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.

Benchmark
MSCI ACWI ex US
Inception
June 30, 2007
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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) 0.1%8.0%8.0%12.4%9.0%8.3%4.4%
Strategy (net) 0.0%7.6%7.6%12.0%8.6%7.9%4.0%
MSCI ACWI ex US 1.9%8.3%8.3%13.7%10.1%7.8%3.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 0.1%8.0%8.0%12.4%9.0%8.3%4.4%
Strategy (net) 0.0%7.6%7.6%12.0%8.6%7.9%4.0%
MSCI ACWI ex US 1.9%8.3%8.3%13.7%10.1%7.8%3.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 0.1%8.0%8.0%12.4%9.0%8.3%4.4%
Strategy (net) 0.0%7.6%7.6%12.0%8.6%7.9%4.0%
MSCI ACWI ex US 1.9%8.3%8.3%13.7%10.1%7.8%3.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 0.1%8.0%8.0%12.4%9.0%8.3%4.4%
Strategy (net) 0.0%7.6%7.6%12.0%8.6%7.9%4.0%
MSCI ACWI ex US 1.9%8.3%8.3%13.7%10.1%7.8%3.5%
Fund 20212020201920182017201620152014201320122011
Strategy (gross) 8.0%6.5%23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
Strategy (net) 7.6%6.1%22.9%-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
MSCI ACWI ex US 8.3%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
20212020201920182017201620152014201320122011
8.0%6.5%23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
7.6%6.1%22.9%-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
8.3%11.1%22.1%-13.8%27.8%5.0%-5.3%-3.4%15.8%17.4%-13.3%

Portfolio (as of December 31, 2021)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 98.2%
Cash 1.8%
Strategy Characteristics
Strategy Benchmark
No. of holdings 165 2338
Weighted avg. market cap (US $MM) $81,078 $77,637
FY2 price/earnings 10.5 13.8
Price/book value 1.5 1.9
Dividend yield (%) 2.8 2.5
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 3.3%
UniCredit S.p.A. Italy 3.0%
FANUC Corp. Japan 2.8%
TotalEnergies SE France 2.5%
Sanofi France 2.5%
Novartis AG Switzerland 2.4%
Amadeus IT Group SA Spain 2.4%
SAP SE Germany 2.4%
BP Plc United Kingdom 2.4%
Taiwan Semiconductor Manufacturing Co., Ltd. - ADR Taiwan 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 20.2% 19.2%
Industrials 16.4% 12.6%
Information Technology 14.1% 13.6%
Health Care 12.0% 9.4%
Energy 9.1% 4.8%
Consumer Discretionary 7.5% 12.1%
Consumer Staples 6.8% 8.6%
Materials 6.5% 8.1%
Utilities 3.6% 3.1%
Communication Services 2.1% 6.1%
Real Estate 0.0% 2.4%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 18.4% 9.3%
France 12.7% 7.5%
Germany 8.8% 5.6%
Switzerland 8.2% 6.7%
China 8.1% 9.4%
Japan 6.9% 14.3%
Spain 5.7% 1.4%
Taiwan 5.6% 4.7%
Italy 5.0% 1.6%
South Korea 4.4% 3.7%
Regional Allocation
  • Europe – other 62.3%
  • Emerging Asia 22.7%
  • Pacific 6.9%
  • Emerging Europe, Middle East, Africa 2.5%
  • Emerging Latin America 2.3%
  • North America 1.7%

Commentary (As of December 31, 2021)

Highlights

  • Global equities rallied in December, capping off the third consecutive calendar year of strong positive returns.
  • Concurrent with the easing of Covid-related restrictions, we anticipate the pressures from tangled supply chains and tight labor markets to lessen in 2022. As developed market central banks attempt to combat inflationary trends stoked by supply bottlenecks and massive amounts of stimulus, we await gradual increases in policy rates in most regions.
  • As borders reopen, we anticipate pent-up demand from consumers to translate into revenue recovery for companies in aerospace, aviation, travel, and leisure-related industries. In our view, some of the best positioned companies in these industries operate in oligopolies with management teams who have used the pandemic crisis to meaningfully cut costs. We expect this to result in high levels of profitability as revenues recover.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, software & services, pharmaceuticals & biotechnology, and automobiles & components industry groups, as well as an underweight position in the retailing industry group, contributed to performance relative to the Index. Holdings in the diversified financials, utilities, consumer durables & apparel, household & personal products, and food beverage & tobacco industry groups offset a portion of the outperformance. The top contributor to return was banking & financial services company, UniCredit S.p.A. (Italy). Additional top contributors included integrated oil & gas company, TotalEnergies SE (France), business software & services provider, SAP SE (Germany), pharmaceutical producer, Novartis AG (Switzerland), and robotics manufacturer, FANUC Corp. (Japan). The largest detractor from absolute performance was e-commerce company, JD.com Inc (China). Additional detractors included automobile & automotive products manufacturer, BYD Co (China), financial services firm, Sberbank Of Russia Pjsc (Russia), online services company, Tencent Holdings Ltd. (China), and biologics technology platform, Wuxi Biologics (Cayman), Inc. (China).

Investment outlook

With policymakers on track to tighten monetary conditions, we expect a compression of the highest valuation multiples for speculative growth stocks. The sobering effect on equity markets as liquidity is removed should favor a valuation-based investing approach. As borders reopen, we anticipate this pent-up demand from consumers to translate into revenue recovery for developed market companies in aerospace, aviation, travel, and leisure-related industries. In our view, some of the best positioned companies in these industries operate in oligopolies with management teams who have used the pandemic crisis to meaningfully cut costs. We expect this to result in high profitability as revenues return to pre-Covid era levels. Certain well-established laggards in the Chinese market may also provide competitive upside after a year of very poor performance. Fiscal and monetary stimulus in China may create a favorable climate for the, in our view, best-managed, best-capitalized Chinese companies with strong competitive moats. In all regions, we are most interested in those undergoing operational restructuring; from a fundamental perspective, we routinely push management teams to focus on self-help to improve free cash flow generation and reward shareholders. Longer term, we believe one of the most enduring investment themes over the next several years will be decarbonization and climate amelioration. We believe companies in traditionally carbon-intensive industries that demonstrate the wherewithal to transition their operations to low or zero greenhouse gas emissions, without sacrificing returns, stand to benefit most from increased investor attention. Finally, while we expect some normalization of interest rates, we continue to emphasize companies rewarding shareholders via dividends and share buybacks. Though government bond yields may increase from current levels, capital returned to shareholders via dividends and share buybacks remain the most certain portion of total return.

Within the EM portion of the Portfolio, EM sectors with the strongest earnings upgrades were energy, information technology, and financials. All three cyclical sectors reflect analyst optimism that global growth will continue to improve. Real estate, consumer discretionary, and communication services experienced the weakest net upgrades. While we incorporate growth expectations into our multi-factor investor process, we continue to emphasize valuation in our approach. The risk of economic shutdowns due to new Covid-19 variants remains a risk to value stocks; however, a rising rate environment should provide a tailwind for value if global growth remains steady. Offering substantial price discounts relative to history and attractive dividend yields, we believe EM value stocks provide compelling risk-adjusted return potential.

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].