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

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) -0.9%-0.9%11.3%0.7%9.2%5.7%4.0%
Strategy (net) -0.9%-0.9%10.9%0.3%8.8%5.3%3.7%
MSCI ACWI ex US 0.2%0.2%14.4%3.6%11.0%5.3%3.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -0.9%-0.9%11.3%0.7%9.2%5.7%4.0%
Strategy (net) -0.9%-0.9%10.9%0.3%8.8%5.3%3.7%
MSCI ACWI ex US 0.2%0.2%14.4%3.6%11.0%5.3%3.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 23.7%6.5%6.5%2.6%7.7%6.2%4.1%
Strategy (net) 23.6%6.1%6.1%2.2%7.3%5.8%3.8%
MSCI ACWI ex US 17.1%11.1%11.1%5.4%9.4%5.4%3.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 23.7%6.5%6.5%2.6%7.7%6.2%4.1%
Strategy (net) 23.6%6.1%6.1%2.2%7.3%5.8%3.8%
MSCI ACWI ex US 17.1%11.1%11.1%5.4%9.4%5.4%3.2%
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 January 31, 2021)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 99.4%
Cash 0.6%
Strategy Characteristics
Strategy Benchmark
No. of holdings 165 2341
Weighted avg. market cap (US $MM) $95,902 $85,410
FY2 price/earnings 12.1 15.7
Price/book value 1.4 1.9
Dividend yield (%) 2.5 2.2
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 3.4%
Tencent Holdings Ltd. China 2.8%
Taiwan Semiconductor Manufacturing Co., Ltd. - ADR Taiwan 2.6%
Rolls-Royce Holdings Plc United Kingdom 2.5%
UniCredit S.p.A. Italy 2.4%
BASF SE Germany 2.3%
Samsung Electronics Co., Ltd. South Korea 2.2%
Siemens AG Germany 2.2%
Novartis AG Switzerland 2.2%
Sanofi France 2.1%

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 20.7% 17.8%
Industrials 16.3% 11.5%
Information Technology 15.0% 13.1%
Consumer Discretionary 12.3% 14.0%
Health Care 9.9% 9.5%
Materials 6.9% 8.1%
Consumer Staples 6.7% 8.7%
Communication Services 4.4% 7.3%
Energy 4.0% 4.3%
Utilities 2.5% 3.3%
Real Estate 0.5% 2.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
Germany 12.6% 5.8%
China 12.5% 12.8%
France 12.3% 6.7%
United Kingdom 10.1% 8.8%
Switzerland 9.2% 5.9%
Japan 6.9% 15.7%
South Korea 5.8% 4.2%
Taiwan 5.7% 4.2%
Spain 5.4% 1.5%
Italy 3.6% 1.5%
Regional Allocation
  • Europe – other 58.6%
  • Emerging Asia 28.1%
  • Pacific 6.9%
  • Emerging Europe, Middle East, Africa 2.4%
  • Emerging Latin America 2.4%
  • North America 1.1%

Commentary (As of January 31, 2021)

Highlights

  • After a strong start, developed equity markets gave up gains in the latter half of January as investor sentiment was dampened by a slower-than-expected global rollout of vaccines, concerns over new variants of the virus, and renewed lockdowns. Propelled by Chinese stocks, emerging market (“EM”) equities delivered positive returns in January.
  • We currently expect additional vaccines to receive broad-based emergency use authorization in the first quarter of 2021, such as those from AstraZeneca/Oxford, Novavax and Johnson & Johnson—all of which reported high levels of efficacy. A rebound in global gross domestic product (“GDP”) growth should accelerate as the pace of vaccinations ramp up.
  • The recovery from the global healthcare crisis has proceeded with fits and starts, with short-term news flow drowning out other investment considerations such as talented managements, favorable competitive positioning, strong balance sheets, and prospects for a sharp upturn in profitability. While we believe vaccine campaigns should succeed in allowing a full reopening of global economies, we have taken advantage of investor pessimism for economically sensitive stocks.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, transportation, pharmaceuticals & biotechnology, insurance, and capital goods industry groups detracted from performance relative to the Index. Holdings in the consumer durables & apparel, media & entertainment, automobiles & components, food beverage & tobacco, and technology hardware & equipment industry groups 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 travel & tourism information technology provider, Amadeus IT Group SA (Spain), low-budget airline, Ryanair Holdings Plc (Ireland), airline, AIR Canada (Canada), and life insurer, Prudential Plc (United Kingdom). The top contributor to return was online services company, Tencent Holdings Ltd. (Hong Kong). Other notable contributors included integrated circuit manufacturer, Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan), industrial conglomerate, Siemens AG (Germany), consumer retailer, Carrefour SA (France), and power & automation technology company, ABB Ltd. (Switzerland).

Investment outlook

January’s slump in share prices for some of the developed market stocks hardest hit by the pandemic does not dent our conviction. We believe some of the largest future returns should come from stocks most affected by coronavirus lockdowns like travel, travel software, leisure, and aerospace. The recovery from the global healthcare crisis has proceeded with fits and starts, with short-term news flow drowning out other investment considerations such as talented managements, favorable competitive positioning, strong balance sheets, and prospects for a sharp upturn in profitability. We believe vaccine campaigns should succeed in allowing a full reopening of global economies and have taken advantage of investor pessimism for economically sensitive stocks. Some of these developed market company management teams have engaged in meaningful cost-cutting and efficiency improvements over the last year, positioning their firms to generate higher cash flows and earnings as revenues recover. We also focus our fundamental research efforts on areas of the market that were largely left out of the late-2020 rally boasting attractive defensive characteristics and growth. These risk reducers include high-quality pharmaceutical and consumer companies. We remain confident that many of our portfolio companies should return capital to shareholders in the form of dividends and share buybacks as vaccination efforts speed up and economies return to normality.

Within the EM portion of the Portfolio, we recently added a bottom-up competitive strength factor to our model. The new alpha factor examines current levels and longer-term trends in a broad range of metrics relevant to competitive strength: margins, returns, competition, industry structure, market share, and balance sheet strength. The factor has quality aspects as it highlights companies with increasing profit margins and returns on equity. This indicator also seeks to identify companies that operate in environments with few competitors and enjoy significant market share. Given these favorable competitive dynamics, these companies should be better positioned to sustain their strong performance. The factor also includes a balance sheet strength component that considers financial leverage and default risk. Based on our research, the competitive strength factor is a good complement to our value factor, which continues to be the dominant indicator in our model.

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].