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 underperformed 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 April. Among our bottom-up factor groups, our sentiment and technical factors posted the most positive monthly returns, and technical is the best-performing factor group over the last twelve months. However, returns to our value, quality, and corporate events factor groups were negative in April. Returns to our macroeconomic factors were positive in April as countries exhibiting more attractive characteristics (such as Korea and Taiwan) outperformed those with relatively weaker characteristics. However, our country aggregate factors delivered negative monthly returns. All factor groups remain positive on an inception-to-date basis.
During the month, Portfolio holdings in materials, utilities, and financials detracted from relative performance. Holdings in information technology, as well as underweight positions in consumer staples and real estate, offset some of the underperformance compared to the Index. Performance for the month was primarily driven by stock selection. The largest detractor was investment management firm, AGF Management (Canada). Additional notable detractors included automotive holding company, Archion (Japan), and pharmaceutical company, China Resources Pharmaceutical Group Ltd. (China). The top contributor to return was electronic components manufacturer, LG Innotek Co., Ltd. (South Korea). Other notable contributors included engineering company, Samsung Engineering Co., Ltd. (South Korea), and business conglomerate, Hanwha Corp.(South Korea).
Amid a backdrop of elevated energy prices, the new chair of the US Federal Reserve (“Fed”), Kevin Warsh, faces a challenge. He needs to determine if the rising prices are transitory as he seeks to balance inflation and growth considerations. Rising US interest rates driven by inflation concerns and a flight to safety amid market volatility have contributed to falling international currencies.
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.
We believe another attractive feature of international 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.
We continue to monitor the fluid conflict in the Middle East and the Portfolio remains underweight stocks in the EMEA and Developed Middle East regions due primarily to bottom-up considerations.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the semiconductors & semi equipment, pharmaceuticals & biotechnology, and banks industry groups contributed to relative performance. Holdings in the capital goods, consumer durables & apparel, and telecommunication services industry groups offset some of the outperformance relative to the Index. The top contributor to return was semiconductor company, Renesas Electronics Corp. (Japan). Other notable contributors included semiconductor company, Infineon Technologies AG (Germany), and pneumatic controls manufacturer, SMC Corporation (Japan). The largest detractor was rolling stock, signaling, and services provider for the rail industry, Alstom SA (France). Additional notable detractors included multinational luxury conglomerate, Kering SA (France), and communication services provider, Deutsche Telekom AG (Germany).
The conflict in the Middle East has cast a shadow over economically sensitive sectors, weighing on the valuations of many cyclical stocks. Even after the US ultimately disengages from Iran, geopolitical risk is likely to remain elevated for several quarters. At this stage, the conflict has not prompted reductions to our two-year price targets for portfolio companies, as we view the associated disruptions as temporary and continue to anchor our valuations in longer-term fundamentals. A satisfactory resolution could support a rebound in portfolio holdings.
Separately, structural pressures continue to reshape parts of the market. Software and services stocks remain out of favor, as rising competition from generative AI-native entrants raises questions about the resilience of incumbents.
Cyclical concerns and structural shifts require even greater precision in stock selection. Consistent with Causeway’s longstanding approach, we use unjustified share price weakness to add to existing positions where our investment thesis remains intact, while market dislocations have created additional opportunities to initiate new positions in high-quality businesses at more attractive valuations.
The Portfolio outperformed the Index during the month, due primarily to industry group allocation (a byproduct of our bottom -up stock selection process). Portfolio holdings in the semiconductors & semi equipment industry group, as well as an overweight position in the technology hardware & equipment industry group and an underweight position in the energy industry group, contributed to relative performance. Holdings in the consumer durables & apparel, capital goods, and telecommunication services industry groups offset some of the outperformance relative to the Index. The top contributor to return was semiconductor company, Renesas Electronics Corp. (Japan). Other notable contributors included semiconductor company, SK hynix, Inc. (South Korea), and integrated circuit manufacturer, Taiwan Semiconductor Manufacturing Co., Ltd.(Taiwan). The largest detractor was rolling stock, signaling, and services provider for the rail industry, Alstom SA (France). Additional notable detractors included multinational luxury conglomerate, Kering SA (France), and communication services provider, Deutsche Telekom AG (Germany).
The conflict in the Middle East and partial closure of the Strait of Hormuz increased oil prices and inflation risks, reducing growth expectations. Global equities fell in March, and traditional safe havens offered limited diversification. Energy stocks benefited from supply concerns, while other sectors struggled. Two of the portfolio’s largest EM country overweights, South Korea and Taiwan, are importers of oil and Liquefied Natural Gas (“LNG”). We continue to identify, in our view, attractive investment opportunities in these countries, due to compelling bottom-up and top-down characteristics. Amid a backdrop of rising energy prices, the new chair of the US Federal Reserve (“Fed”), Kevin Warsh, faces a challenge. He needs to determine if the rising prices are transitory as he seeks to balance inflation and growth considerations. Rising US interest rates driven by inflation concerns and a flight to safety amid market volatility have contributed to falling EM currencies.
The conflict in the Middle East has cast a shadow over economically sensitive sectors, weighing on the valuations of many cyclical stocks. Even after the US ultimately disengages from Iran, geopolitical risk is likely to remain elevated for several quarters. At this stage, the conflict has not prompted reductions to our two-year price targets for portfolio companies in the developed markets portion of the portfolio, as we view the associated disruptions as temporary and continue to anchor our valuations in longer-term fundamentals. A satisfactory resolution could support a rebound in portfolio holdings. Separately, structural pressures continue to reshape parts of the market. Software and services stocks remain out of favor, as rising competition from generative AI-native entrants raises questions about the resilience of incumbents. Cyclical concerns and structural shifts require even greater precision in stock selection. Consistent with Causeway’s longstanding approach in the developed markets portion of the portfolio, we use unjustified share price weakness to add to existing positions where our investment thesis remains intact, while market dislocations have created additional opportunities to initiate new positions in high-quality businesses at more attractive valuations.
The Portfolio outperformed the Index in April 2026. We use both bottom-up “stock-specific” and top-down factor categories to forecast alpha for the stocks in the Portfolio’s investable universe. Our bottom-up growth and technical (price momentum) factors were positive indicators while competitive strength was neutral during the month. Valuation and corporate events were negative indicators. Our top-down macroeconomic and currency were positive indicators while country/sector aggregate was a negative indicator in April.
During the month, Portfolio holdings in the emerging Asia region contributed to relative performance, due primarily to positive stock selection in Taiwan and China, and an overweighting to South Korea. In the emerging Europe, Middle East, and Africa (“EMEA”) region, an underweight position in Saudi Arabia contributed to relative performance. An underweight position in Brazil contributed to relative performance in emerging Latin America. From a sector perspective, information technology, financials, and consumer staples contributed to relative performance. Industrials, materials, and real estate detracted from relative performance. The greatest stock-level contributors to relative performance included overweight positions in semiconductor company, SK hynix, Inc. (South Korea), electronic equipment manufacturer, Gold Circuit Electronics Ltd.(Taiwan), and networking & communications equipment manufacturer, Accton Technology Corp. (Taiwan). The largest stock-level detractors from relative performance included underweight positions in semiconductor companies, MediaTek, Inc.(Taiwan), and SK Square Co. Ltd. (South Korea), as well as an overweight position in aluminum producer, China Hongqiao Group Ltd. (China).
The conflict in the Middle East remains fluid and traffic in the Strait of Hormuz has been limited. This has fueled volatility in energy prices and global equity markets. Two of the Portfolio’s largest country overweights, South Korea and Taiwan, are importers of oil and Liquefied Natural Gas (“LNG”). Rising energy prices heavily impacted stock returns in these markets in March, but hopes for an end to the Middle East conflict and structural tailwinds helped them rebound in April. We continue to identify, in our view, attractive investment opportunities in these countries, due to compelling botton-up and top-down characteristics. The Portfolio was underweight Indian equities as of quarter-end due in part to valuation considerations, which diversifies the portfolio’s energy exposure as India is also an oil importer. The Portfolio was also underweight Gulf Cooperation Council (“GCC”) countries as of quarter-end. We believe the conflict in the Middle East will eventually wind down and some semblance of normalcy will return for most economies. However, this path to normalcy may be longer for the GCC countries as some have suffered significant infrastructure damage. The conflict should further incentivize energy-importing countries to diversify away from the Middle East. While the valuations of stocks in GCC countries are increasingly attractive, we do not believe this adequately compensates for the increased risks. Amid a backdrop of rising energy prices, the new chair of the US Federal Reserve (“Fed”), Kevin Warsh, faces a challenge. He needs to determine if the rising prices are transitory as he seeks to balance inflation and growth considerations. Rising US interest rates driven by inflation concerns and a flight to safety amid market volatility have contributed to falling EM currencies.
The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the capital goods, consumer durables & apparel, and media & entertainment industry groups detracted from relative performance. Holdings in the semiconductors & semi equipment and banks industry groups, as well as an underweight position in the energy industry group, offset some of the underperformance relative to the Index. The largest detractor was rolling stock, signaling, and services provider for the rail industry, Alstom SA (France). Additional notable detractors included multinational luxury conglomerate, Kering SA (France), and diversified pharmaceutical company, Merck & Co., Inc. (United States). The top contributor to return was semiconductor company, Renesas Electronics Corp. (Japan). Other notable contributors included semiconductor company, Infineon Technologies AG (Germany), and technology conglomerate, Alphabet, Inc. (United States).
The conflict in the Middle East has cast a shadow over economically sensitive sectors, weighing on the valuations of many cyclical stocks. Even after the US ultimately disengages from Iran, geopolitical risk is likely to remain elevated for several quarters. At this stage, the conflict has not prompted reductions to our two-year price targets for portfolio companies, as we view the associated disruptions as temporary and continue to anchor our valuations in longer-term fundamentals. A satisfactory resolution could support a rebound in portfolio holdings.
Separately, structural pressures continue to reshape parts of the market. Software and services stocks remain out of favor, as rising competition from generative AI-native entrants raises questions about the resilience of incumbents.
Cyclical concerns and structural shifts require even greater precision in stock selection. Consistent with Causeway’s longstanding approach, we use unjustified share price weakness to add to existing positions where our investment thesis remains intact, while market dislocations have created additional opportunities to initiate new positions in high-quality businesses at more attractive valuations.
The Portfolio modestly outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the semiconductors & semi equipment and pharmaceuticals & biotechnology industry groups, as well as an underweight position in the energy industry group, contributed to relative performance. Holdings in the consumer durables & apparel, capital goods, and telecommunication services industry groups offset some of the outperformance relative to the Index. The top contributor to return was semiconductor company, Renesas Electronics Corp. (Japan). Other notable contributors included semiconductor company, Infineon Technologies AG (Germany), and pneumatic controls manufacturer, SMC Corporation (Japan). The largest detractor was rolling stock, signaling, and services provider for the rail industry, Alstom SA (France). Additional notable detractors included multinational luxury conglomerate, Kering SA (France), and communication services provider, Deutsche Telekom AG (Germany).
The conflict in the Middle East has cast a shadow over economically sensitive sectors, weighing on the valuations of many cyclical stocks. Even after the US ultimately disengages from Iran, geopolitical risk is likely to remain elevated for several quarters. At this stage, the conflict has not prompted reductions to our two-year price targets for portfolio companies, as we view the associated disruptions as temporary and continue to anchor our valuations in longer-term fundamentals. A satisfactory resolution could support a rebound in portfolio holdings.
Separately, structural pressures continue to reshape parts of the market. Software and services stocks remain out of favor, as rising competition from generative AI-native entrants raises questions about the resilience of incumbents.
Cyclical concerns and structural shifts require even greater precision in stock selection. Consistent with Causeway’s longstanding approach, we use unjustified share price weakness to add to existing positions where our investment thesis remains intact, while market dislocations have created additional opportunities to initiate new positions in high-quality businesses at more attractive valuations.
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