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

QTD YTD 1 year3 years5 years Since inception
Strategy (gross) -19.5%-19.5%-26.7%-9.0%-4.4%-0.1%
Strategy (net) -19.8%-19.8%-27.5%-10.0%-5.6%-1.5%
ICE BoAML 3-Month US TBill 0.6%0.6%2.2%1.8%1.2%0.7%
QTD YTD 1 year3 years5 years Since inception
Strategy (gross) -19.5%-19.5%-26.7%-9.0%-4.4%-0.1%
Strategy (net) -19.8%-19.8%-27.5%-10.0%-5.6%-1.5%
ICE BoAML 3-Month US TBill 0.6%0.6%2.2%1.8%1.2%0.7%
QTD YTD 1 year3 years5 years Since inception
Strategy (gross) -19.5%-19.5%-26.7%-9.0%-4.4%-0.1%
Strategy (net) -19.8%-19.8%-27.5%-10.0%-5.6%-1.5%
ICE BoAML 3-Month US TBill 0.6%0.6%2.2%1.8%1.2%0.7%
QTD YTD 1 year3 years5 years Since inception
Strategy (gross) -19.5%-19.5%-26.7%-9.0%-4.4%-0.1%
Strategy (net) -19.8%-19.8%-27.5%-10.0%-5.6%-1.5%
ICE BoAML 3-Month US TBill 0.6%0.6%2.2%1.8%1.2%0.7%
Fund 20192018201720162015201420132012
Strategy (gross) -14.7%10.8%-6.5%13.1%-3.6%1.9%14.5%-1.9%
Strategy (net) -15.6%9.6%-7.8%11.4%-5.0%0.3%12.8%-3.5%
ICE BoAML 3-Month US TBill 2.3%1.9%0.9%0.3%0.0%0.0%0.1%0.1%
Strategy (gross)
Strategy (net)
ICE BoAML 3-Month US TBill
20192018201720162015201420132012
-14.7%10.8%-6.5%13.1%-3.6%1.9%14.5%-1.9%
-15.6%9.6%-7.8%11.4%-5.0%0.3%12.8%-3.5%
2.3%1.9%0.9%0.3%0.0%0.0%0.1%0.1%

Portfolio (as of February 29, 2020)

Benchmark: MSCI World
Position Details
Strategy
Cash 12,428,204
Market value (long) 17,559,005
Market value (short) -17,771,204
Net positional value -212,199
NAV 12,216,005
Strategy
Net exposure -1.74%
Leverage 2.89
Long positions 99
Short positions 115
Total 214
Strategy Charcterisics
Long portfolio Short portfolio Benchmark
No. of exposures 99 115 1643
Weighted avg. market cap (US $MM) $57,400 $11,699 $174,506
FY2 price/earnings 7.9 15.4 14.5
Price/book value 1.1 1.4 2.3
Return on equity (%) 18.8 2.9 19.7

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
Renewables Infrastructure Grou 2.95%
KDDI Corp. 2.94%
Yangzijiang Shipbuilding (Holdings) Ltd. 2.93%
CIBC 2.89%
British American Tobacco plc 2.87%
Takeda Pharmaceutical Co., Ltd. 2.85%
Roche Holding AG 2.84%
Oracle Corp. 2.82%
H&R Block, Inc. 2.81%
Samsung Electronics Co., Ltd. 2.81%
Top 10 Short Exposures
CompanyEnding weight
Virtu Financial, Inc. -3.40%
Deutsche Wohnen SE -3.00%
AusNet Services Ltd. -2.93%
The Travelers Cos., Inc. -2.84%
CoreSite Realty Corp. -2.83%
Houlihan Lokey, Inc. -2.81%
Keurig Dr Pepper, Inc. -2.76%
GAS Natural Sdg -2.75%
Bâloise Holding AG -2.74%
Daimler AG -2.73%
Sector Exposure
Sector Long exposure Short exposure Net exposure
Communication Services8.2%-3.2%5.03%
Industrials27.2%-23.2%3.99%
Materials10.4%-6.9%3.52%
Consumer Discretionary15.6%-13.5%2.10%
Energy7.4%-5.9%1.47%
Information Technology19.0%-18.5%0.48%
Utilities11.4%-12.9%-1.47%
Health Care10.4%-12.5%-2.14%
Real Estate7.2%-11.9%-4.76%
Consumer Staples3.3%-8.1%-4.82%
Financials23.9%-28.7%-4.86%
Country Exposure
Country Long exposure Short exposure Net exposure
China 14.4% -8.5% 5.91%
Switzerland 8.3% -3.6% 4.71%
Canada 10.0% -5.8% 4.22%
Japan 15.0% -11.4% 3.63%
Singapore 2.9% 0.0% 2.93%
Belgium 2.5% 0.0% 2.54%
New Zealand 2.5% 0.0% 2.53%
United Kingdom 10.9% -8.7% 2.25%
Austria 0.6% 0.0% 0.56%
South Korea 10.1% -9.7% 0.44%
Netherlands 0.4% 0.0% 0.40%
Sweden 0.0% 0.0% 0.00%
Israel 0.7% -0.8% -0.10%
Norway 0.0% -0.3% -0.29%
Italy 0.4% -0.7% -0.35%
Finland 0.0% -0.7% -0.66%
Spain 2.4% -3.6% -1.20%
Portugal 0.0% -1.2% -1.22%
Germany 4.8% -8.1% -3.26%
Denmark 0.0% -3.4% -3.39%
Hong Kong 0.0% -4.3% -4.29%
France 2.6% -7.2% -4.62%
Australia 2.9% -7.8% -4.84%
United States 52.4% -59.8% -7.36%
Regional Allocation
Long exposure Short exposure Net exposure
Pacific47.9%-41.6%6.3%
Europe - Other19.3%-16.0%3.3%
Developed Middle East0.7%-0.8%-0.1%
North America62.4%-65.6%-3.1%
Euro13.7%-21.5%-7.8%

Commentary (As of February 29, 2020)

Highlights

  • We expect the outbreak of the coronavirus to weigh on global gross domestic product (“GDP”) growth, with the greatest drag on China and South Korea, as well as already weak economies in Europe and Japan.
  • Monetary policymakers have already begun implementing supportive measures to ease the financial pain of a prolonged slowdown. A more direct response to counter the effects of the demand slowdown from coronavirus is fiscal stimulus. We believe the virus outbreak may act as a catalyst for European economies, in particular, to enact fiscal stimulus.
  • The recent market downdraft has presented Causeway with a rare opportunity to build exposures to high-quality companies in some of the industries most impacted by short-term fear, such as transportation, travel and leisure.

Portfolio attribution

Equities sold off during the month of February, as the increasing spread of the novel coronavirus appeared to spark investor worries about its impact on global economic growth. The top performing markets in our investable universe were China, Hong Kong, New Zealand, Denmark, and Sweden. The worst performing markets were Belgium, the United Kingdom, Norway, Australia, and Austria. The best performing sectors in the World Index were communication services, health care, and real estate. The worst performing sectors were the most cyclically exposed: energy, materials, and financials.

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 February, 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 our value and financials strength factors were negative. Stocks with cheap valuations underperformed those with expensive valuations and stocks demonstrating higher earnings quality underperformed those with lower earnings quality, in each case contrary to expectations.

Investment outlook

Panic can be one of the best times to invest fundamentally – especially with a value approach. From a fundamental research perspective, the recent market downdraft has presented Causeway with a rare opportunity to build exposures to high-quality companies in some of the industries most impacted by short-term fear, such as transportation, travel and leisure. Though we anticipate temporary earnings reductions for these hardest-hit stocks in the short-term, assets have not been impaired and we are confident in these companies’ management teams. Valuations are increasingly attractive given the precipitous stock price drops in recent weeks. Many multinational companies, as well as those operating entirely in their domestic markets, will likely continue to suffer supply chain delays and rising costs, largely from work disruption in China, Japan, South Korea, and parts of Europe. We believe, however, the earnings and cash flow setbacks will ultimately be temporary, and normalcy should return to supply chains and logistics as virus fears recede over time. Though the nature of the late February selloff broadly punished equities, we have seen the continued divergence between economically cyclical and defensive areas of the markets. In a demand slowdown, we believe stocks at the intersection of cash flow constraints and high debt levels will face larger challenges, which underscores our emphasis, from a fundamental research perspective, on portfolio companies exhibiting superior balance sheet strength. As we await clarity on the virus and its economic effects, the dividend income from our fundamentally managed portfolio holdings is even more attractive relative to sinking bond yields. If the coronavirus does not spark a prolonged period of demand destruction, we feel confident that these companies can maintain their dividends.

On an aggregate long/short portfolio basis, we are maintaining a near market-neutral posture, with -1.45% 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. On an aggregate basis, our largest net biases by sector are toward communication services and industrials, where we have significant positive net exposure, and against consumer staples and financials, where we have meaningful negative net exposure. By geography, we are net biased toward China and Switzerland, and biased against the United States and Australia. Gross exposure (leverage) for the Portfolio is 289% (2.89x) as of February 29, 2020.

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].