Combining our time-tested abilities in developed and emerging international markets

The Causeway International Opportunities strategy is a blend of Causeway’s best skills, combining our international value (bottom-up, fundamental, developed international markets, excluding the US) and emerging markets (quantitatively managed with a targeted tracking error of 5%) equity strategies. Tracking error is a measurement of dispersion from a benchmark index. Our quantitative research team developed a proprietary multi-factor model that measures the relative attractiveness of emerging markets, and guides the portfolio managers in tactically allocating between the developed and emerging portfolio segments.

Strategy overview

The portfolio managers discuss our International Opportunities strategy.

Portfolio managers

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

Performance

QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 6.7%6.7%62.7%5.6%9.9%6.3%4.6%
Strategy (net) 6.6%6.6%62.1%5.2%9.5%5.9%4.2%
MSCI ACWI ex US 3.6%3.6%50.0%7.0%10.3%5.4%3.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 6.7%6.7%62.7%5.6%9.9%6.3%4.6%
Strategy (net) 6.6%6.6%62.1%5.2%9.5%5.9%4.2%
MSCI ACWI ex US 3.6%3.6%50.0%7.0%10.3%5.4%3.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 6.7%6.7%62.7%5.6%9.9%6.3%4.6%
Strategy (net) 6.6%6.6%62.1%5.2%9.5%5.9%4.2%
MSCI ACWI ex US 3.6%3.6%50.0%7.0%10.3%5.4%3.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 6.7%6.7%62.7%5.6%9.9%6.3%4.6%
Strategy (net) 6.6%6.6%62.1%5.2%9.5%5.9%4.2%
MSCI ACWI ex US 3.6%3.6%50.0%7.0%10.3%5.4%3.4%
Fund 2020201920182017201620152014201320122011
Strategy (gross) 6.5%23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
Strategy (net) 6.1%22.9%-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
MSCI ACWI ex US 11.1%22.1%-13.8%27.8%5.0%-5.3%-3.4%15.8%17.4%-13.3%
Strategy (gross)
Strategy (net)
MSCI ACWI ex US
2020201920182017201620152014201320122011
6.5%23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
6.1%22.9%-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
11.1%22.1%-13.8%27.8%5.0%-5.3%-3.4%15.8%17.4%-13.3%

Portfolio (as of February 28, 2021)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 98.8%
Cash 1.2%
Strategy Characteristics
Strategy Benchmark
No. of holdings 159 2343
Weighted avg. market cap (US $MM) $92,801 $84,008
FY2 price/earnings 11.8 14.9
Price/book value 1.5 1.9
Dividend yield (%) 2.5 2.2
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 3.1%
Rolls-Royce Holdings Plc United Kingdom 2.8%
Tencent Holdings Ltd. China 2.5%
Taiwan Semiconductor Manufacturing Co., Ltd. - ADR Taiwan 2.4%
UniCredit S.p.A. Italy 2.3%
BASF SE Germany 2.3%
Total France 2.3%
Samsung Electronics Co., Ltd. South Korea 2.1%
Siemens AG Germany 2.1%
ING Groep NV Netherlands 2.1%

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.

Holdings are subject to change.

SECTOR WEIGHTS
Sector Strategy Benchmark
Financials 21.2% 18.6%
Industrials 16.5% 11.5%
Information Technology 14.6% 13.0%
Consumer Discretionary 11.6% 14.0%
Health Care 8.9% 9.0%
Materials 6.9% 8.3%
Consumer Staples 6.5% 8.2%
Energy 5.3% 4.5%
Communication Services 4.1% 7.3%
Utilities 2.7% 3.1%
Real Estate 0.6% 2.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
France 12.8% 6.9%
Germany 12.3% 5.8%
China 12.0% 12.4%
United Kingdom 11.8% 8.9%
Switzerland 8.5% 5.7%
Japan 6.9% 15.6%
Spain 5.7% 1.5%
South Korea 5.5% 4.2%
Taiwan 5.2% 4.3%
Italy 3.6% 1.5%
Regional Allocation
  • Europe – other 59.4%
  • Emerging Asia 26.8%
  • Pacific 6.9%
  • Emerging Europe, Middle East, Africa 2.2%
  • Emerging Latin America 2.1%
  • North America 1.4%

Commentary (As of February 28, 2021)

Highlights

  • Worldwide, new Covid-19 infections dropped in February and with the vaccination rollout gathering pace, optimism for an eventual end to the pandemic drove equity markets higher.
  • Bond yields rose as market participants price in higher future growth and inflation expectations. With the lagged effect of sizable global monetary and fiscal spending, this upward pressure on long-term bond yields will likely persist.
  • We focus our fundamental research efforts on well-managed companies that have utilized this crisis to their advantage by removing significant amounts of fixed costs within operating expenses. As revenues recover, we anticipate many of these companies will achieve historically high operating margins, and this should translate into higher growth rates in earnings and cash flows.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, transportation, capital goods, retailing, and food beverage & tobacco industry groups contributed to relative performance. Holdings in the utilities and technology hardware & equipment industry groups, along with an overweight position in the pharmaceuticals & biotechnology industry group and an underweight position in the consumer durables & apparel and telecommunication services industry groups, offset some of the outperformance compared to the Index. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included financial services provider, ING Groep NV (Netherlands), automobile manufacturer, Volkswagen AG (Germany), bank, Banco Bilbao Vizcaya Argentaria SA (Spain), and airline, AIR Canada (Canada). The largest detractor was electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan). Additional notable detractors included electric utility provider, RWE AG (Germany), Takeda Pharmaceutical Co., Ltd. (Japan), pharmaceutical producer, Novartis AG (Switzerland), and robotics manufacturer, FANUC Corp. (Japan).

Investment outlook

The emphasis we have placed on high-quality developed market cyclical stocks continued to be beneficial in February. The reopening of economies globally will likely be supported, on a multi-year basis, by the greatest amount of government spending incurred since WWII. Rising bond yields should further support undervalued stocks in lieu of long-duration stocks with modest or negligible current cash flows. We focus our fundamental research efforts on well-managed companies that have utilized this crisis to their advantage by removing significant amounts of fixed costs within operating expenses. In our view, these improvements in efficiency will lead to a permanently lower cost base and thereby, improved operating leverage. As revenues recover, we anticipate many of these companies will achieve historically high operating margins, and this should translate into higher growth rates in earnings and cash flows. In particular, we expect companies experiencing the biggest drags on revenues from the pandemic—such as air travel and travel or hotel booking software—to transition from loss-making to generating substantial free cash flows. As the global population becomes vaccinated, this should stoke demand for travel and hospitality. In addition, we anticipate a resumption in dividends and share buybacks from many of our developed market portfolio companies as free cash flow rises, an important component of total return.

In the emerging markets (“EM”) portion of the Portfolio, earnings growth prospects are positive for many companies as growth upgrades exceeded downgrades in most sectors over the past three months. The materials, information technology, and financials sectors experienced the strongest net upgrades. Growth upgrades for these cyclically oriented sectors reflect analysts’ optimism that economic activity will continue to normalize.

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].