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)-3.2%-17.6%-19.9%-4.0%-1.2%2.1%
Strategy (net)-3.3%-18.4%-20.8%-5.2%-2.4%0.6%
ICE BoAML 3-Month US TBill0.2%2.0%2.4%1.6%1.0%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-3.2%-17.6%-19.9%-4.0%-1.2%2.1%
Strategy (net)-3.3%-18.4%-20.8%-5.2%-2.4%0.6%
ICE BoAML 3-Month US TBill0.2%2.0%2.4%1.6%1.0%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-3.6%-14.9%-13.2%-2.2%-0.8%2.5%
Strategy (net)-3.8%-15.6%-14.1%-3.4%-2.1%1.0%
ICE BoAML 3-Month US TBill0.6%1.8%2.4%1.5%1.0%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-3.6%-14.9%-13.2%-2.2%-0.8%2.5%
Strategy (net)-3.8%-15.6%-14.1%-3.4%-2.1%1.0%
ICE BoAML 3-Month US TBill0.6%1.8%2.4%1.5%1.0%0.6%
Fund2018201720162015201420132012
Strategy (gross)10.8%-6.5%13.1%-3.6%1.9%14.5%-1.9%
Strategy (net)9.6%-7.8%11.4%-5.0%0.3%12.8%-3.5%
ICE BoAML 3-Month US TBill1.9%0.9%0.3%0.0%0.0%0.1%0.1%
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%
9.6%-7.8%11.4%-5.0%0.3%12.8%-3.5%
1.9%0.9%0.3%0.0%0.0%0.1%0.1%

Portfolio (as of October 31, 2019)

Benchmark: MSCI World
Position Details
Strategy
Cash38,279,923
Market value (long)62,881,763
Market value (short)-63,544,934
Net positional value-663,171
NAV37,616,751
Strategy
Net exposure-1.76%
Leverage3.36
Long positions 92
Short positions 123
Total215
Strategy Charcterisics
Long portfolioShort portfolioBenchmark
No. of exposures 92 123 1651
Weighted avg. market cap (US $MM)$53,112$9,386$161,009
FY2 price/earnings10.016.615.7
Price/book value1.41.62.5
Return on equity (%)18.76.919.6

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
Koninklijke VolkerWessels NV3.87%
Tokuyama Corp.3.53%
Daily Mail & General Trust Plc3.43%
BNP Paribas SA3.42%
Showa Denko K.K.3.40%
SSE Plc3.35%
Brixmor Property Group, Inc.3.34%
Alaska Air Group, Inc.3.32%
Takeda Pharmaceutical Co., Ltd.3.32%
Manulife Financial3.28%
Top 10 Short Exposures
CompanyEnding weight
Daimler AG-3.61%
Umicore-3.35%
Bayerische Motoren Werke AG-3.34%
Houlihan Lokey, Inc.-3.31%
The Kraft Heinz Co.-3.29%
SiteOne Landscape Supply, Inc.-3.23%
GAS Natural Sdg-3.22%
ICU Medical, Inc.-3.22%
AusNet Services Ltd.-3.21%
Bâloise Holding AG-3.19%
Sector Exposure
SectorLong exposureShort exposureNet exposure
Communication Services12.9%-6.3%6.62%
Information Technology21.6%-16.3%5.39%
Industrials29.0%-24.0%5.02%
Materials15.9%-12.1%3.79%
Energy8.5%-6.7%1.85%
Consumer Discretionary13.2%-15.8%-2.61%
Health Care9.6%-12.9%-3.28%
Financials29.2%-33.1%-3.94%
Real Estate12.3%-16.3%-4.05%
Consumer Staples4.9%-10.1%-5.18%
Utilities10.2%-15.4%-5.22%
Country Exposure
CountryLong exposureShort exposureNet exposure
China7.9%-1.6%6.25%
Netherlands5.2%0.0%5.17%
Switzerland8.6%-3.5%5.11%
Japan23.9%-19.5%4.35%
Sweden3.1%0.0%3.13%
Italy3.1%0.0%3.13%
Canada10.7%-7.7%2.99%
New Zealand1.8%-0.3%1.47%
Austria1.2%0.0%1.18%
South Korea11.0%-10.6%0.37%
Israel0.0%-0.6%-0.62%
Belgium2.7%-3.3%-0.64%
United Kingdom15.4%-16.1%-0.71%
Australia3.9%-5.8%-1.90%
Singapore1.1%-3.1%-1.95%
Portugal0.0%-2.4%-2.37%
France3.4%-5.9%-2.49%
Norway0.0%-3.6%-3.60%
Spain0.0%-4.0%-3.99%
United States59.9%-65.1%-5.12%
Hong Kong0.0%-5.4%-5.44%
Germany4.4%-10.3%-5.89%
Regional Allocation
Long exposureShort exposureNet exposure
Europe - Other27.1%-23.2%3.9%
Pacific49.6%-46.5%3.1%
Developed Middle East0.0%-0.6%-0.6%
North America70.6%-72.7%-2.1%
Euro20.0%-25.9%-5.9%

Commentary (As of September 30, 2019)

Highlights

  • After contracting in July and August, developed equity markets rebounded in September, likely responding to a significant move upward in global bond yields. In September, momentum-driven “quality-growth” stocks ceded market leadership to stocks with strong value and cyclicality characteristics.
  • With low-to-no cost of financing, governments in Europe and elsewhere may decide to amplify fiscal spending. Without fiscal intervention, a vicious cycle of nil return in savings forces aging European and Japanese populations to save even more, adding to demand for fixed income, and pushing interest rates lower.
  • Stock markets have a history of discounting future events long before they occur. We suggest that most cyclical stocks priced in a recession by the end of August and are now moving upward on the hint of fiscal spending and recovery.

Portfolio attribution

The Portfolio outperformed the ICE BofAML US 3-Month Treasury Bill Index in the month of September. The Portfolio's outperformance was driven by the long portfolio: the Portfolio's long portfolio outperformed the MSCI World Index (“World Index”). The Portfolio's short portfolio also outperformed the World Index, though by a smaller margin, contributing negatively to overall performance.

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 September, our value and financial strength factor categories demonstrated predictive power. Stocks with cheap valuations outperformed those with expensive valuations and stocks demonstrating higher earnings quality outperformed those having lower earnings quality. However, returns to our growth and technical factors were negative as stocks with improving earnings growth dynamics underperformed those with worsening dynamics, and stocks with positive technical indicators underperformed those with negative technical indicators, in each case contrary to expectations.

Investment outlook

We believe that fundamentals do prevail over the long-term…it is just very difficult to know when the market will turn. September witnessed a chain reaction of cheap stocks, often in cyclical industries, attracting bargain hunting – which, in turn, attracted more buying. Stock markets have a history of discounting future events long before they occur. We suggest that most cyclical stocks priced in a recession by the end of August and are now moving upward on the hint of fiscal spending and recovery. As part of our fundamental research process, our team has intensified efforts to get managements to commit to specific plans to improve earnings and returns on capital. We are holding company managements’ collective “feet to the fire,” measuring their progress and holding them accountable to their operational restructuring plans.

On an aggregate long/short portfolio basis, we are maintaining a near market-neutral posture, with 0.87% 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 communications services and health care, 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 Canada, and biased against the United States and Australia. Gross exposure (leverage) for the Portfolio is 318% (3.18x) as of September 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.