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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 % 1.7%10.4%11.4%5.9%2.6%4.8%
Net % 1.5%9.3%10.2%4.5%1.1%3.3%
BofAML 90 T Bill 0.4%1.7%1.8%1.0%0.6%0.4%

Portfolio

Position Details as of 30 Nov 2018

Cash 40,037,541
Market Value Long 62,903,388
Market Value Short -61,337,391
Net Positional Value 1,565,998
NAV 41,603,539
Net Exposure 3.76%
Leverage 2.99
Long Positions 99
Short Positions 113
Total 212

Characteristics as of 30 Nov 2018

Long Portfolio Short Portfolio MSCI World
No. of Exposures 99 113 1634
Wtd Avg Mkt Cap (Mn $US) $52,118 $15,541 $135,128
FY2 Price/Earnings 10.1 15.2 14.3
Price/Book Value 1.5 1.6 2.3
Return on Equity (%) 16.3 6.0 19.4

Sector Exposure as of 30 Nov 2018

Long Exposure (%)Short Exposure (%)Net Exposure (%)
Consumer Discretionary23.15-15.537.62
Industrials28.42-21.307.12
Health Care13.53-7.545.99
Energy5.77-1.144.63
Telecommunication Services9.53-6.922.61
Financials27.69-30.51-2.82
Materials12.63-15.63-3.00
Information Technology15.96-19.48-3.52
Consumer Staples1.41-6.14-4.73
Real Estate3.68-8.55-4.87
Utilities9.79-14.99-5.20

Country Exposure as of 30 Nov 2018

Long Exposure (%)Short Exposure (%)Net Exposure (%)
China15.88-8.367.52
Switzerland7.88-0.407.48
United Kingdom14.81-9.435.38
Canada10.05-4.835.22
Germany6.85-3.433.42
Netherlands1.580.001.58
New Zealand1.54-0.321.22
Sweden0.850.000.85
South Korea7.32-6.870.45
Belgium0.00-0.32-0.32
Singapore1.64-2.36-0.72
Denmark0.00-0.75-0.75
Portugal0.00-0.87-0.87
France2.24-3.29-1.05
United States63.69-64.92-1.23
Austria0.00-1.26-1.26
Italy0.00-1.40-1.40
Norway0.00-1.68-1.68
Spain0.00-2.72-2.72
Hong Kong1.38-4.76-3.38
Ireland0.00-4.18-4.18
Japan15.84-20.63-4.79
Australia0.00-4.95-4.95

TOP 10 Positions as of 30 Nov 2018

Top Ten Long PositionsTop Ten Short Positions
CompanyEnding Weight (%)CompanyEnding Weight (%)
Gildan Activewear3.22%Kansai Paint Co., Ltd.-3.47%
SK Telecom Co., Ltd.3.19%Healthcare Services Group, Inc.-3.31%
Eli Lilly & Co.3.14%Marsh & McLennan Cos., Inc.-3.24%
Advance Auto Parts, Inc.3.10%Healthcare Trust of America, Inc.-3.19%
Novartis AG3.10%Northland Power-3.06%
Park Hotels & Resorts, Inc.3.03%China Unicom (Hong Kong) Ltd.-3.00%
Linde Plc2.99%United Utilities Group Plc-2.95%
First Bancorp/Puerto Rico2.96%Willis Group Holdings-2.95%
FirstEnergy Corp.2.96%L Brands, Inc.-2.95%
The AES Corp.2.96%Samsung Heavy Industries Co., Ltd.-2.93%

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 30 Nov 2018


Causeway Global Absolute Return Composite underperformed the ICE BoAML 3-Month U.S. Treasury Bill Index in the month of November. The Composite’s underperformance was driven by both the long and short portfolios: The Composite’s long portfolio slightly underperformed the MSCI World Index (“World Index”), and the Composite’s short portfolio outperformed the World Index, also contributing negatively to overall performance.

Equity markets fluctuated in November as geopolitical events influenced market movements. The top performing markets in our investable universe included China, Hong Kong, Singapore, Israel, and New Zealand. The worst performing markets included Ireland, Norway, Finland, Austria, and Portugal. The best performing sectors in the World Index were generally economically-defensive or trade tariff immune sectors, led by health care, real estate, and telecommunication services. The worst performing sectors were energy, information technology, and materials.

The Composite 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 Composite, 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 November, value was the only quantitative alpha factor category to demonstrate predictive power. Stocks with cheap valuations outperformed those with expensive valuations. However, contrary to expectations, stocks with worsening earnings growth dynamics outperformed those with improving dynamics, stocks with negative technical indicators outperformed those with positive technical indicators, and stocks demonstrating lower earnings quality outperformed those with higher earnings quality.

Within the long portfolio, attribution effects were weakest in the materials, insurance, and banks industry groups. Long-side attribution effects were strongest in the technology hardware & equipment, consumer services, and consumer durables & apparel industry groups. Long exposures that detracted most from the Composite’s performance included metallurgical & thermal coal producer, Arch Coal, Inc. (United States), oil & natural gas producer, Encana (Canada), Takeda Pharmaceutical Co., Ltd. (Japan), property & casualty insurer, Sompo Holdings, Inc. (Japan), and telecommunication services provider, KDDI Corp. (Japan). Long exposures that contributed most to performance were motorsports entertainment provider, International Speedway Corp. (United States), automobile components retailer, Advance Auto Parts, Inc. (United States), apparel manufacturer, Gildan Activewear (Canada), pharmaceutical giant, Eli Lilly & Co. (United States), and wireless communications operator, SK Telecom Co., Ltd. (South Korea).

Within the short portfolio, attribution effects were weakest in the materials, technology hardware & equipment, and insurance industry groups. Short-side attribution effects were strongest in the capital goods, pharmaceuticals & biotechnology, and health care equipment & services industry groups. Short exposures that detracted most from the Composite’s performance included chemicals producer, Kansai Paint Co., Ltd. (Japan), healthcare housekeeping & food services provider, Healthcare Services Group, Inc. (United States), mobile telecommunications services provider, China Unicom (Hong Kong) Ltd. (China), automobile retailer, China Zhengtong Auto Services Holdings (China), and insurance provider, Willis Group Holdings (United Kingdom). Short exposures that contributed most to performance included aerospace & transportation company, Bombardier(Canada), integrated circuits manufacturer, ams AG (Austria), SiteOne Landscape Supply, Inc. (United States), medical device company, Nevro Corp. (United States), and luxury automobile & truck manufacturer, Daimler AG (Germany).*

*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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