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) -0.2%9.7%30.0%7.9%9.7%7.7%4.6%
Strategy (net) -0.2%9.4%29.5%7.5%9.2%7.3%4.2%
MSCI ACWI ex US 0.3%9.7%25.4%9.9%10.4%7.1%3.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -0.2%9.7%30.0%7.9%9.7%7.7%4.6%
Strategy (net) -0.2%9.4%29.5%7.5%9.2%7.3%4.2%
MSCI ACWI ex US 0.3%9.7%25.4%9.9%10.4%7.1%3.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.9%9.8%40.8%7.9%11.0%6.4%4.7%
Strategy (net) 2.8%9.6%40.2%7.5%10.6%6.0%4.3%
MSCI ACWI ex US 5.6%9.4%36.3%9.9%11.6%5.9%3.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.9%9.8%40.8%7.9%11.0%6.4%4.7%
Strategy (net) 2.8%9.6%40.2%7.5%10.6%6.0%4.3%
MSCI ACWI ex US 5.6%9.4%36.3%9.9%11.6%5.9%3.7%
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 August 31, 2021)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 97.5%
Cash 2.5%
Strategy Characteristics
Strategy Benchmark
No. of holdings 155 2341
Weighted avg. market cap (US $MM) $84,935 $77,604
FY2 price/earnings 11.2 14.0
Price/book value 1.6 2.0
Dividend yield (%) 2.6 2.3
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 3.1%
UniCredit S.p.A. Italy 2.7%
Sanofi France 2.5%
Novartis AG Switzerland 2.5%
SAP SE Germany 2.4%
Takeda Pharmaceutical Co., Ltd. Japan 2.4%
Amadeus IT Group SA Spain 2.2%
Roche Holding AG Switzerland 2.2%
Taiwan Semiconductor Manufacturing Co., Ltd. - ADR Taiwan 2.1%
Total France 2.0%

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 21.8% 18.8%
Industrials 16.1% 12.2%
Information Technology 14.0% 13.5%
Health Care 12.8% 9.6%
Materials 7.3% 8.4%
Consumer Discretionary 6.6% 12.8%
Consumer Staples 6.6% 8.5%
Energy 5.4% 4.4%
Utilities 3.9% 3.1%
Communication Services 2.9% 6.3%
Real Estate 0.1% 2.5%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 14.8% 9.0%
France 14.1% 7.2%
Germany 8.9% 5.9%
Switzerland 8.7% 6.3%
China 8.4% 10.1%
Japan 8.1% 14.5%
Spain 5.9% 1.5%
Taiwan 5.1% 4.4%
South Korea 4.9% 3.9%
Italy 4.7% 1.6%
Regional Allocation
  • Europe – other 61.0%
  • Emerging Asia 22.8%
  • Pacific 8.1%
  • Emerging Europe, Middle East, Africa 2.2%
  • Emerging Latin America 2.2%
  • North America 1.2%

Commentary (As of August 31, 2021)

Highlights

  • Equities marched higher again in August, spurred by continuing ultra-loose monetary conditions, a likely multi-trillion-dollar US fiscal spending boost, and evidence of global economic recovery. Despite the increase in Covid cases linked to the spread of the Delta variant, investors appear optimistic that any impact will likely disrupt supply chains rather than spur the reinstatement of economically devastating lockdowns.
  • Strong global economic data in August confirmed a further normalization of activity in the wake of Covid lockdowns. In China, regulatory actions continued to dominate headlines. In our view, increased regulations in certain industries are long overdue. As long as they remain well-established, consistent, and transparent, our belief is that stronger standards in the country should ultimately benefit stakeholders.
  • We believe undervalued stocks will attract more buyers as the cost of money (aka interest rates) rise to more normal levels in most developed countries, reflecting economic recovery and fiscal stimulus. Companies generating solid cash flow and margins, with excellent competitive positioning, attract our attention in this environment.

Portfolio attribution

The Portfolio modestly underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the pharmaceuticals & biotechnology, software & services, semiconductors & semi equipment, transportation, and technology hardware & equipment industry groups detracted from relative performance. Holdings in the insurance, capital goods, banks, and energy industry groups, as well as an underweight position in the automobiles & components industry group, offset some of the underperformance compared to the Index. The largest detractor was luxury goods manufacturer & retailer, Compagnie Financiere Richemont (Switzerland). Additional notable detractors included internet commerce company, Alibaba Group Holding Ltd. (Hong Kong), travel & tourism information technology provider, Amadeus IT Group SA (Spain), pharmaceuticals & chemicals company, Bayer AG (Germany), and beverage producer, Pernod Ricard SA (France). The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included electric utility provider, RWE AG (Germany), life insurer, Prudential Plc (United Kingdom), financial services company, Zurich Financial Services (Switzerland), and integrated circuit manufacturer, Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan).

Investment outlook

The rise of the Delta variant portends enduring uncertainty on the timing to reach full normalization. As a result, we are interested in economically cyclical developed market companies with, in our view, strong balance sheets focused on cutting costs. As it relates to develop market companies exposed to travel, leisure, and hospitality, in particular, we find meaningful differentiation amongst companies. Several are exhibiting high cash burn rates, while others are approaching breakeven. We are most interested in the latter, and we engage in rigorous fundamental research to scrutinize which firms may be underappreciated in the market yet poised for, based on our analysis, greater profitability when revenues recover. Furthermore, we believe the rapid pace of change in the economy—for example, from long-dated green initiatives or supplier shifts—could lead to structurally higher earnings in this economic cycle for certain industries. The premium for developed market growth stocks over value stocks narrowed in the wake of vaccine announcements in the fourth quarter of 2020, but overall, it remains significantly higher relative to history in a market awash with liquidity. We believe undervalued stocks will attract more buyers as the cost of money (aka interest rates) rise to more normal levels in most developed countries, reflecting economic recovery and fiscal stimulus. Companies generating solid cash flow and margins, with excellent competitive positioning, attract our attention in this environment.

In the EM portion of the Portfolio, we have seen that earnings upgrades in EM have lagged developed markets, which have been led by the US. Within EM, earnings upgrades have been strongest in Russia, South Korea, and Saudi Arabia. As commodity-linkedeconomies, Russia and Saudi Arabia have benefitted from firm oil prices. South Korea has benefitted from positive earnings revisions within the information technology sector. Indonesia, Thailand, and China have experienced the weakest earnings revisions. Indonesia and Thailand continue to experience economic challenges related to Covid-19. Chinese stocks are facing a myriad of pressures including supply chain disruptions related to Covid-19, reduced stimulus, and regulatory pressures. While we incorporate bottom-up earnings growth factors into our assessment of each stock, we continue to emphasize valuation in our multi-factor quantitative investment process. Despite outperforming year-to-date, we believe the outlook for EM value stocks remains compelling as many companies in this cohort offer discounted valuations relative to history and attractive dividend yields.

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].