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Global Absolute Return

Strategy Profile

Causeway's Global Absolute Return (GAR) strategy is designed for investors who want equity-like returns with lower volatility and low equity market correlation. The strategy invests in global developed markets equities and may invest in emerging markets, using swap agreements or direct investments to obtain long and short exposures to equity securities.

Inception Date28 Feb 2011
Benchmark BofA ML 3M US TBill

Performance

Fund Quarter to Date Year to Date 1 Year3 Year5 Year Since Inception
Gross % -6.4%-6.4%4.4%2.4%1.2%3.8%
Net % -6.7%-6.7%3.2%1.1%-0.2%2.3%
ICE BoAML 3-Month US TBill 0.6%0.6%2.1%1.2%0.7%0.5%

Portfolio

Position Details as of 31 Mar 2019

Cash 47,048,228
Market Value Long 77,499,761
Market Value Short -77,339,258
Net Positional Value 160,503
NAV 47,208,731
Net Exposure 0.34%
Leverage 3.28
Long Positions 106
Short Positions 122
Total 228

Characteristics as of 31 Mar 2019

Long Portfolio Short Portfolio MSCI World
No. of Exposures 106 122 1635
Wtd Avg Mkt Cap (Mn $US) $47,583 $12,302 $139,678
FY2 Price/Earnings 9.6 15.0 14.4
Price/Book Value 1.4 1.7 2.4
Return on Equity (%) 15.8 5.6 19.2

Sector Exposure as of 31 Mar 2019

Long Exposure (%)Short Exposure (%)Net Exposure (%)
Industrials29.51-22.726.79
Health Care11.94-5.736.21
Energy8.71-3.605.11
Information Technology16.12-11.194.93
Materials16.32-16.240.08
Consumer Discretionary16.87-16.98-0.11
Communication Services13.18-14.70-1.52
Utilities10.81-15.46-4.65
Consumer Staples4.29-9.43-5.14
Real Estate3.65-9.15-5.50
Financials32.97-38.48-5.51

Country Exposure as of 31 Mar 2019

Long Exposure (%)Short Exposure (%)Net Exposure (%)
China19.33-9.439.90
Canada13.76-8.954.81
United Kingdom13.86-10.023.84
Netherlands2.890.002.89
Switzerland7.11-5.042.07
South Korea7.73-5.712.02
Germany4.69-3.401.29
New Zealand1.24-0.300.94
Sweden0.750.000.75
France2.89-2.340.55
Belgium0.00-0.30-0.30
Denmark0.00-0.72-0.72
Singapore1.40-2.53-1.13
Italy0.00-1.39-1.39
United States64.22-65.71-1.49
Portugal0.00-2.29-2.29
Japan20.34-23.12-2.78
Hong Kong0.00-4.28-4.28
Norway0.00-4.52-4.52
Spain0.00-4.73-4.73
Australia4.16-8.91-4.75

TOP 10 Positions as of 31 Mar 2019

Top Ten Long PositionsTop Ten Short Positions
CompanyEnding Weight (%)CompanyEnding Weight (%)
Sinotruk Hong Kong Ltd.3.45%Carvana Co.-3.68%
Coca-Cola Amatil Ltd.3.23%Snap, Inc.-3.32%
FirstEnergy Corp.3.13%Cellnex Telecom SA-3.26%
Oracle Corp.3.11%Kansai Paint Co., Ltd.-3.11%
Gildan Activewear3.08%Premium Brands Holdings-3.10%
H&R Block, Inc.3.07%Aqua America, Inc.-3.08%
Showa Denko K.K.3.03%Dentsply Sirona, Inc.-3.08%
Takeda Pharmaceutical Co., Ltd.3.02%China Unicom (Hong Kong) Ltd.-3.08%
Manulife Financial3.02%Bâloise Holding AG-3.08%
BHP Group Plc3.01%American International Group, Inc.-3.03%

Holdings are subject to change. Weights are notional exposures over net assets.

Approach

Causeway's Global Absolute Return (GAR) strategy is designed for investors who want equity-like returns with lower volatility and low equity market correlation. The strategy invests in global developed markets equities and may invest in emerging markets, using swap agreements or direct investments to obtain long and short exposures to equity securities.

Causeway integrates fundamental and quantitative research to manage the long exposures and its quantitative investment strategy to manage the short exposures. Both the long and short portfolios seek to add alpha (return in excess of index), which is amplified by leverage up to 4x, with a target of 3x.

The GAR Portfolio's net long/short notional exposure will generally not exceed plus or minus 10% of net assets. However, the long portfolio and the short portfolio will each have different exposures under swap agreements that will not be fully hedged. Unrealized gains or losses through swap agreements are also constrained, limiting counterparty risk.

The GAR portfolio typically has 60-120 long exposures and 60-140 short exposures.

Commentary

PERFORMANCE REVIEW for the month ended 31 Mar 2019


The Portfolio underperformed the ICE BofAML US 3-Month Treasury Bill Index in the month of March. The Portfolio's underperformance was driven by the long portfolio: the Portfolio's long portfolio underperformed the MSCI World Index (“World Index”). The Portfolio's short portfolio contributed positively to overall performance by underperforming the World Index, though by a smaller margin than the long portfolio.

Increasingly dovish rhetoric from the US Federal Reserve (“Fed”) and the European Central Bank (“ECB”) and progress on US-China trade negotiations supported equity markets in March. The top performing markets in our investable universe were New Zealand, Denmark, Belgium, Switzerland, and China. The worst performing markets were South Korea, Austria, Norway, Spain, and Germany. The best performing sectors in the World Index were real estate, consumer staples, and information technology. The worst performing sectors were financials, industrials, and health care.

The Portfolio takes long and short notional exposures to securities under swap agreements. We use a combination of fundamental and quantitative inputs to select exposures for the long portfolio of the Portfolio, while we use primarily quantitative inputs to select exposures for the short portfolio. Our fundamental inputs reflect the risk-adjusted total return potential of stocks favored by our fundamental research team. Our quantitative inputs include signals that seek long (short) positions in stocks which we believe are undervalued (overvalued) and have improving (deteriorating) earnings growth dynamics, positive (negative) technical price movements, and superior (inferior) quality of earnings. During the month of March, our growth and technical factor categories demonstrated predictive power. Stocks with improving earnings growth dynamics outperformed those with worsening dynamics, and stocks with positive technical indicators outperformed those with negative technical indicators. However, returns to value were negative as stocks with cheap valuations underperformed those with expensive valuations, contrary to expectations. Stocks demonstrating higher earnings quality performed in line with those having lower earnings quality.

Within the long portfolio, attribution effects were weakest in the technology hardware & equipment, materials, and banks industry groups. Long-side attribution effects were strongest in the capital goods, automobiles & components, and pharmaceuticals & biotechnology industry groups. Long exposures that detracted most from the Portfolio's performance were optical fiber manufacturer, Yangtze Optical Fibre & Cable Joint Stock (China), furniture manufacturer, Steelcase, Inc. (United Inc.States), mortgage insurance provider, Genworth MI Canada (Canada), passenger & cargo airline, Alaska Air Group, Inc. (United States), and telecommunication services provider, KDDI Corp. (Japan). Long exposures that contributed most to performance were heavy truck manufacturer, Sinotruk Hong Kong Ltd. (China), beverage producer, Coca-Cola Amati Ltd. (Australia), pharmaceutical & consumer healthcare products producer, Novartis AG (Switzerland), diversified mining company, BHP Group Plc (United Kingdom), and business software & services provider, SAP SE (Germany).

Within the short portfolio, attribution effects were strongest in the software & services, semiconductors & semi equipment, and capital goods industry groups. Short-side attribution effects were weakest in the telecommunication services, health care equipment & services, and retailing industry groups. Short exposures that contributed most to performance were sensor producer, ams AG (Germany), shipbuilder, Samsung Heavy Industries Co., Ltd. (South Korea), healthcare housekeeping & food services provider, Healthcare Services Group, Inc. (United States), green energy supplier, GCL-Poly Energy Holdings Ltd. (China), and insurance provider, Beazley Plc (United Kingdom). Short exposures that detracted most from the Portfolio's performance included online car dealer, Carvana Co. (United States), wireless telecommunications operator, Cellnex Telecom SA (Spain), chemicals manufacturer, Hitachi Chemical Co., Ltd. (Japan), dental equipment maker, Dentsply Sirona, Inc. (United States), and technology & camera company, Snap, Inc. (United States).*

*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.

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