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) -1.6%-17.0%-18.3%3.6%1.2%5.0%2.9%
Strategy (net) -1.7%-17.3%-18.6%3.2%0.8%4.6%2.6%
MSCI ACWI ex US 0.2%-18.0%-19.1%3.3%2.1%5.0%2.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -1.6%-17.0%-18.3%3.6%1.2%5.0%2.9%
Strategy (net) -1.7%-17.3%-18.6%3.2%0.8%4.6%2.6%
MSCI ACWI ex US 0.2%-18.0%-19.1%3.3%2.1%5.0%2.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -10.7%-15.7%-17.1%2.1%2.4%5.7%3.1%
Strategy (net) -10.8%-15.9%-17.4%1.7%2.0%5.3%2.7%
MSCI ACWI ex US -13.5%-18.2%-19.0%1.8%3.0%5.3%2.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -10.7%-15.7%-17.1%2.1%2.4%5.7%3.1%
Strategy (net) -10.8%-15.9%-17.4%1.7%2.0%5.3%2.7%
MSCI ACWI ex US -13.5%-18.2%-19.0%1.8%3.0%5.3%2.0%
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 August 31, 2022)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 97.1%
Cash 2.9%
Strategy Characteristics
Strategy Benchmark
No. of holdings 202 2270
Weighted avg. market cap (US $MM) $57,311 $62,161
FY2 price/earnings 8.8 11.2
Price/book value 1.4 1.7
Dividend yield (%) 3.9 3.3
TOP 10 HOLDINGS
Security Country Percent
UniCredit S.p.A. Italy 3.1%
Rolls-Royce Holdings Plc United Kingdom 2.6%
Enel SpA Italy 2.3%
Prudential Plc United Kingdom 2.2%
Reckitt Benckiser Group United Kingdom 2.2%
SAP SE Germany 2.2%
Unilever United Kingdom 2.0%
Amadeus IT Group SA Spain 2.0%
Roche Holding AG Switzerland 2.0%
Novartis AG Switzerland 1.9%

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 20.6% 20.3%
Industrials 15.5% 12.2%
Health Care 12.7% 9.3%
Information Technology 11.5% 11.2%
Consumer Staples 10.7% 9.1%
Materials 6.7% 8.0%
Consumer Discretionary 6.5% 11.7%
Utilities 4.8% 3.4%
Energy 4.1% 6.2%
Communication Services 2.5% 6.2%
Equity Funds 1.3% 0.0%
Real Estate 0.2% 2.4%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 20.1% 9.6%
France 12.7% 7.0%
China 9.2% 9.5%
Japan 5.7% 14.3%
Germany 5.6% 4.7%
Spain 5.5% 1.5%
Italy 5.3% 1.4%
Switzerland 5.2% 6.4%
Netherlands 4.2% 2.5%
Taiwan 4.1% 4.3%
Regional Allocation
  • Europe – other 61.0%
  • Emerging Asia 22.7%
  • Pacific 5.7%
  • Emerging Europe, Middle East, Africa 3.1%
  • Emerging Latin America 2.4%
  • North America 2.2%

Commentary (As of August 31, 2022)

Highlights

  • Developed equity markets declined again in August in response to central banks’ commitment to tamp down inflation and growing concerns about the risks to global economic activity.
  • We currently expect inflation in the developed world to remain well above its near three-decades-long average for some time to come. The Covid pandemic highlighted the vulnerability of long and complex supply chains, and costly investment will be required as companies and their governments attempt to onshore critical production. As transitory inflation pressures have risen, stickier wage expectations will likely embed lasting inflationary pressures into developed economies.
  • In our investable universe, we believe the best-positioned developed market industrials, materials, financials, and consumer discretionary companies—those with, in our view, balance sheet strength and excellent management teams—should lead markets upward in the next stage of the economic cycle.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the capital goods, pharmaceuticals & biotechnology, insurance, health care equipment & services, and software & services industry groups detracted from performance relative to the Index. Holdings in the banks, diversified financials, semiconductors & semi equipment, and energy industry groups, as well as an underweight position in the consumer durables & apparel industry group, offset some of the underperformance versus the Index. The largest detractor from absolute performance was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable detractors included life insurer, Prudential Plc (United Kingdom), pharmaceutical giant, Sanofi (France), healthcare equipment & services provider, Koninklijke Phillips NV (Netherlands), and rolling stock, signaling & services provider for the rail industry, Alstom SA (France). The top contributor to return was e-commerce platform, Pinduoduo (China). Additional top contributors included bank, Banco do Brasil SA (Brazil), online services company, Tencent Holdings Ltd. (China), oil & gas exploration company, Petroleo Brasileiro SA (Brazil), and insurer, AXA SA (France).

Investment outlook

Inflationary pressures, rising interest rates, and concerns about a slowdown in global economic activity have hampered developed market equity returns this year. The ongoing weakness in the Chinese economy just adds to the negative ramifications for the earnings of companies and industries globally. We believe central banks (other than the Bank of China) should continue raising interest rates and draining monetary liquidity from their respective financial systems, which will likely add downward pressures to valuation multiples. After a surge upward in the past 12 months, oil and gas stocks have moved down our risk-adjusted return ranking in the developed markets portion of the Portfolio. As a result, we reduced exposure to the energy sector in favor of other economically sensitive stocks where we believe valuations offer more upside potential over the next two years. For developed European cyclicals in particular, rising inflation, monetary tightening, and currency weakness have weighed heavily on stock prices. However, we believe valuations are quite low, likely already discounting a recession. In our investable universe, we believe the best-positioned developed market industrials, materials, financials, and consumer discretionary companies - those with, in our view, balance sheet strength and excellent management teams - should lead markets upward in the next stage of the economic cycle. Historically, cyclicals outperform as markets begin to discount recovery. We expect management teams of our portfolio companies to amplify profitability via leaner operations and greater efficiency (operational restructuring), creating the potential for even more uplift in their share prices.

Regarding the EM portion of the Portfolio, earnings growth upgrades for EM equities continue to lag those in developed markets. From a country perspective, South Korea, South Africa, and Brazil had the weakest net upgrades. South Korea reflects slowing global growth via the country’s exposure to the information technology sector. South Africa and Brazil are commodity-oriented economies that have been impacted by falling commodity prices. The countries with the strongest net upgrades were Indonesia, Saudi Arabia, and United Arab Emirates, in part reflecting relatively strong oil and coal prices. While we incorporate growth expectations into our multi-factor investment process, we continue to emphasize valuation in our approach. With a balance of favorable valuation, growth, and price momentum characteristics relative to the Index, we believe the portfolio provides outperformance potential looking forward.

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].