Diversified exposure to emerging markets, capturing value and growth

The Emerging Markets strategy invests primarily in common stocks of emerging markets companies. The strategy combines value and growth, and bottom-up and top-down factors. Our quantitative stock selection process is focused on attractively valued companies with superior earnings prospects and positive market sentiment; these companies should produce consistent returns across investment cycles. We use the same approach to select sectors and countries, comparing valuation against earnings growth and market sentiment. At the country level, we also consider the health of the macro-economy. Our quantitative process seeks to combine these factors while attempting to avoid undue sources of risk, which for this strategy we define as tracking error (a measurement of dispersion from a benchmark index).

Benchmark
MSCI Emerging Markets
Inception
March 29, 2007

Strategy overview

The portfolio managers discuss our Emerging Markets Equity strategy.

Portfolio managers

Head of Quantitative Research
Quantitative Portfolio Manager
Quantitative Portfolio Manager
Quantitative Portfolio Manager

Performance

QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)-2.0%7.5%-4.9%7.9%2.1%7.1%4.7%
Strategy (net)-2.1%7.0%-5.8%6.9%1.2%6.1%3.7%
MSCI Emerging Markets-1.1%9.5%-1.8%8.8%2.2%4.9%3.3%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)-2.0%7.5%-4.9%7.9%2.1%7.1%4.7%
Strategy (net)-2.1%7.0%-5.8%6.9%1.2%6.1%3.7%
MSCI Emerging Markets-1.1%9.5%-1.8%8.8%2.2%4.9%3.3%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)0.8%9.7%-0.6%10.4%2.7%8.6%4.9%
Strategy (net)0.5%9.2%-1.5%9.4%1.8%7.5%3.9%
MSCI Emerging Markets0.7%10.8%1.6%11.1%2.9%6.2%3.5%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)0.8%9.7%-0.6%10.4%2.7%8.6%4.9%
Strategy (net)0.5%9.2%-1.5%9.4%1.8%7.5%3.9%
MSCI Emerging Markets0.7%10.8%1.6%11.1%2.9%6.2%3.5%
Fund20182017201620152014201320122011201020092008
Strategy (gross)-16.9%41.4%10.5%-15.0%3.4%-1.2%27.5%-17.0%28.0%90.5%-57.8%
Strategy (net)-16.9%41.4%10.5%-15.0%3.4%-1.3%6.6%-14.6%34.5%119.0%-54.3%
MSCI Emerging Markets-17.9%39.8%9.2%-16.0%2.1%-2.6%25.8%-18.1%26.3%88.1%-58.4%
Strategy (gross)
Strategy (net)
MSCI Emerging Markets
20182017201620152014201320122011201020092008
-16.9%41.4%10.5%-15.0%3.4%-1.2%27.5%-17.0%28.0%90.5%-57.8%
-16.9%41.4%10.5%-15.0%3.4%-1.3%6.6%-14.6%34.5%119.0%-54.3%
-17.9%39.8%9.2%-16.0%2.1%-2.6%25.8%-18.1%26.3%88.1%-58.4%

Portfolio (as of July 31, 2019)

Benchmark: MSCI Emerging Markets
Asset Allocation
Strategy
Stocks97.1%
Cash2.9%
Strategy Characteristics
StrategyBenchmark
No. of holdings 139 1192
Weighted avg. market cap (US $MM)$62,120$53,928
NTM price/earnings9.311.9
Price/book value1.31.6
Dividend yield (%)3.62.8
NTM EPS revision (wtd. avg)-0.9-8.1
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
Tencent Holdings Ltd.China1.9%
China Construction Bank Corp.China1.8%
Investimentos ItauBrazil1.6%
Samsung Electronics Co., Ltd.South Korea1.2%
Gazprom PJSCRussia1.2%
JBS SABrazil1.1%
LukoilRussia1.1%
Ping An Insurance (Group) Co. of China Ltd.China1.0%
Banco do Brasil SABrazil1.0%
SberbankRussia1.0%

A "weighted average” measures a characteristic by the market capitalization of each stock. Price/book ratio is the weighted average of the price/book ratios of all the stocks in a portfolio. The P/B ratio of a company is calculated by dividing the market price of its stock by the company’s per-share book value. The price/earnings ratio is the weighted average of the price/earnings ratios of the stocks in a portfolio. “Earnings-per-share” is the portion of a company’s profit allocated to each outstanding share of common stock. “Earnings-per-share year-over-year estimate growth (next 12 months)” is the average next-twelve-month earnings-per-share estimate from one year ago for an individual company compared with that estimate today; note that this calculation is done on a company by company basis and is aggregated through a weighted average based on the individual company’s weight in the corresponding index. Also note that this characteristic is supplied directly by MSCI.

*Active defined as Portfolio weight minus MSCI EM Index weight. Holdings are subject to change.

SECTOR WEIGHTS
Sector Strategy Benchmark
Financials24.3%24.8%
Information Technology15.8%14.3%
Communication Services12.8%11.9%
Consumer Discretionary9.9%13.6%
Energy9.8%7.8%
Industrials5.6%5.3%
Materials5.5%7.2%
Consumer Staples5.4%6.7%
Real Estate2.5%3.0%
Equity Funds2.4%0.0%
Health Care2.0%2.6%
Utilities1.2%2.8%
TOP 10 COUNTRIES
Country Strategy Benchmark
China34.2%31.8%
South Korea13.6%11.8%
Taiwan10.1%11.2%
India9.8%8.6%
Brazil8.9%8.0%
Russia6.9%4.0%
Thailand3.3%3.0%
Mexico1.9%2.5%
South Africa1.6%5.8%
Indonesia1.2%2.2%
Regional Allocation
  • Emerging Asia 73.0%
  • Emerging Europe, Middle East, Africa 12.2%
  • Emerging Latin America 11.6%
  • Multi Region Emerging (ETF) 0.2%

Commentary (As of June 30, 2019)

Highlights

  • Buoyed by optimism surrounding US-China trade relations and a dovish US Federal Reserve, emerging market (“EM”) equities rebounded in June.

Portfolio attribution

The Portfolio modestly outperformed the Index in June 2019. We use both bottom-up and top-down factor categories to seek to forecast alpha for the stocks in the Portfolio's investable universe. Our price momentum factor was the top performing bottom-up category in June, continuing its resurgence. Our earnings growth factor, which is correlated with momentum, was also a positive indicator during the month. Our value factor category rebounded in June, posting a modestly positive return. Led by our country factor, our four top-down factor categories were all positive indicators in June.

Investment outlook

Our price momentum factor continued its resurgence in June and was our strongest performing factor in the second quarter. Heightened uncertainty in financial markets contributed to momentum’s underperformance in prior quarters. While uncertainty remains elevated, we believe that momentum’s recent strong performance is primarily attributable to compelling valuations as the momentum factor had, in our view, become oversold. In addition to momentum, all of our bottom-up and top-down factors added value in June. However, our contextual weighting scheme detracted from performance during the month. When calculating a stock’s expected alpha, we first classify it as value, growth, or momentum and then assign weights that we believe are appropriate for that classification. This contextual approach underperformed a uniform approach in June and has also detracted over the year-to-date period. However, we remain confident in our contextual approach, which has benefitted the strategy compared to an equal-weighted approach since the Portfolio's inception in 2007.

The market commentary expresses the portfolio managers’ views as of the date of this report and should not be relied on as research or investment advice regarding any stock. These views and the portfolio holdings and characteristics are subject to change. There is no guarantee that any forecasts made will come to pass. The securities identified and described above do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. Past performance does not guarantee future results. For a description of our performance attribution methodology, or to obtain a list showing every holding's contribution to the overall account's performance during the quarter, please contact our product manager, Kevin Moutes, at 310-231-6116 or moutes@causewaycap.com.