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) 5.4%12.5%51.8%7.8%10.6%6.4%4.9%
Strategy (net) 5.3%12.3%51.3%7.4%10.2%6.0%4.5%
MSCI ACWI ex US 6.3%10.1%43.4%9.4%11.4%5.8%3.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 5.4%12.5%51.8%7.8%10.6%6.4%4.9%
Strategy (net) 5.3%12.3%51.3%7.4%10.2%6.0%4.5%
MSCI ACWI ex US 6.3%10.1%43.4%9.4%11.4%5.8%3.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 6.7%6.7%62.7%5.6%9.9%6.3%4.6%
Strategy (net) 6.6%6.6%62.1%5.2%9.5%5.9%4.2%
MSCI ACWI ex US 3.6%3.6%50.0%7.0%10.3%5.4%3.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 6.7%6.7%62.7%5.6%9.9%6.3%4.6%
Strategy (net) 6.6%6.6%62.1%5.2%9.5%5.9%4.2%
MSCI ACWI ex US 3.6%3.6%50.0%7.0%10.3%5.4%3.4%
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 May 31, 2021)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 97.5%
Cash 2.5%
Strategy Characteristics
Strategy Benchmark
No. of holdings 155 2359
Weighted avg. market cap (US $MM) $90,695 $80,149
FY2 price/earnings 12.0 14.5
Price/book value 1.7 2.0
Dividend yield (%) 2.5 2.2
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 2.8%
UniCredit S.p.A. Italy 2.8%
Novartis AG Switzerland 2.5%
Amadeus IT Group SA Spain 2.5%
Sanofi France 2.4%
Takeda Pharmaceutical Co., Ltd. Japan 2.3%
Tencent Holdings Ltd. China 2.3%
Roche Holding AG Switzerland 2.2%
SAP SE Germany 2.2%
Taiwan Semiconductor Manufacturing Co., Ltd. - ADR Taiwan 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 20.8% 19.2%
Industrials 16.6% 11.8%
Information Technology 14.5% 12.6%
Health Care 11.3% 9.0%
Consumer Discretionary 7.3% 13.6%
Consumer Staples 7.2% 8.5%
Materials 7.1% 8.5%
Energy 5.3% 4.4%
Utilities 3.7% 3.1%
Communication Services 3.5% 6.8%
Real Estate 0.3% 2.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
France 13.1% 7.2%
United Kingdom 12.6% 9.0%
China 10.2% 11.7%
Switzerland 10.0% 5.9%
Germany 8.7% 5.9%
Japan 7.5% 14.2%
Spain 6.4% 1.6%
South Korea 5.3% 4.1%
Taiwan 5.0% 4.3%
Italy 4.8% 1.6%
Regional Allocation
  • Europe – other 59.0%
  • Emerging Asia 24.6%
  • Pacific 7.5%
  • Emerging Europe, Middle East, Africa 2.5%
  • Emerging Latin America 2.1%
  • North America 1.4%

Commentary (As of April 30, 2021)

Highlights

  • The worldwide drive to stimulate economic activity and vaccinate populations added demand to equity buying in April with most major developed market indices closing at 10-year-highs. Emerging markets equities also delivered positive returns during the month.
  • With consumers beginning to unleash pent up demand, the effects of fiscal and monetary stimulus continuing to permeate the global economy, and with supply constraints intensifying, inflationary pressures are starting to emerge.
  • In asset markets awash in monetary liquidity, the price discounting mechanism has accelerated, and stock prices have reflected future good news quickly, sometimes long before earnings uplift occurs. At present, we are more interested in developed market defensive companies that have lagged the cyclical rally.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, pharmaceuticals & biotechnology, semiconductors & semi equipment, materials, and energy industry groups detracted from relative performance. Holdings in the capital goods, food & staples retailing, commercial & professional services, and household & personal products 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 Takeda Pharmaceutical Co., Ltd. (Japan). Additional notable detractors included integrated oil & gas company, Total (France), travel & tourism information technology provider, Amadeus IT Group SA (Spain), airline, AIR Canada (Canada), and banking & financial services company, Barclays Plc (United Kingdom). The top contributor to return was business software & services provider, SAP SE (Germany). Other notable contributors included pharmaceutical giant, Sanofi (France), paints & coatings producer, Akzo Nobel (Netherlands), beverage producer, Pernod Ricard SA (France), and bank, Banco Bilbao Vizcaya Argentaria SA (Spain).

Investment outlook

Since November 2020, global equity markets have generally favored companies poised to benefit from economic reopening and recovery. As we have noted in prior reviews, cyclical sectors usually outperform market indices in periods following recessions and market lows, as earnings momentum shifts in favor of economically sensitive businesses. This cycle has fit that pattern, with extremely rapid and large increases in the share prices of cyclical companies. Within the MSCI ACWI ex-US Index, the industrials, materials, energy, consumer discretionary, and financials sectors on average delivered 91% absolute returns from the Covid-19 crisis market trough in March 2020 through April 2021, outperforming the other sectors in the Index by 30%. Given the rapid upward re-rating, we have responded by reducing the fundamental portion of the portfolio’s cyclical exposure and reinvesting sale proceeds into, in our view, high quality, less economically sensitive businesses with less earnings volatility. For example, we reduced significantly what had once been one of the largest-weighted holdings in client fundamental portfolios, an auto manufacturer that finally was recognized for its electric vehicle transition. After a period of strong performance, based on our analysis, its risk-adjusted expected return ranked less competitively relative to other stocks. In asset markets awash in monetary liquidity, the price discounting mechanism has accelerated, and stock prices have reflected future good news quickly, sometimes long before earnings uplift occurs. At present, we are more interested in developed market defensive companies that have lagged the cyclical rally, including innovative pharmaceutical companies trading near all-time-low relative valuations, and forward-thinking utilities repositioning their companies for the renewable energy transition. From a fundamental perspective, we have also been adding to defensive information technology companies that generate recurring revenue from critical infrastructure software. The portfolio remains cyclically positioned, but we believe its lowered risk profile, diversified across risk factors, should be resilient in a broader range of market outcomes. Generally, our developed market portfolio companies are engaged in operational restructuring. We believe we have identified companies that used the Covid-19 crisis to cut costs and boost efficiency and should emerge from the pandemic with improved earnings power and a stronger competitive positioning. We expect these companies to re-rate upward as the market recognizes their progress and look forward to increasing levels of capital returned to shareholders with dividends and share buybacks.

Within the emerging markets portion of the portfolio, earnings growth upgrades have generally been strongest in cyclical sectors, particularly materials, energy, and information technology, according to analyst estimates. Growth upgrades for these sectors reflect analysts’ optimism that economies continue to reopen and economic activity will accelerate. Earnings growth upgrades have been weakest for stocks in the consumer discretionary, communication services, and real estate sectors. After outperforming during the first quarter, the MSCI EM Value Index underperformed the MSCI EM Growth Index in April. Flattening yield curves and the pause in the reopening trade weighed on value stocks during the month. However, we believe the global vaccine rollout should progress and most economies should continue to reopen, putting upward pressure on interest rates. This would provide a positive backdrop for value stocks, which trade at a sizable discount to 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].