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) -30.1%-30.1%-22.1%-5.1%-2.5%3.0%1.0%
Strategy (net) -30.1%-30.1%-22.4%-5.4%-2.9%2.6%0.6%
MSCI ACWI ex US -23.3%-23.3%-15.1%-1.5%-0.2%2.5%0.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -30.1%-30.1%-22.1%-5.1%-2.5%3.0%1.0%
Strategy (net) -30.1%-30.1%-22.4%-5.4%-2.9%2.6%0.6%
MSCI ACWI ex US -23.3%-23.3%-15.1%-1.5%-0.2%2.5%0.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -30.1%-30.1%-22.1%-5.1%-2.5%3.0%1.0%
Strategy (net) -30.1%-30.1%-22.4%-5.4%-2.9%2.6%0.6%
MSCI ACWI ex US -23.3%-23.3%-15.1%-1.5%-0.2%2.5%0.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -30.1%-30.1%-22.1%-5.1%-2.5%3.0%1.0%
Strategy (net) -30.1%-30.1%-22.4%-5.4%-2.9%2.6%0.6%
MSCI ACWI ex US -23.3%-23.3%-15.1%-1.5%-0.2%2.5%0.4%
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 February 29, 2020)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 99.9%
Cash 0.1%
Strategy Characteristics
Strategy Benchmark
No. of holdings 200 2407
Weighted avg. market cap (US $MM) $62,074 $58,216
FY2 price/earnings 9.4 12.3
Price/book value 1.2 1.5
Dividend yield (%) 4.2 3.3
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 3.7%
BASF SE Germany 2.9%
Takeda Pharmaceutical Co., Ltd. Japan 2.9%
UniCredit S.p.A. Italy 2.7%
FANUC Corp. Japan 2.6%
ABB Ltd. Switzerland 2.5%
British American Tobacco plc United Kingdom 2.5%
Novartis AG Switzerland 2.3%
Siemens AG Germany 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 21.0% 21.2%
Industrials 17.3% 11.8%
Information Technology 10.3% 9.8%
Health Care 10.1% 9.2%
Consumer Discretionary 9.3% 11.7%
Materials 8.9% 7.0%
Energy 7.7% 5.9%
Consumer Staples 7.6% 9.5%
Communication Services 5.1% 7.0%
Utilities 1.8% 3.7%
Real Estate 0.8% 3.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 20.1% 10.2%
Germany 16.8% 5.6%
China 10.8% 10.1%
Japan 10.2% 16.1%
Switzerland 7.5% 6.4%
France 6.3% 7.4%
Taiwan 4.2% 3.4%
South Korea 3.9% 3.2%
Brazil 2.8% 1.9%
Italy 2.7% 1.6%
Regional Allocation
  • Europe – other 59.3%
  • Emerging Asia 22.3%
  • Pacific 10.2%
  • Emerging Latin America 3.3%
  • Emerging Europe, Middle East, Africa 2.9%
  • North America 1.9%

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 positions in high-quality companies in some of the industries most impacted by short-term fear, such as transportation, travel and leisure. We believe our overweight position in cyclical stocks relative to broad benchmarks positions our client portfolios for an eventual recovery in demand for the goods and services from some of the world’s, in our view, best-managed companies with strong balance sheets able to withstand the temporary slowdown.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Holdings in the energy, transportation, pharmaceuticals & biotechnology, capital goods, and banks industry groups detracted from performance compared to the Index. Portfolio holdings in the food & staples retailing, media & entertainment, household & personal products, and retailing industry groups, as well as an underweight position in the consumer durables & apparel industry group, contributed to relative performance. The largest detractor was diversified chemicals manufacturer, BASF SE (Germany). Additional notable detractors included automobile manufacturer, Volkswagen AG (Germany), industrial conglomerate, Siemens AG (Germany), energy supermajor, Royal Dutch Shell Plc (United Kingdom), and Takeda Pharmaceutical Co., Ltd.(Japan). The top contributor to return was payment terminal provider, Ingenico Group SA (France). Other notable contributors included cement manufacturer, Anhui Conch Cement Co., Ltd. (China), bank, China Construction Bank Corp. (Hong Kong), online services company, Tencent Holdings Ltd. (Hong Kong), and full service construction company, China Railway Construction Cor (China).

Investment outlook

Panic can be one of the best times to invest fundamentally – especially with a value approach. The recent market downdraft has presented Causeway with a rare opportunity to build positions in high-quality developed market 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 on portfolio companies exhibiting superior balance sheet strength. We believe our overweight position in cyclical stocks relative to broad benchmarks positions our client portfolios for an eventual recovery in demand for the goods and services from some of the world’s, in our view, best-managed companies with strong balance sheets able to withstand the temporary slowdown. As we await clarity on the virus and its economic effects, the dividend income from our 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.

In the EM portion of the Fund, we maintain a value emphasis in our multi-factor quantitative process. The MSCI EM Value Index is trading at a wide discount to the MSCI EM Growth Index, particularly after weak performance in calendar year 2019 and over the 2020 year-to-date period. Using these indices’ valuations, investors are paying over twice as much for each dollar of next year’s earnings from growth stocks than they pay for earnings from value stocks, while the dividend yield for growth stocks is less than half that of value stocks. Value tends to underperform in times of uncertainty, but given these wide disparities between growth and value, as more clarity emerges on the coronavirus situation globally, we believe value factor performance will recover.

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].