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) -2.9%-16.4%-10.2%-4.1%1.9%3.9%2.3%
Strategy (net) -2.9%-16.7%-10.6%-4.4%1.6%3.6%2.0%
MSCI ACWI ex US -2.1%-7.1%-2.2%0.3%4.8%3.9%1.9%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -2.9%-16.4%-10.2%-4.1%1.9%3.9%2.3%
Strategy (net) -2.9%-16.7%-10.6%-4.4%1.6%3.6%2.0%
MSCI ACWI ex US -2.1%-7.1%-2.2%0.3%4.8%3.9%1.9%
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 October 31, 2020)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 98.9%
Cash 1.1%
Strategy Characteristics
Strategy Benchmark
No. of holdings 173 2376
Weighted avg. market cap (US $MM) $85,103 $80,682
FY2 price/earnings 10.4 14.2
Price/book value 1.1 1.6
Dividend yield (%) 3.1 2.6
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 3.2%
Alibaba Group Holding - ADR China 3.0%
Tencent Holdings Ltd. China 2.7%
UniCredit S.p.A. Italy 2.6%
BASF SE Germany 2.5%
ING Groep NV Netherlands 2.4%
Taiwan Semiconductor Manufacturing Co., Ltd. - ADR Taiwan 2.2%
Takeda Pharmaceutical Co., Ltd. Japan 2.0%
FANUC Corp. Japan 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 22.1% 17.1%
Industrials 17.1% 11.6%
Information Technology 13.3% 11.7%
Consumer Discretionary 13.0% 14.4%
Health Care 8.6% 10.0%
Materials 7.5% 7.8%
Consumer Staples 6.6% 9.5%
Communication Services 4.6% 7.9%
Energy 3.5% 4.0%
Utilities 1.8% 3.4%
Real Estate 0.7% 2.7%
UNKNOWN 0.0% 0.0%
TOP 10 COUNTRIES
Country Strategy Benchmark
China 13.8% 13.4%
Germany 12.8% 5.6%
France 11.9% 6.6%
United Kingdom 10.4% 8.2%
Switzerland 7.9% 6.4%
Japan 7.5% 16.6%
Taiwan 5.2% 3.9%
South Korea 5.0% 3.7%
Spain 4.6% 1.4%
Netherlands 4.4% 2.8%
Regional Allocation
  • Europe – other 58.2%
  • Emerging Asia 28.1%
  • Pacific 7.5%
  • Emerging Europe, Middle East, Africa 2.2%
  • Emerging Latin America 2.0%
  • North America 0.9%

Commentary (As of October 31, 2020)

Highlights

  • Optimism surrounding additional fiscal stimulus packages in the US and Europe bolstered equity markets in the first half of October; however, renewed coronavirus lockdowns in several European countries and a surge in cases in the US weakened investor sentiment and developed markets finished the month in negative territory. Buoyed by Chinese stocks, emerging markets (“EM”) equities outperformed most developed markets.
  • In the UK, the deadline to negotiate a Brexit deal marches closer without a resolution. Ultimately, we believe that a deal will be reached to prevent a further dampening of the UK economy in the face of the pandemic-induced recession.
  • We believe that undervaluation alone is never enough, so we seek businesses that have used this crisis to reduce their cost bases by unprecedented levels, which should reinvigorate earnings as demand improves.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the pharmaceuticals & biotechnology, insurance, banks, food beverage & tobacco, and materials industry groups detracted from performance relative to the Index. Holdings in the capital goods, technology hardware & equipment, and media & entertainment industry groups, as well as an underweight position in the diversified financials and commercial & professional services industry groups, offset some of the underperformance versus the Index. The largest detractor was business software & services provider, SAP SE (Germany). Additional notable detractors included Takeda Pharmaceutical Co., Ltd. (Japan), diversified chemicals manufacturer, BASF SE (Germany), banking & financial services company, UniCredit S.p.A. (Italy), and pharmaceuticals & chemicals company, Bayer AG (Germany). The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included online services company, Tencent Holdings Ltd.(Hong Kong), robotics manufacturer, FANUC Corp. (Japan), banking & financial services company, Barclays Plc (United Kingdom), and electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan).

Investment outlook

We currently expect an end to the extremely negative economic effects wrought on the global economy by the pandemic in 2021, facilitated by widely available and efficacious testing, therapies, and potential vaccines. We used October’s weakness in COVID-sensitive stocks to add to positions that we believe have some of the highest expected returns in the portfolio. With no relief from the pandemic thus far in early November, market participants have sold several developed market stocks that we consider having significant potential upside from current prices. Some of our favorites include well-managed travel and aerospace equipment-related businesses, as well as those in travel software & services. In financials, our investment theses do not depend on rising nominal interest rates for our portfolio companies to perform well. For example, European and Japanese banks and insurance companies have contended with low-to-negative interest rates for the past several years, yet valuations are currently trading at three standard deviations below the post-2008 Global Financial Crisis mean. Several of these banks boast capital positions well in excess of regulatory requirements. As we ultimately exit the COVID-19 crisis, we expect these financials to rebound in profitability. That recovery, combined with financial strength, provides the potential for these stocks to re-rate upward. Our analysis indicates that these companies are well-positioned to return excess capital to shareholders. We believe that undervaluation alone is never enough, so we seek businesses that have used this crisis to reduce their cost bases by unprecedented levels, which should reinvigorate earnings as demand improves. Well-managed cyclical stocks trade at prices that imply permanent demand destruction, and the COVID-19 pandemic presents, in our view, a once-in-a-generation opportunity for disciplined value investors.

In the EM portion of the Portfolio, uncertainty surrounding the COVID-19 pandemic continued to weigh on EM value stocks in October. While our value factor delivered positive performance during the month, the MSCI Emerging Markets Value Index underperformed the MSCI Emerging Markets Growth Index. The MSCI EM Value Index is trading near record low valuations based on both price-to-earnings and price-to-book value rations. We continue to emphasize value factors in our multi-factor investment process. We believe that EM value stocks are poised to rebound given the valuation discount, the anticipated resumption of global growth in 2021, and the likely reduction, ultimately, in uncertainty following the US election.

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].