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
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Strategy overview

The portfolio managers discuss our Emerging Markets Equity strategy.

Portfolio managers

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

Performance

QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.4%10.9%25.3%-1.3%5.4%4.9%5.1%
Strategy (net) 2.4%10.5%24.2%-2.2%4.5%3.9%4.1%
MSCI Emerging Markets 0.5%2.9%10.3%-5.3%2.3%3.3%3.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.4%10.9%25.3%-1.3%5.4%4.9%5.1%
Strategy (net) 2.4%10.5%24.2%-2.2%4.5%3.9%4.1%
MSCI Emerging Markets 0.5%2.9%10.3%-5.3%2.3%3.3%3.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 8.2%8.2%22.6%-1.5%5.2%4.7%5.0%
Strategy (net) 8.0%8.0%21.5%-2.3%4.3%3.8%4.0%
MSCI Emerging Markets 2.4%2.4%8.6%-4.7%2.6%3.3%3.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 8.2%8.2%22.6%-1.5%5.2%4.7%5.0%
Strategy (net) 8.0%8.0%21.5%-2.3%4.3%3.8%4.0%
MSCI Emerging Markets 2.4%2.4%8.6%-4.7%2.6%3.3%3.2%
Fund 2023202220212020201920182017201620152014201320122011201020092008
Strategy (gross) 19.1%-21.8%-0.3%18.1%18.1%-16.8%41.1%10.5%-15.1%3.4%-1.3%27.5%-17.0%28.0%90.5%-57.8%
Strategy (net) 18.1%-22.5%-1.2%17.1%17.1%-17.5%39.8%9.4%-16.0%2.4%-2.3%26.2%-17.9%26.7%88.7%-58.2%
MSCI Emerging Markets 10.3%-19.7%-2.2%18.7%18.9%-14.2%37.8%11.6%-14.6%-1.8%-2.3%18.6%-18.2%19.2%79.0%-53.2%
Strategy (gross)
Strategy (net)
MSCI Emerging Markets
2023202220212020201920182017201620152014201320122011201020092008
19.1%-21.8%-0.3%18.1%18.1%-16.8%41.1%10.5%-15.1%3.4%-1.3%27.5%-17.0%28.0%90.5%-57.8%
18.1%-22.5%-1.2%17.1%17.1%-17.5%39.8%9.4%-16.0%2.4%-2.3%26.2%-17.9%26.7%88.7%-58.2%
10.3%-19.7%-2.2%18.7%18.9%-14.2%37.8%11.6%-14.6%-1.8%-2.3%18.6%-18.2%19.2%79.0%-53.2%

Portfolio (as of April 30, 2024)

Benchmark: MSCI Emerging Markets
Asset Allocation
Strategy
Stocks 98.5%
Cash 1.5%
Strategy Characteristics
Strategy Benchmark
No. of holdings 193 1375
Weighted avg. market cap (US $MM) $84,229 $92,682
NTM price/earnings 8.4 12.1
Price/book value 1.3 1.7
Dividend yield (%) 4.0 2.7
NTM EPS revision (wtd. avg) 15.8 5.6
TOP 10 HOLDINGS
Security Country Active weight*
Kia Corp. South Korea 1.7%
China Construction Bank Corp. China 1.7%
Banco do Brasil SA Brazil 1.6%
Agricultural Bank Of China China 1.3%
REC Ltd. India 1.3%
Petróleo Brasileiro SA Brazil 1.3%
PetroChina Co., Ltd. China 1.2%
Hon Hai Precision Industry Co., Ltd. Taiwan 1.1%
Koç Holding A.S. Turkey 1.1%
Shriram Finance 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 22.7% 22.7%
Financials 17.8% 22.3%
Consumer Discretionary 13.8% 12.9%
Industrials 13.1% 7.0%
Communication Services 10.4% 9.1%
Energy 7.7% 5.4%
Health Care 4.0% 3.4%
Materials 2.7% 7.3%
Utilities 2.6% 2.9%
Consumer Staples 2.5% 5.5%
Real Estate 1.2% 1.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
China 27.4% 26.7%
India 21.0% 18.1%
Taiwan 20.2% 17.2%
South Korea 13.1% 12.0%
Brazil 7.2% 5.0%
Turkey 3.1% 0.8%
Saudi Arabia 1.9% 4.1%
United Arab Emirates 1.1% 1.2%
Indonesia 0.9% 1.7%
Mexico 0.8% 2.6%
Regional Allocation
  • Emerging Asia 83.9%
  • Emerging Latin America 8.2%
  • Emerging Europe, Middle East, Africa 6.4%

Commentary (As of April 30, 2024)

Highlights

  • Led by the emerging Asia region, emerging markets equities outperformed developed markets in April.
  • The South Korean government has introduced its Corporate Value-Up program with the goal of increasing valuations for companies trading significantly below book value. However, given the voluntary nature of the program, we believe the long-term efficacy of the initiative remains questionable. While the Portfolio was overweight in South Korean stocks at quarter-end, we have been reducing exposure due in part to valuation considerations.
  • Within EM, 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 was near the high end of the historical range at quarter-end.

Portfolio Attribution

The Portfolio outperformed the Index in April 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*. Earlier this year, we added a new bottom-up factor, corporate events, to our model. The corporate events factor was a positive indicator in April. Our valuation, competitive strength, and growth factors were also positive indicators during the month. Our technical (price momentum) factor was a negative indicator. Our top-down country/sector aggregate and currency factors were positive indicators, while macroeconomic was negative in April.

Quarterly Investment Outlook

The South Korean government has introduced its Corporate Value-Up program with the goal of increasing valuations for companies trading significantly below book value. However, given the voluntary nature of the program, we believe the long-term efficacy of the initiative remains questionable. While the Portfolio was overweight in South Korean stocks at quarter-end, we have been reducing exposure due in part to valuation considerations. In Turkey, the central bank hiked its target interest rate by 500 basis points in March, signaling its commitment to reigning in inflation. This action helped to allay concerns that President Recep Erdogan would interfere with the central bank’s price stability objective in order to spur slowing growth. The Portfolio was overweight Turkish stocks at quarter-end as compelling bottom-up characteristics more than offset the country’s challenging, but improving, top-down headwinds.

The Portfolio was also overweight Indian stocks at quarter-end, reflecting attractive bottom-up and top-down characteristics in the country. The Portfolio's overweight to Indian small caps has contributed to relative performance over the trailing 12-months ended March 31st, attributable in part to optimism leading into the upcoming general election. 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 was near the high end of the historical range at quarter-end.

*The Causeway Emerging Markets strategy uses quantitative factors that can be grouped into eight categories: valuation, growth, technical indicators, competitive strength, macroeconomic, corporate events, country/sector aggregate, and currency. The return attributed to a factor is the difference between the equally-weighted average return of the highest ranked quintile of companies in the strategy’s emerging markets universe based on that factor and that of the lowest ranked quintile of companies. “Alpha” means performance exceeding the benchmark index.

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].