even the highest quality businesses can encounter temporary dislocations, which we view as opportunities to increase positions at attractive valuations. Recent external shocks have created such opportunities among select-high quality companies. The pharmaceutical industry faces a considerable list of challenges including US pricing, global trade restrictions, China’s economic slowdown, and uncertainties in drug pipelines. These challenges have created, in our view, value opportunities in some of the world’s top pharmaceutical firms where we remain confident in their ability to sustain cash flow, profit margins, and innovation over time. If European leaders implement the competitiveness reforms proposed by Mario Draghi last year, our existing two-year price targets could prove conservative, particularly for portfolio holdings most sensitive to European economic growth. We continue to take a disciplined approach, favoring investments at current valuations rather than paying a premium for potential future positive developments. Across sectors, Causeway targets companies we believe are improving efficiency, driving earnings, and boosting cash flows.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the consumer durables & apparel, consumer services, and technology hardware & equipment industry groups contributed to relative performance. Holdings in the pharmaceuticals & biotechnology, semiconductors & semi equipment, and transportation industry groups offset some of the outperformance compared to the Index. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included multinational luxury conglomerate, Kering SA (France), and cruise ship operator, Carnival Corp. (United States). The largest detractor was alcoholic beverage distributor, Diageo Plc (United Kingdom). Additional notable detractors included payment service provider, Worldline SA (France), and pharmaceutical company, AstraZeneca PLC (United Kingdom).
Investment Outlook
The de-escalation of tariff threats has been instrumental in alleviating global trade tensions. Additionally, the removal of Section 899 from the U.S. federal budget, along with other nations’ decision to refrain from imposing extraterritorial taxes on U.S. firms, has further eased tensions. Combined with stable crude oil prices and the absence of significant domestic labor shortages, U.S. inflationary pressures have remained stable.
In Europe, we anticipate substantial economic benefits to begin materializing in 2026, as both the public and private sectors intensify investments in defense, security, energy, and infrastructure. The region’s initiatives to harmonize regulations and establish a unified, liquid capital market have the potential to significantly accelerate innovation and drive sustained economic growth. Moreover, the trade-weighted U.S. dollar has declined to early 2022 levels, erasing its late 2024 gains. Continued depreciation could provide even more currency boost to dollar-based investors’ foreign holdings.
Causeway’s global and international value portfolios focus on identifying undervalued stocks rather than positioning around macroeconomic trends. Despite the narrowing valuation gap between U.S. and non-U.S. markets, we continue to see compelling investment opportunities across international markets. Our focus remains on identifying companies that offer durable value, characterized by pricing power, iconic brands, or robust product pipelines. Even the highest quality businesses can encounter temporary dislocations, which we view as opportunities to increase positions at attractive valuations. Recent external shocks have created such opportunities among select-high quality companies. The pharmaceutical industry faces a considerable list of challenges including US pricing, global trade restrictions, China’s economic slowdown, and uncertainties in drug pipelines. These challenges have created, in our view, value opportunities in some of the world’s top pharmaceutical firms where we remain confident in their ability to sustain cash flow, profit margins, and innovation over time. If European leaders implement the competitiveness reforms proposed by Mario Draghi last year, our existing two-year price targets could prove conservative, particularly for portfolio holdings most sensitive to European economic growth. We continue to take a disciplined approach, favoring investments at current valuations rather than paying a premium for potential future positive developments. Across sectors, Causeway targets companies we believe are improving efficiency, driving earnings, and boosting cash flows.
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