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

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 years10 years Since inception
Strategy (gross) -5.1%-5.1%8.5%6.9%4.3%6.9%3.5%
Strategy (net) -5.2%-5.2%8.1%6.5%3.9%6.5%3.1%
MSCI ACWI ex US -2.7%-2.7%10.5%8.1%5.5%5.7%2.3%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -5.1%-5.1%8.5%6.9%4.3%6.9%3.5%
Strategy (net) -5.2%-5.2%8.1%6.5%3.9%6.5%3.1%
MSCI ACWI ex US -2.7%-2.7%10.5%8.1%5.5%5.7%2.3%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 12.0%23.4%23.4%10.1%5.5%7.0%3.9%
Strategy (net) 11.9%23.0%23.0%9.7%5.1%6.6%3.6%
MSCI ACWI ex US 9.0%22.1%22.1%10.4%6.0%5.4%2.6%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 12.0%23.4%23.4%10.1%5.5%7.0%3.9%
Strategy (net) 11.9%23.0%23.0%9.7%5.1%6.6%3.6%
MSCI ACWI ex US 9.0%22.1%22.1%10.4%6.0%5.4%2.6%
Fund 201920182017201620152014201320122011
Strategy (gross) 23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
Strategy (net) 23.0%-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
MSCI ACWI ex US 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
201920182017201620152014201320122011
23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
23.0%-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
22.1%-13.8%27.8%5.0%-5.3%-3.4%15.8%17.4%-13.3%

Portfolio (as of January 31, 2020)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 99.2%
Cash 0.8%
Strategy Characteristics
Strategy Benchmark
No. of holdings 198 2408
Weighted avg. market cap (US $MM) $66,083 $60,572
FY2 price/earnings 10.5 13.5
Price/book value 1.3 1.7
Dividend yield (%) 3.8 3.1
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 3.7%
BASF SE Germany 3.0%
Takeda Pharmaceutical Co., Ltd. Japan 3.0%
UniCredit S.p.A. Italy 2.9%
FANUC Corp. Japan 2.6%
British American Tobacco plc United Kingdom 2.6%
ABB Ltd. Switzerland 2.4%
Siemens AG Germany 2.4%
Barclays Plc United Kingdom 2.2%
Rolls-Royce Holdings Plc United Kingdom 2.2%

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 20.8% 21.1%
Industrials 17.5% 12.0%
Health Care 10.2% 9.2%
Information Technology 9.3% 9.5%
Materials 9.0% 7.2%
Consumer Discretionary 8.7% 11.6%
Energy 8.3% 6.2%
Consumer Staples 7.4% 9.6%
Communication Services 5.4% 6.7%
Utilities 1.9% 3.6%
Real Estate 0.7% 3.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 21.8% 10.7%
Germany 16.7% 5.7%
Japan 10.6% 16.4%
China 9.5% 9.2%
Switzerland 7.0% 6.4%
France 6.2% 7.4%
Taiwan 4.1% 3.2%
South Korea 3.7% 3.1%
Brazil 2.9% 2.0%
Italy 2.9% 1.5%
Regional Allocation
  • Europe – other 59.2%
  • Emerging Asia 20.6%
  • Pacific 10.6%
  • North America 2.3%
  • Emerging Latin America 3.5%
  • Emerging Europe, Middle East, Africa 3.1%

Commentary (As of January 31, 2020)

Highlights

  • After delivering impressive returns in calendar 2019, equity markets faltered in January in local currency terms, as concerns over the coronavirus outbreak may have weighed on investor optimism.
  • In China, key infrastructure and travel were shut down in an attempt to slow the spread of the coronavirus, which will likely be a near-term drag on Chinese (and global) economic growth. Chinese authorities will likely enact additional targeted stimulus in response to the outbreak.
  • Our fundamental research seeks to identify well-managed companies with strong balance sheets, with company leaders committed to improving earnings. As we wait for these companies to emerge from operational setbacks and reignite growth, they typically generate sufficient cash flow to reward shareholders via dividends and share buybacks.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Holdings in the energy, banks, materials, automobiles & components, and software & services industry groups detracted from performance compared to the Index. Portfolio holdings in the food beverage & tobacco, consumer services, telecommunication services, food & staples retailing, and media & entertainment industry groups contributed to relative performance. The largest detractor was oil exploration & production company, Ovintiv (Canada). Additional notable detractors included automobile manufacturer, Volkswagen AG (Germany), diversified chemicals manufacturer, BASF SE (Germany), banking & financial services company, UniCredit S.p.A. (Italy), and energy supermajor, Royal Dutch Shell Plc (United Kingdom). The top contributor to return was utilities provider, SSE Plc (United Kingdom). Other notable contributors included British American Tobacco plc (United Kingdom), pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland), print & publishing company, RELX PLC (United Kingdom), and payment terminal provider, Ingenico Group SA (France).

Investment outlook

In the prevailing global interest rate environment with the opportunity cost of owning long duration growth stocks low to negative, investors have continued to bid up expensive stocks to even higher valuations. Should these seemingly speculative, currently high valuation stocks fail to live up to their elevated expectations, we anticipate that the stable cash flows of economically sensitive, yet financially robust, companies would attract investor attention. Our fundamental research seeks to identify well-managed companies with strong balance sheets, with company leaders committed to improving earnings. As we wait for these companies to emerge from operational setbacks and reignite growth, they typically generate sufficient cash flow to reward shareholders via dividends and share buybacks. In the current low interest rate environment, we find the income from these undervalued stocks especially compelling as a major component of total return.

The external shock caused by the coronavirus outbreak impacted emerging markets (“EM”) value stocks. In January, the MSCI Emerging Markets Value Index underperformed the MSCI Emerging Markets Growth Index by 4.1%. Our value factor also underperformed during the month. Value stocks tend to underperform in “risk-off” environments so we would not expect a rebound in value stock performance until there is more clarity on the coronavirus situation. However, given EM growth stocks are trading at a historically large premium to value stocks, we believe that value stocks could rally when there is more clarity around the outbreak.

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].