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 in USD
- Inception
- March 29, 2007
Portfolio managers
Joe Gubler, CFA
Mr. Gubler is a quantitative portfolio manager at Causeway. He joined the firm in 2005 and has been a portfolio manager since January 2014. In addition to managing quantitative portfolios and conducting alpha research, Mr. Gubler also leads the efforts to maintain and enhance Causeway’s proprietary risk models. He is also a member of the operating committee.
From 1999 to 2005, Mr. Gubler worked as a software engineer, with employers ranging from startups to established businesses such as Monster.com. From 1998 to 1999, Mr. Gubler worked as a staff scientist for News Corporation, conducting studies on the RF propagation of broadcast signals. While studying astrophysics at UC San Diego, Mr. Gubler worked as a graduate research assistant in the Jet Propulsion Laboratory's stellar interferometry group.
Mr. Gubler earned a BS, cum laude, in physics from UC Irvine, an MS in physics from UC San Diego, and an MBA from the UCLA Anderson Graduate School of Management. Mr. Gubler is a CFA charterholder.
Arjun Jayaraman, PhD, CFA
Quantitative Portfolio Manager
Dr. Jayaraman is a director, quantitative portfolio manager and head of the quantitative research at Causeway and has been with the firm since January 2006. Dr. Jayaraman’s responsibilities and research include stock selection, asset allocation, risk model development, and portfolio construction.
From 2004 to 2005, Dr. Jayaraman was a portfolio manager at PanAgora Asset Management. He was the lead portfolio manager on the non-U.S. large cap core equity portfolios and was the co-portfolio manager on the global large cap core equity portfolios. From 2000 to 2004, Dr. Jayaraman managed the same portfolios at Putnam Investments, in addition to working closely with the teams that managed Putnam's traditional non-U.S. strategies. From 1998 to 2000, Dr. Jayaraman worked as a quantitative analyst at Harborview Trading Associates.
Dr. Jayaraman earned a PhD from New York University at the Stern School of Business and a BA in economics from Columbia University. Dr. Jayaraman is a CFA charterholder.
MacDuff Kuhnert, CFA
Mr. Kuhnert is a director and a quantitative portfolio manager at Causeway and has been with the firm since its inception in June 2001. Mr. Kuhnert’s responsibilities and research include stock selection, asset allocation, risk model development, and portfolio construction.
From 1996 to 2001, Mr. Kuhnert worked for the international team of the Hotchkis & Wiley division of Merrill Lynch Investment Managers (HW-MLIM) as a quantitative research associate. During his tenure at HW-MLIM, Mr. Kuhnert created and developed advanced quantitative models used in the international value investment process. He also helped develop the team’s first equity risk model.
Mr. Kuhnert earned a BA in chemistry from Dartmouth College. He is a CFA charterholder, a member of the CFA Society of Los Angeles, and a member of the Chicago Quantitative Alliance.
Ryan Myers
Mr. Myers is a quantitative portfolio manager at Causeway. He joined the firm in June 2013 and has been a portfolio manager since January 2021. His responsibilities include alpha research, stock selection, and portfolio construction.
From 2010 to 2012, Mr. Myers served as chief investment officer of Iron Castle Asset Management, an investment partnership focused on mid-cap U.S. equities. From 2007 to 2008, Mr. Myers worked as an analyst at Canyon Partners, where he covered the cable, media, telecom and satellite sectors. From 2005 to 2007, Mr. Myers was an associate for Oaktree Capital Management in the distressed opportunities group. Mr. Myers began his professional career in 2003 as an investment banking analyst at Goldman Sachs in the technology, media and telecom group.
Mr. Myers earned a BA, magna cum laude, in economics from Harvard University, where he was elected to Phi Beta Kappa. He earned an MBA from the Stanford Graduate School of Business, where he was an Arjay Miller Scholar. Mr. Myers currently serves on the Board of Trustees of the Yosemite Conservancy, an organization dedicated to supporting projects and programs that preserve Yosemite National Park and enrich the visitor experience.
Performance
Account returns for the Causeway Emerging Markets Composite (“Emerging Markets Composite”) are calculated daily. Monthly account returns are calculated by geometrically linking the daily returns. The return of the Emerging Markets Composite is calculated monthly by weighting monthly account returns by the beginning market values. Valuations and returns are computed and stated in US dollars. Returns include the reinvestment of interest, dividends and any capital gains. Returns are calculated gross of withholding taxes on dividends, interest income, and capital gains. Past performance is no guarantee of future performance. Gross-of-fees returns are presented before management, performance and custody fees but after trading expenses. Net-of-fees returns are presented after the deduction of actual management fees, performance-based fees, and all trading expenses, but before custody fees. Causeway’s basic management fee schedules are described in its firm brochure pursuant to Part 2 of Form ADV. A complete list and description of firm composites is available upon request. This information supplements the composite presentation at Composite Performance. Investing involves risk including loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Diversification does not prevent all investment losses.
Portfolio (as of June 30, 2024)
Asset Allocation
| Strategy | |
|---|---|
| Stocks | 98.5% |
| Cash | 1.5% |
Strategy Characteristics
| Strategy | Benchmark | |
|---|---|---|
| No. of holdings | 186 | 1330 |
| Weighted avg. market cap (US $MM) | $115,578 | $117,127 |
| NTM price/earnings | 8.6 | 12.3 |
| Price/book value | 1.3 | 1.8 |
| Dividend yield (%) | 3.1 | 2.5 |
| NTM EPS revision (wtd. avg) | 23.9 | 14.9 |
TOP 10 HOLDINGS
| Security | Country | Active weight* |
|---|---|---|
| Kia Corp. | South Korea | 1.8% |
| China Construction Bank Corp. | China | 1.8% |
| REC Ltd. | India | 1.5% |
| Hon Hai Precision Industry Co., Ltd. | Taiwan | 1.4% |
| Cosco Shipping Holdings Co | China | 1.2% |
| Banco do Brasil SA | Brazil | 1.0% |
| Shriram Finance Ltd. | India | 1.0% |
| Asia Vital Components Co., Ltd. | Taiwan | 0.9% |
| Varun Beverages Ltd. | India | 0.9% |
| Aurobindo Pharma Ltd. | India | 0.9% |
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 |
|---|---|---|
| Information Technology | 26.1% | 25.1% |
| Financials | 16.2% | 21.9% |
| Consumer Discretionary | 14.7% | 12.3% |
| Industrials | 13.6% | 6.9% |
| Communication Services | 10.0% | 8.9% |
| Energy | 5.9% | 5.2% |
| Materials | 3.0% | 6.9% |
| Utilities | 2.9% | 3.0% |
| Health Care | 2.9% | 3.2% |
| Consumer Staples | 2.4% | 5.2% |
| Real Estate | 0.7% | 1.5% |
TOP 10 COUNTRIES
| Country | Strategy | Benchmark |
|---|---|---|
| China | 25.4% | 25.1% |
| Taiwan | 22.1% | 19.4% |
| India | 20.5% | 19.2% |
| South Korea | 16.7% | 12.2% |
| Brazil | 4.7% | 4.2% |
| Turkey | 3.0% | 0.8% |
| Saudi Arabia | 1.1% | 3.9% |
| United Arab Emirates | 1.0% | 1.1% |
| Indonesia | 0.9% | 1.6% |
| Poland | 0.8% | 1.0% |
Regional Allocation
- Emerging Asia 86.9%
- Emerging Europe, Middle East, Africa 6.2%
- Emerging Latin America 5.3%
Commentary (As of June 30, 2024)
Highlights
Portfolio Attribution
The Portfolio outperformed the Index in June 2024. 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 technical (price momentum), growth, competitive strength, and corporate events factors were positive indicators in June. Valuation was a negative indicator during the month. Our top-down currency factor was a positive indicator while country/sector aggregate and macroeconomic were negative indicators in June.
Quarterly Investment Outlook
The Indian general election concluded in June with the Narendra Modi-led Bharatiya Janata party (“BJP”) losing its standalone majority in the lower house. However, the party retained a majority as part of the National Democratic Alliance. While this result initially disappointed the market, Indian stocks rebounded as the BJP indicated that it would remain committed to investing in infrastructure and instituting reforms. Moreover, Prime Minister Modi’s cabinet appointments were largely holdovers from his last cabinet, allaying concerns that the alliance partners were exerting significant influence over these appointments. We remain confident in our India exposure due to valuation support—the portfolio’s Indian stocks currently trade at significant price-to-earnings discounts versus the MSCI India Index. In South Africa, elections appear to be progressing in a business-friendly manner. The African National Congress formed a government of national unity with center-leaning parties. While we believe the new government is well-positioned to address the country’s economic challenges – low growth, fiscal deficits, and poor infrastructure – it remains to be seen if the leaders will be able to implement effective policies in these areas. South Africa was the largest country underweight in the Portfolio as of quarter-end due to valuation and top-down considerations. We continue to monitor South Africa’s economic environment.
After appearing less attractive for much of 2023, earnings growth upgrades for EM equities are currently more attractive than those in ex-US developed markets. Within EM, growth upgrades appear attractive in Taiwan and South Korea. In contrast, the growth outlook for Mexican and Brazilian stocks has slumped. Economic growth rates in these countries have been falling and the US Federal Reserve’s hawkishness has prevented them from more aggressively lowering their domestic interest rates to spur growth. Within EM more broadly, we continue to identify, in our view, attractive investment opportunities in small cap companies. Historically, our investment process has uncovered EM small cap stocks with alpha potential. The Portfolio's allocation to small cap stocks remains near the high end of the historical range.
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 [email protected].