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 investable 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 May. Monthly returns to our valuation factors were positive, and value is the second-best performing factor group over the last twelve months. Our technical and quality factors also delivered positive returns in May, however our sentiment and corporate events factors delivered negative returns. Our corporate events factors remain the best-performing factor group over the last twelve months. Returns to our country aggregate factors were negative in May as countries exhibiting more attractive characteristics (such as Japan) underperformed those with relatively weaker characteristics (such as Taiwan). However, our macroeconomic factors delivered positive monthly returns. All factor groups remain positive on an inception to date basis.
The US is expected to announce substantial tariff increases on imports from nearly all US trading partners in early April. Many countries may retaliate, creating rising barriers to global trade. Generally speaking, small cap stocks should be less impacted than their larger peers due to greater focus on their home market. Constituents of the Index derive, on average, 65% of their revenue from their home market, compared to just 43% for constituents of the ACWI ex US Index.
In China, we are optimistic about the recent consumption-oriented stimulus measures announced in March as well as the vow to “stabilize the stock market.” Market participants remain skeptical about China hitting GDP growth targets, however the clear pivot to stimulus indicates the government’s willingness to do whatever it takes to boost the economy. Although China is just 3% of the Index, recent stimulus measures should be supportive of global economic growth.
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 highly 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 services, banks, and transportation industry groups contributed to relative performance. Holdings in the capital goods, consumer durables & apparel, and health care equipment & 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 banking & financial services company, Barclays PLC (United Kingdom), and cruise ship operator, Carnival Corp. (United States). The largest detractor was rolling stock, signaling, and services provider for the rail industry, Alstom SA (France). Additional notable detractors included healthcare equipment & services provider, Koninklijke Philips NV (Netherlands), and pharmaceutical giant, Sanofi (France).
The global trade war has introduced significant economic and geopolitical uncertainty. During the quarter, the US placed record-high punitive tariffs on China. China reciprocated, making all but essential (or tariff-exempt) trade between the two countries cost-prohibitive. A subsequent trade truce in May buys time for the two sides to strike a longer-term deal. China is prioritizing economic stability, technological advancement, and domestic consumption to meet its ambitious growth targets. EU fiscal integration is accelerating, with growing urgency to launch a unified capital market. Recognizing the need for greater security self-reliance, European leaders have committed to military and economic revitalization. Just weeks after its February election, Germany approved major defense and infrastructure spending, potentially boosting defense outlays from 2% to 5%of gross domestic product. In contrast, the UK faces stagflation, with the Bank of England cautiously navigating persistent inflation and gilt market volatility amid slowing growth.
De-globalization and tariffs appear likely to reduce global gross domestic product growth, increase inflationary pressures, and create sector-level dislocations. However, these disruptions can generate mispricing and opportunities for active investors. Causeway’s global and international value portfolios focus on identifying undervalued stocks rather than positioning around macroeconomic trends. Non-US developed markets continue to trade at a significant discount to the US, where indices remain driven by a handful of AI-focused companies. The era of ultra-low interest rates is over, making near-term cash flows more attractive than speculative growth. This recent period of market dislocation provides an opportunity to add to positions in companies we believe can navigate tariff induced instability and produce attractive multi-year returns. Companies with few competitors and strong pricing power have become especially valuable in this environment.
Certain cyclical stocks now offer some of the lowest valuations since 2020 and are rising in our risk-adjusted return rankings. We also are focusing on companies providing mission-critical products and services, which should see robust order growth regardless of tariff volatility. Across sectors, Causeway targets companies improving efficiency, driving earnings, and boosting cash flow.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the consumer services, banks, and transportation industry groups contributed to relative performance. Holdings in the capital goods and consumer durables & apparel industry groups, along with an overweight position in the health care equipment & services 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 banking & financial services company, Barclays PLC (United Kingdom), and semiconductor company, Infineon Technologies AG (Germany). The largest detractor was rolling stock, signaling, and services provider for the rail industry, Alstom SA (France). Additional notable detractors included healthcare equipment & services provider, Koninklijke Philips NV (Netherlands), and pharmaceutical giant, Sanofi (France).
The global trade war has introduced significant economic and geopolitical uncertainty. During the quarter, the US placed record-high punitive tariffs on China. China reciprocated, making all but essential (or tariff-exempt) trade between the two countries cost-prohibitive. A subsequent trade truce in May buys time for the two sides to strike a longer-term deal. China is prioritizing economic stability, technological advancement, and domestic consumption to meet its ambitious growth targets. The Portfolio was overweight Chinese stocks as of quarter-end, with most of the Chinese exposure in communication services and consumption-oriented businesses, which tend to be more domestically-focused and continue to, in our view, look attractive on both self-relative valuation and growth characteristics. Within EM, Taiwan and South Korea are two of the most externally-exposed economies and therefore vulnerable to trade disruption. As of quarter-end, we were overweight South Korean stocks in the Portfolio due in part to bottom-up valuation and top-down considerations.
In developed markets, EU fiscal integration is accelerating, with growing urgency to launch a unified capital market. Recognizing the need for greater security self-reliance, European leaders have committed to military and economic revitalization. Just weeks after its February election, Germany approved major defense and infrastructure spending, potentially boosting defense outlays from 2% to 5% of gross domestic product. In contrast, the UK faces stagflation, with the Bank of England cautiously navigating persistent inflation and gilt market volatility amid slowing growth.
De-globalization and tariffs appear likely to reduce global gross domestic product growth, increase inflationary pressures, and create sector-level dislocations. However, these disruptions can generate mispricing and opportunities for active investors. In the developed markets portion of the portfolio, we focus on identifying undervalued stocks rather than positioning around macroeconomic trends. Non-US developed markets continue to trade at a significant discount to the US, where indices remain driven by a handful of AI-focused companies. The era of ultra-low interest rates is over, making near-term cash flows more attractive than speculative growth. This recent period of market dislocation provides an opportunity to add to positions in companies we believe can navigate tariff induced instability and produce attractive multi-year returns. Companies with few competitors and strong pricing power have become especially valuable in this environment. Certain cyclical stocks now offer some of the lowest valuations since 2020 and are rising in our risk-adjusted return rankings. We also are focusing on companies providing mission-critical products and services, which should see robust order growth regardless of tariff volatility. Across sectors, Causeway targets companies improving efficiency, driving earnings, and boosting cash flow.
The Portfolio outperformed the Index in May 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 valuation, growth, and competitive strength factors were positive indicators during the month. Our corporate events factor was a negative indicator and technical (price momentum) was neutral in May. Our top-down currency and macroeconomic factors were positive while country/sector aggregate was negative during the month.
The Trump administration’s tariff policies have roiled global markets. Within EM, Taiwan and South Korea are two of the most externally-exposed economies. As of quarter-end, we were overweight South Korean and Taiwanese stocks in the Portfolio due in part to bottom-up valuation and top-down considerations. In China, the government has refrained from aggressive spending to boost consumption despite continued disinflationary trends. During the first quarter, the US placed record-high punitive tariffs on China. China reciprocated, making all but essential (or tariff-exempt) trade between the two countries cost-prohibitive. A subsequent trade truce in May buys time for the two sides to strike a longer-term deal. The Portfolio was overweight Chinese stocks as of quarter-end, with the majority of Chinese exposure in communication services and consumption-oriented businesses, which tend to be more domestically-focused and continue to, in our view, look attractive on both self-relative valuation and growth characteristics. In Turkey, equities sold off and the lira fell late in the quarter after police detained the mayor of Istanbul, Ekrem Imamoglu, the primary opposition candidate in the 2028 presidential election. While the development is troubling, we are encouraged by the fact that President Erdogan has not abandoned the central banks hawkish interest rate policy. The Portfolio was overweight Turkish stocks as of quarter-end due in part to top-down considerations.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the consumer services and banks industry groups, as well as an overweight position in the media & entertainment industry group, contributed to relative performance. Holdings in the semiconductors & semi equipment, software & services, and capital goods industry groups offset some of the outperformance compared to the Index. The top contributor to return was media & entertainment conglomerate, The Walt Disney Co. (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 diversified pharmaceutical company, Merck & Co., Inc. (United States). Additional notable detractors included rolling stock, signaling, and services provider for the rail industry, Alstom SA (France), and business process outsourcing services provider, Genpact Ltd. (United States).
The global trade war has introduced significant economic and geopolitical uncertainty. During the quarter, the US placed record-high punitive tariffs on China. China reciprocated, making all but essential (or tariff-exempt) trade between the two countries cost-prohibitive. A subsequent trade truce in May buys time for the two sides to strike a longer-term deal. China is prioritizing economic stability, technological advancement, and domestic consumption to meet its ambitious growth targets. EU fiscal integration is accelerating, with growing urgency to launch a unified capital market. Recognizing the need for greater security self-reliance, European leaders have committed to military and economic revitalization. Just weeks after its February election, Germany approved major defense and infrastructure spending, potentially boosting defense outlays from 2% to 5%of gross domestic product. In contrast, the UK faces stagflation, with the Bank of England cautiously navigating persistent inflation and gilt market volatility amid slowing growth.
De-globalization and tariffs appear likely to reduce global gross domestic product growth, increase inflationary pressures, and create sector-level dislocations. However, these disruptions can generate mispricing and opportunities for active investors. Causeway’s global and international value portfolios focus on identifying undervalued stocks rather than positioning around macroeconomic trends. Non-US developed markets continue to trade at a significant discount to the US, where indices remain driven by a handful of AI-focused companies. The era of ultra-low interest rates is over, making near-term cash flows more attractive than speculative growth. This recent period of market dislocation provides an opportunity to add to positions in companies we believe can navigate tariff induced instability and produce attractive multi-year returns. Companies with few competitors and strong pricing power have become especially valuable in this environment.
Certain cyclical stocks now offer some of the lowest valuations since 2020 and are rising in our risk-adjusted return rankings. We also are focusing on companies providing mission-critical products and services, which should see robust order growth regardless of tariff volatility. Across sectors, Causeway targets companies improving efficiency, driving earnings, and boosting cash flow.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the consumer services, banks, and transportation industry groups contributed to relative performance. Holdings in the capital goods, consumer durables & apparel, and media & entertainment 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 banking & financial services company, Barclays PLC (United Kingdom), and semiconductor company, Infineon Technologies AG (Germany). The largest detractor was rolling stock, signaling, and services provider for the rail industry, Alstom SA (France). Additional notable detractors included healthcare equipment & services provider, Koninklijke Philips NV (Netherlands), and pharmaceutical giant, Sanofi (France).
Investment Outlook
The global trade war has introduced significant economic and geopolitical uncertainty. During the quarter, the US placed record-high punitive tariffs on China. China reciprocated, making all but essential (or tariff-exempt) trade between the two countries cost-prohibitive. A subsequent trade truce in May buys time for the two sides to strike a longer-term deal. China is prioritizing economic stability, technological advancement, and domestic consumption to meet its ambitious growth targets. EU fiscal integration is accelerating, with growing urgency to launch a unified capital market. Recognizing the need for greater security self-reliance, European leaders have committed to military and economic revitalization. Just weeks after its February election, Germany approved major defense and infrastructure spending, potentially boosting defense outlays from 2% to 5%of gross domestic product. In contrast, the UK faces stagflation, with the Bank of England cautiously navigating persistent inflation and gilt market volatility amid slowing growth.
De-globalization and tariffs appear likely to reduce global gross domestic product growth, increase inflationary pressures, and create sector-level dislocations. However, these disruptions can generate mispricing and opportunities for active investors. Causeway’s global and international value portfolios focus on identifying undervalued stocks rather than positioning around macroeconomic trends. Non-US developed markets continue to trade at a significant discount to the US, where indices remain driven by a handful of AI-focused companies. The era of ultra-low interest rates is over, making near-term cash flows more attractive than speculative growth. This recent period of market dislocation provides an opportunity to add to positions in companies we believe can navigate tariff induced instability and produce attractive multi-year returns. Companies with few competitors and strong pricing power have become especially valuable in this environment.
Certain cyclical stocks now offer some of the lowest valuations since 2020 and are rising in our risk-adjusted return rankings. We also are focusing on companies providing mission-critical products and services, which should see robust order growth regardless of tariff volatility. Across sectors, Causeway targets companies improving efficiency, driving earnings, and boosting cash flow.
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