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
Portfolio managers
Brian Woonhyung Cho
Mr. Cho is a fundamental portfolio manager at Causeway. He joined the firm in September 2013 and has been a portfolio manager since January 2021. His current responsibilities include coverage of companies in the technology and communication services sectors.
From 2011 to 2013, Mr. Cho was a vice president at BofA-ML Equity Research, covering the IT hardware and supply chain sector. From 2007 to 2011, he worked as an associate at Goldman Sachs Equity Research covering the same sector. From 2006 to 2007, he worked as an analyst at Morgan Stanley Equity Research covering the internet and interactive software sector. Prior to that, he worked as an analyst at PA Consulting Group in the financial services practice.
Mr. Cho earned a BSc in management science from Massachusetts Institute of Technology.
Read our interview with Brian about value investing in the technology sector.
Jonathan Eng
Mr. Eng is a director and fundamental portfolio manager at Causeway and is responsible for investment research in the global consumer discretionary, industrials, and energy sectors. He joined the firm in July 2001 and has been a portfolio manager since February 2002.
From 1997 to 2001, Mr. Eng was an equity research associate for the Hotchkis and Wiley division of Merrill Lynch Investment Managers (HW-MLIM). In 1996, Mr. Eng worked as a summer research associate for Hotchkis and Wiley, performing U.K. and European equity research. From 1993 to 1995, Mr. Eng analyzed merger and acquisition candidates at Slusser Associates. From 1990 to 1993, Mr. Eng worked as a middle market corporate lender for Bank of Boston.
Mr. Eng earned a BA in history and economics from Brandeis University and an MBA from the UCLA Anderson Graduate School of Management
Joe Gubler, CFA
Mr. Gubler is a quantitative portfolio manager at Causeway. He joined the firm in 2005 and has been a portfolio manager since January 2014. In addition to managing quantitative portfolios and conducting alpha research, Mr. Gubler also leads the efforts to maintain and enhance Causeway’s proprietary risk models. He is also a member of the operating committee.
From 1999 to 2005, Mr. Gubler worked as a software engineer, with employers ranging from startups to established businesses such as Monster.com. From 1998 to 1999, Mr. Gubler worked as a staff scientist for News Corporation, conducting studies on the RF propagation of broadcast signals. While studying astrophysics at UC San Diego, Mr. Gubler worked as a graduate research assistant in the Jet Propulsion Laboratory's stellar interferometry group.
Mr. Gubler earned a BS, cum laude, in physics from UC Irvine, an MS in physics from UC San Diego, and an MBA from the UCLA Anderson Graduate School of Management. Mr. Gubler is a CFA charterholder.
Harry Hartford
Head of Fundamental Research
Fundamental Portfolio Manager
Mr. Hartford is the president at Causeway, fundamental portfolio manager, and head of fundamental research. Mr. Hartford co-founded the firm in June 2001 and is a member of the operating committee.
From 1996 to June 2001, Mr. Hartford was a managing director for the Hotchkis & Wiley division of Merrill Lynch Investment Managers (HW-MLIM) and co-head of the firm's HW-MLIM international and global value team. From 1994 to 1996, Mr. Hartford was a portfolio manager for Hotchkis and Wiley. From 1984 to 1994, Mr. Hartford was with The Investment Bank of Ireland, where he gained ten years’ experience in both international and global equity management. During this time, Mr. Hartford also managed the Irish Investment Fund, a closed-end country fund quoted on the NYSE. Before entering the investment business, Mr. Hartford lectured in micro and macroeconomics at Oklahoma State University.
Mr. Hartford earned a BA, with honors, in economics from the University of Dublin, Trinity College, an MSc in economics from Oklahoma State University, and is a Phi Kappa Phi member. Mr. Hartford is a member of The Ireland Funds America Board of Directors and serves as chair of the Los Angeles Regional Board.
Arjun Jayaraman, PhD, CFA
Quantitative Portfolio Manager
Dr. Jayaraman is a director, quantitative portfolio manager and head of the quantitative research at Causeway and has been with the firm since January 2006. Dr. Jayaraman’s responsibilities and research include stock selection, asset allocation, risk model development, and portfolio construction.
From 2004 to 2005, Dr. Jayaraman was a portfolio manager at PanAgora Asset Management. He was the lead portfolio manager on the non-U.S. large cap core equity portfolios and was the co-portfolio manager on the global large cap core equity portfolios. From 2000 to 2004, Dr. Jayaraman managed the same portfolios at Putnam Investments, in addition to working closely with the teams that managed Putnam's traditional non-U.S. strategies. From 1998 to 2000, Dr. Jayaraman worked as a quantitative analyst at Harborview Trading Associates.
Dr. Jayaraman earned a PhD from New York University at the Stern School of Business and a BA in economics from Columbia University. Dr. Jayaraman is a CFA charterholder.
Sarah Ketterer
Fundamental Portfolio Manager
Ms. Ketterer is the chief executive officer at Causeway, fundamental portfolio manager, and is responsible for investment research across all sectors. Ms. Ketterer co-founded the firm in June 2001 and is a member of the operating committee.
From 1996 to 2001, Ms. Ketterer worked for the Hotchkis & Wiley division of Merrill Lynch Investment Managers (HW-MLIM). At HW-MLIM, she was a managing director and co-head of the firm's HW-MLIM International and Global Value team. From 1990 to 1996, Ms. Ketterer was a portfolio manager at Hotchkis & Wiley, where she founded the International Equity product.
Ms. Ketterer earned a BA in economics and political science from Stanford University and an MBA from the Tuck School, Dartmouth College. Ms. Ketterer serves on the Stanford University Board of Trustees, is a member of UT Southwestern President’s Advisory Board, is on the advisory board of Portal Schools, and is a supporter of Girls Who Invest. She previously served as a board member and chair of the Los Angeles World Affairs Council and Town Hall and chair of the investment committee of the Music Center Foundation.
MacDuff Kuhnert, CFA
Mr. Kuhnert is a director and a quantitative portfolio manager at Causeway and has been with the firm since its inception in June 2001. Mr. Kuhnert’s responsibilities and research include stock selection, asset allocation, risk model development, and portfolio construction.
From 1996 to 2001, Mr. Kuhnert worked for the international team of the Hotchkis & Wiley division of Merrill Lynch Investment Managers (HW-MLIM) as a quantitative research associate. During his tenure at HW-MLIM, Mr. Kuhnert created and developed advanced quantitative models used in the international value investment process. He also helped develop the team’s first equity risk model.
Mr. Kuhnert earned a BA in chemistry from Dartmouth College. He is a CFA charterholder, a member of the CFA Society of Los Angeles, and a member of the Chicago Quantitative Alliance.
Ellen Lee
Ms. Lee is a director and fundamental portfolio manager at Causeway and is responsible for investment research in the global consumer and utilities sectors. Prior to the current role, she also covered transportation and autos. She joined the firm in August 2007 and has been a portfolio manager since January 2015.
During the summer of 2006, Ms. Lee interned at Tiger Asia, a long short equity hedge fund focused on China, Japan, and Korea. From 2001 to 2004, Ms. Lee was an associate in the mergers and acquisitions division of Credit Suisse First Boston in Seoul, where she advised Korean corporates and multinational corporations. From 1999 to 2000, she was an analyst in the mergers and acquisitions division of Credit Suisse First Boston in Hong Kong.
Ms. Lee earned a BA in business administration from Seoul National University and an MBA from the Stanford Graduate School of Business. She currently serves on the audit and investment committee at the Center for Early Education in West Hollywood.
Read our profile of Ellen .
Conor Muldoon, CFA
Mr. Muldoon is a director and fundamental portfolio manager at Causeway and is responsible for investment research in the global financials and materials sectors. He joined the firm in August 2003 and has been a portfolio manager since September 2010. He is also a member of the operating committee.
From 1995 to 2003, Mr. Muldoon was an investment consultant for Fidelity Investments where he served as a liaison between institutional clients and investment managers within Fidelity. He was responsible for communicating current information on the financial markets, the economy and investment performance.
Mr. Muldoon earned a BSc and an MA from the University of Dublin, Trinity College and an MBA, with high honors, from the University of Chicago. Mr. Muldoon was inducted into the Beta Gamma Sigma honors society and is also a CFA charterholder.
Ryan Myers
Mr. Myers is a quantitative portfolio manager at Causeway. He joined the firm in June 2013 and has been a portfolio manager since January 2021. His responsibilities include alpha research, stock selection, and portfolio construction.
From 2010 to 2012, Mr. Myers served as chief investment officer of Iron Castle Asset Management, an investment partnership focused on mid-cap U.S. equities. From 2007 to 2008, Mr. Myers worked as an analyst at Canyon Partners, where he covered the cable, media, telecom and satellite sectors. From 2005 to 2007, Mr. Myers was an associate for Oaktree Capital Management in the distressed opportunities group. Mr. Myers began his professional career in 2003 as an investment banking analyst at Goldman Sachs in the technology, media and telecom group.
Mr. Myers earned a BA, magna cum laude, in economics from Harvard University, where he was elected to Phi Beta Kappa. He earned an MBA from the Stanford Graduate School of Business, where he was an Arjay Miller Scholar. Mr. Myers currently serves on the Board of Trustees of the Yosemite Conservancy, an organization dedicated to supporting projects and programs that preserve Yosemite National Park and enrich the visitor experience.
Steven Nguyen, CFA
Mr. Nguyen is a director and fundamental portfolio manager at Causeway and is responsible for investment research in utilities & renewables, healthcare, and business services. He joined the firm in April 2012 and has been a portfolio manager since January 2019.
From 2006 to 2012, Mr. Nguyen was a senior credit analyst at Bradford & Marzec covering high yield and investment grade companies in the telecommunication services, cable, media, gaming, insurance, and REIT industries. From 2003 to 2006, Mr. Nguyen was a credit analyst/portfolio manager in the corporate bond department of Allegiance Capital.
Mr. Nguyen earned a BA in business economics from Brown University and an MBA, with honors, from the UCLA Anderson School of Management. Mr. Nguyen was the president of the Anderson Student Asset Management association. Mr. Nguyen is a CFA charterholder and has completed the CFA Institute Certificate in ESG Investing program.
Alessandro Valentini, CFA
Mr. Valentini is a director and fundamental portfolio manager at Causeway and is responsible for investment research in the global healthcare, financials, and materials sectors. He joined the firm in July 2006 and has been a portfolio manager since April 2013.
During the summer of 2005, Mr. Valentini worked as a research analyst at Thornburg Investment Management, where he conducted fundamental research for the International Value Fund and the Value Fund, focusing on the European telecommunication and Canadian oil sectors. From 2000 to 2004, Mr. Valentini worked as a financial analyst at Goldman Sachs in the European equities research-sales division in New York.
Mr. Valentini earned an MBA from Columbia Business School, with honors, an MA in economics from Georgetown University and a BS, magna cum laude, from Georgetown University. Mr. Valentini was inducted into the Beta Gamma Sigma honors society, is a Phi Beta Kappa member, and is a CFA charterholder.
Performance
Account returns for the Causeway International Opportunities Composite (“International Opportunities Composite”) are calculated daily. Monthly account returns are calculated by geometrically linking the daily returns. The return of the International Opportunities Composite is calculated monthly by weighting monthly account returns by the beginning market values. Valuations and returns are computed and stated in US dollars. Returns include the reinvestment of interest, dividends and any capital gains. Returns are calculated gross of withholding taxes on dividends, interest income, and capital gains. Past performance is no guarantee of future performance. Gross-of-fees returns are presented before management, performance and custody fees but after trading expenses. Net-of-fees returns are presented after the deduction of actual management fees, performance-based fees, and all trading expenses, but before custody fees. Causeway’s basic management fee schedules are described in its firm brochure pursuant to Part 2 of Form ADV. A complete list and description of firm composites is available upon request. This information supplements the composite presentation at Composite Performance. Investing involves risk including loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Diversification does not prevent all investment losses.
Portfolio (as of April 30, 2023)
Asset Allocation
| Strategy | |
|---|---|
| Stocks | 97.3% |
| Cash | 2.7% |
Strategy Characteristics
| Strategy | Benchmark | |
|---|---|---|
| No. of holdings | 243 | 2258 |
| Weighted avg. market cap (US $MM) | $64,759 | $70,080 |
| FY2 price/earnings | 10.2 | 12.0 |
| Price/book value | 1.7 | 1.7 |
| Dividend yield (%) | 3.4 | 3.1 |
TOP 10 HOLDINGS
| Security | Country | Percent |
|---|---|---|
| Rolls-Royce Holdings Plc | United Kingdom | 3.7% |
| Enel SpA | Italy | 2.7% |
| UniCredit S.p.A. | Italy | 2.4% |
| SAP SE | Germany | 2.3% |
| Reckitt Benckiser Group | United Kingdom | 2.3% |
| Roche Holding AG | Switzerland | 2.2% |
| Danone | France | 2.1% |
| Prudential Plc | United Kingdom | 2.1% |
| Ryanair Holdings Plc - ADR | Ireland | 1.9% |
| FANUC Corp. | Japan | 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 | 17.8% | 20.6% |
| Industrials | 17.2% | 12.8% |
| Health Care | 12.8% | 10.0% |
| Consumer Staples | 11.6% | 9.0% |
| Information Technology | 9.6% | 10.7% |
| Consumer Discretionary | 9.3% | 11.7% |
| Utilities | 5.3% | 3.3% |
| Materials | 5.1% | 8.1% |
| Communication Services | 3.8% | 5.8% |
| Energy | 3.1% | 5.7% |
| Equity Funds | 1.0% | 0.0% |
| Real Estate | 0.2% | 2.1% |
TOP 10 COUNTRIES
| Country | Strategy | Benchmark |
|---|---|---|
| United Kingdom | 21.8% | 9.9% |
| France | 11.4% | 8.4% |
| China | 8.9% | 8.5% |
| Germany | 7.2% | 5.7% |
| Japan | 6.2% | 13.8% |
| Switzerland | 5.4% | 6.7% |
| Italy | 5.1% | 1.6% |
| Spain | 4.9% | 1.7% |
| Netherlands | 4.7% | 2.9% |
| Taiwan | 4.0% | 4.0% |
Regional Allocation
- EURO 35.8%
- OTHER EUROPE 27.8%
- EMERGING ASIA 21.0%
- PACIFIC RIM 6.7%
- NORTH AMERICA 2.3%
- EMERGING LATIN AMERICA 1.8%
- EMERGING EUROPE, MIDDLE EAST, AFRICA 1.3%
- MULTI REGION EMERGING 0.0%
Commentary (As of April 30, 2023)
Highlights
Portfolio attribution
The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, materials, and utilities industry groups contributed to relative performance. Holdings in the capital goods industry group, along with an underweight position in the financial services and consumer durables & apparel industry groups, offset some of the outperformance compared to the Index. The top contributor to return was banking & financial services company, UniCredit S.p.A. (Italy). Other notable contributors included electric, gas & renewables power generation & distribution company, Enel SpA (Italy), and life insurer, Prudential Plc (United Kingdom). The largest detractor was internet commerce company, Alibaba Group Holding Ltd. (Hong Kong). Additional notable detractors included rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), and robotics manufacturer, FANUC Corp. (Japan).
Economic outlook
The US economy may have already entered a stagflation period, likely exacerbated by tightening credit conditions and price rises embedded in wages, goods, and services. Despite headline-generating layoff announcements, payroll figures have been resilient, and the nationwide unemployment rate is a low 3.5%. Employers who suffered labor shortages during the pandemic may be reluctant to reduce staff, even as demand weakens. In contrast, data suggests the European Central Bank may have flexibility to slow its tightening policy. Although headline Eurozone inflation rose to 7% in April, the rate of core inflation—which removes the volatile food and energy price categories—declined for the first time in ten months, to 5.6%. In both the US and Europe, credit appears to be contracting after recent banking system shocks. As Europe and the US potentially near the end of their rate hike cycles, the Bank of Japan has yet to begin. We expect the Japanese central bank to continue its policy of monetary easing, conducted through yield curve control.
Macroeconomic data in China, the largest country within the EM universe, have been mixed. On the negative side, after a robust reopening from Covid lockdowns, Chinese manufacturing contracted in April; China’s official purchasing managers’ index (“PMI”) declined to 49.2. However, the country’s first quarter gross domestic product growth was 4.5%, exceeding most analyst estimates. Additionally, muted inflation near 2% should allow the Chinese government to engage in sufficient stimulus in order to meet its 5% growth target for 2023.
Investment outlook
Our team continues to value and vet industrials companies through our research process; we should be prepared to build exposure to select firms on share price pullbacks. Amid signs of slowing economic activity, we seek to identify economically resilient companies at attractive valuations and avoid companies at cyclical earnings peaks. Consistent across industries is our preference for companies we see generating high levels of free cash flow and for managements willing to return excess capital to shareholders. Given the likelihood of recession, we want to see managements apply conservative financial approaches: paying down leverage, controlling expenses, and abstaining from shareholder-dilutive acquisitions. Although portfolio weights in more economically insulated sectors—consumer staples and utilities, for example—are toward the upper bounds of their historical ranges, we remain flexible in our positioning and aim to continue to exploit the full global equity opportunity set.
A valuation “margin of safety” may support international equities’ continued outperformance versus the US as investors, anticipating multiple compression, grow increasingly wary of expensive stocks. Developed international stocks have only been cheaper than they are today for about 5% of the past fifty years, as measured by the nearly two standard deviation discount of the MSCI World ex-USA Index trailing price-to-earnings multiple versus the MSCI USA Index.
Within emerging markets, earnings growth upgrades for EM equities continue to lag those in the ex-US developed markets. The EM countries with the weakest net upgrades in earnings forecasts included the externally-oriented economy of Taiwan, reflecting concerns that global growth is slowing. Net upgrades in Saudi Arabia and Qatar were also negative, reflecting falling energy prices. The smaller countries of Poland, Indonesia, and Turkey had positive net upgrades as they tend to be less impacted by slowing global growth than some of their EM peers. The sectors with the strongest net upgrades were communication services and consumer discretionary. Both sectors are dominated by Chinese stocks, which are benefitting from the country’s easing Covid-19 restrictions and solid growth outlook. The sectors with negative net upgrades included information technology and materials, both reflecting global growth pessimism.
By year’s end, we expect some of the most significant returns in excess of the Index should be delivered by companies able to withstand the effects of credit contraction, manage cost pressures, and improve productivity. We believe financial strength remains essential, especially in this higher-for-longer interest rate environment. Many of our portfolio companies are engaged in operational restructuring to improve earnings and cash flow. This implies these companies can deliver good news on a recovery in their growth, even as economic conditions remain sluggish. To identify investment candidates, our analysts are collaborating across their sectors to identify attractively valued portfolio candidates. Recent examples include Causeway consumer, industrials, and chemicals analysts valuing an ingredients company; and materials analysts studying a rare earth elements producer with input from automobile and technology analysts and members of our China research subsidiary. We believe understanding a company from multiple industry perspectives provides depth and rigor essential to determining its valuation.
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].