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
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) 3.6%-13.9%-3.6%-2.5%3.9%4.7%2.6%
Strategy (net) 3.5%-14.1%-3.9%-2.8%3.6%4.4%2.2%
MSCI ACWI ex US 6.4%-5.1%3.4%1.6%6.7%4.5%2.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 3.6%-13.9%-3.6%-2.5%3.9%4.7%2.6%
Strategy (net) 3.5%-14.1%-3.9%-2.8%3.6%4.4%2.2%
MSCI ACWI ex US 6.4%-5.1%3.4%1.6%6.7%4.5%2.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 3.6%-13.9%-3.6%-2.5%3.9%4.7%2.6%
Strategy (net) 3.5%-14.1%-3.9%-2.8%3.6%4.4%2.2%
MSCI ACWI ex US 6.4%-5.1%3.4%1.6%6.7%4.5%2.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 3.6%-13.9%-3.6%-2.5%3.9%4.7%2.6%
Strategy (net) 3.5%-14.1%-3.9%-2.8%3.6%4.4%2.2%
MSCI ACWI ex US 6.4%-5.1%3.4%1.6%6.7%4.5%2.0%
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 September 30, 2020)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 98.6%
Cash 1.4%
Strategy Characteristics
Strategy Benchmark
No. of holdings 175 2374
Weighted avg. market cap (US $MM) $81,985 $77,990
FY2 price/earnings 11.1 14.6
Price/book value 1.1 1.6
Dividend yield (%) 3.0 2.6
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 3.5%
Alibaba Group Holding - ADR China 2.8%
BASF SE Germany 2.7%
UniCredit S.p.A. Italy 2.6%
ING Groep NV Netherlands 2.3%
FANUC Corp. Japan 2.2%
Tencent Holdings Ltd. China 2.2%
Novartis AG Switzerland 2.1%
Taiwan Semiconductor Manufacturing Co., Ltd. - ADR Taiwan 2.1%
ABB Ltd. Switzerland 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 21.2% 16.9%
Industrials 16.9% 11.7%
Information Technology 13.6% 11.7%
Consumer Discretionary 12.9% 13.8%
Health Care 9.0% 10.5%
Materials 8.2% 7.9%
Consumer Staples 6.7% 9.7%
Communication Services 4.1% 7.5%
Energy 3.3% 4.2%
Utilities 1.8% 3.4%
Real Estate 0.7% 2.7%
TOP 10 COUNTRIES
Country Strategy Benchmark
Germany 14.7% 6.1%
China 12.9% 12.5%
France 10.9% 6.8%
United Kingdom 10.6% 8.5%
Switzerland 8.1% 6.6%
Japan 7.4% 16.5%
Taiwan 5.0% 3.8%
South Korea 4.9% 3.6%
Spain 4.5% 1.4%
Netherlands 4.4% 2.8%
Regional Allocation
  • Europe – other 59.3%
  • Emerging Asia 26.7%
  • Pacific 7.4%
  • Emerging Europe, Middle East, Africa 2.3%
  • Emerging Latin America 2.1%
  • North America 0.7%

Commentary (As of September 30, 2020)

Highlights

  • Developed and emerging markets equities declined in September—the first month of negative returns since the market shock in March at the onset of the coronavirus pandemic. Value stocks underperformed growth stocks.
  • Until a vaccine, therapies, and widespread testing are available and economies fully reopen, we believe further stimulus packages will be needed to bolster the recovery in most regions.
  • In our view, the most compelling companies in the developed market value universe are those engaged in operational restructuring, using the disruption of the pandemic to lean out their cost bases and shed non-core assets. This ensuing boost in operating leverage may position these forward-thinkers well for an upturn in revenues as recovery develops.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, capital goods, transportation, and retailing industry groups, along with an overweight position in the insurance industry group, detracted from performance relative to the Index. Holdings in the technology hardware & equipment, materials, and food beverage & tobacco industry groups, as well as an overweight position in the semiconductors & semi equipment industry group and an underweight position in the diversified financials industry group, offset some of the underperformance versus the Index. The largest detractor was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Additional notable detractors included banking & financial services company, UniCredit S.p.A. (Italy), banking & financial services company, BNP Paribas SA (France), financial services provider, ING Groep NV (Netherlands), and banking & financial services company, Barclays Plc (United Kingdom). The top contributor to return was robotics manufacturer, FANUC Corp. (Japan). Other notable contributors included electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea), electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan), British American Tobacco plc (United Kingdom), and integrated circuit manufacturer, Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan).

Investment outlook

This year’s dominance of growth and momentum stocks over value stocks has surpassed the peak reached during the technology, media, and telecommunications (“TMT”) bubble in the early 2000s. The biggest winners in this bifurcated market are companies exhibiting top-line growth, regardless of whether this translates to near-term profitability.The trends of passive investing and algorithmic trading have exacerbated a concentration of performance—the bulk of equity returns in a number of region-based indices during the year-to-date period derive from just five companies, with the effect most pronounced in the US and emerging markets. Growth stock valuations are so stretched relative to history that we believe any abatement of pandemic-related uncertainty—namely efficacious vaccines or therapies that facilitate economic reopening—could spark a shift in investor sentiment towards economically cyclical companies. We believe that the cyclical component of value should also benefit from further fiscal spending by Western governments in infrastructure. In our view, the most compelling companies in the developed market value universe are those engaged in operational restructuring, using the disruption of the pandemic to lean out their cost bases and shed non-core assets. This ensuing boost in operating leverage may position these forward-thinkers well for an upturn in revenues as recovery develops. We continue to engage with portfolio company management teams to hold them accountable to meet their earnings and cash flow goals. For example, in a lower-for-longer interest rate environment, we expect certain developed market bank stock managements to grow fee-based and trading-based franchises that are not reliant on a rise in rates. While much of our fundamental research is dominated by cyclical stocks, we also seek opportunities in defensive sectors that have also been impacted by the coronavirus lockdowns. The considerable undervaluations in stocks across a range of industries has led us to experience far more investment opportunities than we have capital to deploy. We believe that, by mid-2021, the earnings, cash flow, and dividend prognosis for many of these undervalued stocks should improve demonstrably. Markets anticipate events well in advance. In our view, this should translate into better performance, perhaps amplified by valuation multiple upgrades as confidence in these companies rises post-pandemic.

Regarding the emerging markets (“EM”) portion of the Portfolio, uncertainty surrounding the COVID-19 pandemic has continued to weigh on EM value stocks. We continue to emphasize value factors in our multi-factor investment process and we believe that EM value stocks are poised to rebound once there is a reduction in COVID-19 uncertainty given the discount relative to EM growth stocks.

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].