Our full alpha-generating capabilities, seeking lower volatility and low or no equity market correlation

Causeway's Global Absolute Return (GAR) strategy is designed for clients who want returns while seeking lower volatility than the MSCI World Index and low equity market correlation with the MSCI World Index. 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.

Benchmark
ICE BoAML 3-Month US TBill
Inception
February 28, 2011

Strategy overview

The portfolio managers discuss our Global Absolute Return strategy.

Portfolio managers

Chief Executive Officer
Fundamental Portfolio Manager
President
Head of Fundamental Research
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Head of Quantitative Research
Quantitative Portfolio Manager
Quantitative Portfolio Manager
Quantitative Portfolio Manager

Performance

QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-1.9%-13.4%-5.9%-0.7%0.2%2.7%
Strategy (net)-2.0%-14.0%-7.0%-2.0%-1.2%1.3%
ICE BoAML 3-Month US TBill0.2%1.4%2.3%1.4%0.9%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-1.9%-13.4%-5.9%-0.7%0.2%2.7%
Strategy (net)-2.0%-14.0%-7.0%-2.0%-1.2%1.3%
ICE BoAML 3-Month US TBill0.2%1.4%2.3%1.4%0.9%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-5.7%-11.8%-1.0%-0.2%0.4%3.0%
Strategy (net)-6.0%-12.2%-2.1%-1.4%-0.9%1.5%
ICE BoAML 3-Month US TBill0.6%1.2%2.3%1.4%0.9%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-5.7%-11.8%-1.0%-0.2%0.4%3.0%
Strategy (net)-6.0%-12.2%-2.1%-1.4%-0.9%1.5%
ICE BoAML 3-Month US TBill0.6%1.2%2.3%1.4%0.9%0.6%
Fund2018201720162015201420132012
Strategy (gross)10.8%-6.5%13.1%-3.6%1.9%14.5%-1.9%
Strategy (net)10.8%-6.5%13.2%-3.6%1.7%14.3%-1.8%
ICE BoAML 3-Month US TBill9.0%-8.2%11.2%-5.2%0.1%12.5%-3.7%
Strategy (gross)
Strategy (net)
ICE BoAML 3-Month US TBill
2018201720162015201420132012
10.8%-6.5%13.1%-3.6%1.9%14.5%-1.9%
10.8%-6.5%13.2%-3.6%1.7%14.3%-1.8%
9.0%-8.2%11.2%-5.2%0.1%12.5%-3.7%

Portfolio (as of July 31, 2019)

Benchmark: MSCI World
Position Details
Strategy
Cash42,890,486
Market value (long)64,557,933
Market value (short)-66,048,983
Net positional value-1,491,050
NAV41,399,436
Strategy
Net exposure-3.60%
Leverage3.15
Long positions 91
Short positions 125
Total216
Strategy Charcterisics
Long portfolioShort portfolioBenchmark
No. of exposures 91 125 1651
Weighted avg. market cap (US $MM)$54,536$11,101$152,962
FY2 price/earnings9.916.415.1
Price/book value1.41.72.5
Return on equity (%)17.67.119.4

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. The FY2 P/E ratio is a forward P/E ratio using a next-twenty-four months EPS estimate in the denominator. Return on equity is calculated by taking a year's worth of earnings and dividing them by the average shareholder equity for that year.

Holdings are subject to change.

Top 10 Long Exposures
CompanyEnding weight
Genworth Mi Canada3.33%
Zimmer Biomet Holdings, Inc.3.29%
Brixmor Property Group, Inc.3.21%
Novartis AG3.15%
Sabre Corp.3.11%
FirstEnergy Corp.3.07%
Alaska Air Group, Inc.3.07%
Gildan Activewear3.04%
H&R Block, Inc.3.04%
Citigroup, Inc.3.03%
Top 10 Short Exposures
CompanyEnding weight
SiteOne Landscape Supply, Inc.-3.29%
Kansai Paint Co., Ltd.-3.19%
Aqua America, Inc.-3.10%
Premium Brands Holdings-3.10%
Cellnex Telecom SA-3.10%
Beazley Plc-3.07%
Markel Corp.-3.06%
Électricité de France SA-3.06%
Daimler AG-3.05%
Bayerische Motoren Werke AG-3.04%
Sector Exposure
SectorLong exposureShort exposureNet exposure
Health Care12.1%-7.1%5.00%
Energy9.5%-5.7%3.80%
Consumer Discretionary16.9%-13.3%3.60%
Communication Services12.5%-9.1%3.40%
Information Technology16.6%-13.5%3.10%
Industrials22.6%-22.8%-0.20%
Materials12.0%-12.2%-0.20%
Real Estate7.4%-12.3%-4.90%
Utilities10.3%-15.4%-5.10%
Consumer Staples4.6%-9.8%-5.20%
Financials31.7%-38.2%-6.50%
Country Exposure
CountryLong exposureShort exposureNet exposure
China8.3%-2.7%5.60%
Canada13.6%-8.2%5.40%
Switzerland7.9%-2.8%5.10%
United Kingdom14.6%-9.7%4.90%
Netherlands3.0%0.0%3.00%
Sweden2.6%0.0%2.60%
New Zealand1.5%-0.3%1.20%
Austria1.0%0.0%1.00%
Italy0.6%0.0%0.60%
South Korea9.9%-9.6%0.30%
Japan19.1%-19.6%-0.50%
Germany5.4%-6.5%-1.10%
United States61.4%-63.7%-2.30%
Portugal0.0%-2.5%-2.50%
Norway0.0%-2.5%-2.50%
Belgium0.0%-2.5%-2.50%
France2.9%-5.9%-3.00%
Spain0.0%-3.8%-3.80%
Singapore1.5%-5.8%-4.30%
Hong Kong0.0%-5.2%-5.20%
Australia2.8%-8.1%-5.30%
Regional Allocation
Long exposureShort exposureNet exposure
Europe - Other25.1%-15.1%11.5%
North America75.0%-71.9%2.5%
Pacific43.1%-51.3%-5.1%
Euro12.9%-21.2%-9.5%

Commentary (As of June 30, 2019)

Highlights

  • Bolstered by central bank dovishness, developed equity markets rallied in June and furthered year-to-date gains.

Portfolio attribution

The Portfolio outperformed the ICE BofAML US 3-Month Treasury Bill Index in the month of June. The Portfolio's outperformance was driven by the short portfolio: although the Portfolio's long portfolio underperformed the MSCI World Index (“World Index”), the Portfolio's short portfolio underperformed the World Index by a larger margin, contributing positively to overall portfolio return.

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 June, all quantitative alpha factor categories demonstrated predictive power. Stocks with cheap valuations outperformed those with expensive valuations, stocks with improving earnings growth dynamics outperformed those with worsening dynamics, stocks with positive technical indicators outperformed those with negative technical indicators, and stocks demonstrating higher earnings quality outperformed those with lower earnings quality.

Investment outlook

The 2019 G20 summit struck a tone of geopolitical fragmentation as major relationships worldwide shift and nationalistic sentiment increases. Though we do not believe globalization will reverse, global equity markets appear to disagree with us. Economically defensive stocks have generally reached, in our view, extreme valuation highs, and economically sensitive cyclical stocks have lagged. The decline in bond yields in major economies globally has also dampened investor enthusiasm for cyclicality, and favored long duration growth stocks. When the price of money (aka borrowing) falls to such low levels, investors typically get more desperate to buy growth at increasingly higher valuations. Can central banks, especially the Fed, prolong the post-2008 economic expansion by ultra-accommodative monetary policy? And if they cannot, how deep a recession would the US and other economies endure? Our fundamental research, which is an input for the long portfolio, focuses on companies with managements implementing operational improvements that translate to greater efficiency and expansion potential. We believe this operational “self-help” should deliver an improvement in earnings and free cash flow growth.

On an aggregate long/short portfolio basis, we are maintaining a near market-neutral posture, with -0.23% net exposure overall (long exposures minus absolute value of short exposures). Consistent with our goal of delivering low equity market sensitivity, we target a zero expected beta to the World Index.[1] On an aggregate basis, our largest net biases by sector are toward health care and energy, where we have significant positive net exposure, and against real estate and utilities, where we have meaningful negative net exposure. By geography, we are net biased toward China and Switzerland, and biased against Hong Kong and Australia. Gross exposure (leverage) for the Portfolio is 327% (3.27x) as of June 30, 2019.

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.