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 July. Among our bottom-up factor groups, our valuation, quality, and corporate events factors posted the most positive monthly returns. Returns to our technical and sentiment factors were negative, although technical remains the best-performing factor group over the last twelve months. Returns to our macroeconomic and country aggregate factors were negative in July as countries exhibiting more attractive characteristics (such as Taiwan and Korea) underperformed those with relatively weaker characteristics (such as Australia and China). All factor groups remain positive on an inception-to-date basis.
From a sector perspective, Portfolio holdings in industrials, energy, and information technology contributed to relative performance. Holdings in communication services, along with an underweight position in financials and real estate, offset some of the outperformance compared to the Index. Performance for the month was primarily driven by stock selection. The top contributor to return was oil producer, Thai Oil Public Co. Ltd. (Thailand). Other notable contributors included conglomerate, GS Holdings Corp. (South Korea), and multi-media electronics holdings company, TCL Electronics Holdings Ltd.(China). The largest detractor was semiconductor company, Winbond Electronics Corp. (Taiwan). Additional notable detractors included electronic components manufacturer, LG Innotek Co., Ltd. (South Korea), and lithium battery producer, Simplo Technology Co., Ltd. (Taiwan).
Continued AI capital expenditure was a critical driver of strong EM performance during the second quarter and should remain an important factor going forward. With 2027 AI capital expenditure estimates near $1 trillion, investors will scrutinize the efficacy and sustainability of these levels of investment. Concerns about the spending levels have contributed to volatility in EM. Furthermore, leverage in the South Korean market, whether through margin lending or levered Exchange-Traded Funds, has exacerbated volatility. We remain overweight South Korean and Taiwanese stocks in the Portfolio as sentiment and momentum are positive, but we are closely monitoring the risks associated with massive AI capital expenditures.
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.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the consumer durables & apparel, technology hardware & equipment, and software & services industry groups contributed to relative performance. Holdings in the banks and transportation industry groups, along with an underweight position in the energy industry group, offset some of the outperformance relative to the Index. The top contributor to return was multinational luxury conglomerate, Kering SA (France). Other notable contributors included business software & services provider, SAP SE (Germany), and communication services provider, Deutsche Telekom AG (Germany). The largest detractor was semiconductor company, Renesas Electronics Corp. (Japan). Additional notable detractors included semiconductor company, Infineon Technologies AG (Germany), and pharmaceutical company, AstraZeneca PLC (United Kingdom).
Artificial intelligence continues to reshape the investment landscape, driving substantial capital spending on data centers, semiconductors, power infrastructure, and related technologies. As investor enthusiasm became increasingly concentrated in AI infrastructure companies, we trimmed select semiconductor positions whose share prices approached our targets and redeployed the proceeds into other areas of the global equity market, including capital goods, consumer durables, and media and entertainment, where we believe long-term earnings potential is not fully reflected in current valuations.
Geopolitical tensions—including ongoing conflicts in the Middle East and Ukraine, as well as strategic competition between the US and China—may weigh on valuation multiples in the near term. Amid elevated geopolitical risk, we remain focused on companies with durable competitive advantages and management teams we view as capable of navigating an increasingly complex operating environment.
Our investment process continues to emphasize bottom-up stock selection to identify businesses where operational improvements, disciplined capital allocation, and shareholder-oriented governance can unlock value not yet recognized by the market. We also seek companies that are successfully adopting AI to improve efficiency, strengthen competitive advantages, and and enhance long-term earnings power. Against a backdrop of higher interest rates, persistent inflation, and geopolitical risk, our valuation discipline and bottom-up research remain central to identifying long-term investment opportunities across global equity markets.
The Portfolio outperformed the Index during the month. Over the month, Portfolio holdings in the capital goods and materials industry groups, as well as an overweight position in the consumer durables & apparel industry group, contributed to relative performance. Holdings in the pharmaceuticals & biotechnology and consumer services industry groups, along with an underweight position in the energy industry group, offset some of the outperformance relative to the Index. The top contributor to return was multinational luxury conglomerate, Kering SA (France). Other notable contributors included business software & services provider, SAP SE (Germany), and communication services provider, Deutsche Telekom AG (Germany). The largest detractor was semiconductor company, SK hynix, Inc. (South Korea). Additional notable detractors included semiconductor company, Renesas Electronics Corp. (Japan), and electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea).
Artificial intelligence continues to reshape the investment landscape, driving substantial capital spending on data centers, semiconductors, power infrastructure, and related technologies. Continued AI capital expenditure was a critical driver of strong EM performance during the second quarter and should remain an important factor going forward. Concerns about the spending levels have contributed to volatility in EM. Furthermore, leverage in the South Korean market, whether through margin lending or levered Exchange-Traded Funds, has exacerbated volatility. We remain overweight South Korean and Taiwanese stocks in the Portfolio as we believe valuations are reasonable and sentiment is positive, but we are closely monitoring the risks associated with massive AI capital expenditures. In the developed markets portion of the portfolio, we believe the market’s narrow focus has also created attractive opportunities across other areas of the global equity market, including capital goods, consumer durables, and media and entertainment, where we do not believe long-term earnings potential is fully reflected in current valuations.
Geopolitical tensions—including ongoing conflicts in the Middle East and Ukraine, as well as strategic competition between the US and China—remain important factors affecting oil prices and the global economy. Falling oil prices provide a tailwind for emerging markets as net oil-importing countries comprise the largest portion of the EM equity markets. In developed markets, our investment process continues to emphasize bottom-up stock selection to identify businesses where operational improvements, disciplined capital allocation, and shareholder-oriented governance can unlock value not yet recognized by the market. We also seek companies that are successfully adopting AI to improve efficiency, strengthen competitive advantages, and enhance long-term earnings power.
The Portfolio underperformed the Index in July 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 negative indicators in July. Our valuation, competitive strength, and corporate events factors were positive indicators. Our top-down macroeconomic, currency, and country/sector aggregate factors were negative indicators during the month.
Over the month, stock selection in Taiwan and an overweight position in South Korea detracted from performance in the emerging Asia region. In the emerging Europe, Middle East, and Africa (“EMEA”) region, positioning in the United Arab Emirates detracted from relative performance. In emerging Latin America, an underweight position in Brazil detracted from relative performance. From a sector perspective, information technology, consumer discretionary, and consumer staples detracted from relative performance. Industrials, energy, and materials contributed to relative performance. The largest stock-level detractors from relative performance included overweight positions in semiconductor company, SK hynix, Inc. (South Korea), and circuit board manufacturer, Gold Circuit Electronics Ltd. (Taiwan), as well as active positioning in integrated circuit manufacturer, Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan). The greatest stock-level contributors to relative performance included an overweight position in bank, China Construction Bank Corp. (China), as well as underweight positions in electronic component manufacturer, Yageo Corp. (Taiwan), and semiconductor engineer, MediaTek, Inc. (Taiwan).
Continued AI capital expenditure was a critical driver of strong EM performance during the second quarter and should remain an important factor going forward. With 2027 AI capital expenditure estimates near $1 trillion, investors will scrutinize the efficacy and sustainability of these levels of investment. Concerns about the spending levels have contributed to volatility in EM. Furthermore, leverage in the South Korean market, whether through margin lending or levered Exchange-Traded Funds, has exacerbated volatility. We remain overweight South Korean and Taiwanese stocks in the Portfolio as we believe valuations are reasonable and sentiment is positive, but we are closely monitoring the risks associated with massive AI capital expenditures.
Geopolitical tensions—including ongoing conflicts in the Middle East and Ukraine, as well as strategic competition between the US and China—remain important factors affecting oil prices and the global economy. Falling oil prices provide a tailwind for emerging markets as net oil-importing countries comprise the largest portion of the EM equity markets. In the EMEA region, the Portfolio is overweight Turkish stocks due in part to bottom-up and top-down considerations. In late May, a Turkish court issued a judgment that effectively ousted the reformist leader of the main opposition party, the CHP, and reinstated his divisive predecessor, Kemal Kilicdaroglu. This move, along with others in recent years, effectively weakens the opposition party. Despite these developments, we maintain our overweight to Turkey as the central bank, in our view, continues to be disciplined, keeping short term rates comfortably above expected inflation.
The Portfolio outperformed the Index during the month, due primarily to country allocation (a byproduct of our bottom-up stock selection process). Portfolio holdings in the technology hardware & equipment and consumer durables & apparel industry groups, as well as an underweight position in the semiconductors & semi equipment industry group, contributed to relative performance. Holdings in the transportation industry group, along with an underweight position in the consumer discretionary distribution & retail and energy industry groups, offset some of the outperformance relative to the Index. The top contributor to return was multinational luxury conglomerate, Kering SA (France). Other notable contributors included business software & services provider, SAP SE (Germany), and industrial technology company, Hexagon AB (Sweden). The largest detractor was semiconductor company, Renesas Electronics Corp. (Japan). Additional notable detractors included semiconductor company, Infineon Technologies AG (Germany), and HVAC manufacturer, Carrier Global Corp. (United States).
Artificial intelligence continues to reshape the investment landscape, driving substantial capital spending on data centers, semiconductors, power infrastructure, and related technologies. As investor enthusiasm became increasingly concentrated in AI infrastructure companies, we trimmed select semiconductor positions whose share prices approached our targets and redeployed the proceeds into other areas of the global equity market, including capital goods, consumer durables, and media and entertainment, where we believe long-term earnings potential is not fully reflected in current valuations.
Geopolitical tensions—including ongoing conflicts in the Middle East and Ukraine, as well as strategic competition between the US and China—may weigh on valuation multiples in the near term. Amid elevated geopolitical risk, we remain focused on companies with durable competitive advantages and management teams we view as capable of navigating an increasingly complex operating environment.
Our investment process continues to emphasize bottom-up stock selection to identify businesses where operational improvements, disciplined capital allocation, and shareholder-oriented governance can unlock value not yet recognized by the market. We also seek companies that are successfully adopting AI to improve efficiency, strengthen competitive advantages, and enhance long-term earnings power. Against a backdrop of higher interest rates, persistent inflation, and geopolitical risk, our valuation discipline and bottom-up research remain central to identifying long-term investment opportunities across global equity markets.
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the technology hardware & equipment, consumer durables & apparel, and software & services industry groups contributed to relative performance. Holdings in the banks and transportation industry groups, along with an underweight position in the energy industry group, offset some of the outperformance relative to the Index. The top contributor to return was multinational luxury conglomerate, Kering SA (France). Other notable contributors included business software & services provider, SAP SE (Germany), and communication services provider, Deutsche Telekom AG (Germany). The largest detractor was semiconductor company, Renesas Electronics Corp. (Japan). Additional notable detractors included semiconductor company, Infineon Technologies AG (Germany), and pharmaceutical company, AstraZeneca PLC (United Kingdom).
Artificial intelligence continues to reshape the investment landscape, driving substantial capital spending on data centers, semiconductors, power infrastructure, and related technologies. As investor enthusiasm became increasingly concentrated in AI infrastructure companies, we trimmed select semiconductor positions whose share prices approached our targets and redeployed the proceeds into other areas of the global equity market, including capital goods, consumer durables, and media and entertainment, where we believe long-term earnings potential is not fully reflected in current valuations.
Geopolitical tensions—including ongoing conflicts in the Middle East and Ukraine, as well as strategic competition between the US and China—may weigh on valuation multiples in the near term. Amid elevated geopolitical risk, we remain focused on companies with durable competitive advantages and management teams we view as capable of navigating an increasingly complex operating environment.
Our investment process continues to emphasize bottom-up stock selection to identify businesses where operational improvements, disciplined capital allocation, and shareholder-oriented governance can unlock value not year recognized by the market. We also seek companies that are successfully adopting AI to improve efficiency, strengthen competitive advantages, and enhance long-term earnings power. Against a backdrop of higher interest rates, persistent inflation, and geopolitical risk, our valuation discipline and bottom-up research remain central to identifying long-term investment opportunities across global equity markets.
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