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) 5.2%-20.5%-20.9%-0.6%-0.7%4.0%2.6%
Strategy (net) 5.2%-20.8%-21.2%-1.0%-1.1%3.7%2.2%
MSCI ACWI ex US 3.0%-24.0%-24.4%-1.2%-0.1%3.7%1.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 5.2%-20.5%-20.9%-0.6%-0.7%4.0%2.6%
Strategy (net) 5.2%-20.8%-21.2%-1.0%-1.1%3.7%2.2%
MSCI ACWI ex US 3.0%-24.0%-24.4%-1.2%-0.1%3.7%1.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -10.4%-24.4%-24.3%-0.9%-1.3%3.6%2.3%
Strategy (net) -10.5%-24.7%-24.7%-1.3%-1.7%3.2%1.9%
MSCI ACWI ex US -9.8%-26.2%-24.8%-1.1%-0.3%3.5%1.3%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -10.4%-24.4%-24.3%-0.9%-1.3%3.6%2.3%
Strategy (net) -10.5%-24.7%-24.7%-1.3%-1.7%3.2%1.9%
MSCI ACWI ex US -9.8%-26.2%-24.8%-1.1%-0.3%3.5%1.3%
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 October 31, 2022)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 97.7%
Cash 2.3%
Strategy Characteristics
Strategy Benchmark
No. of holdings 242 2273
Weighted avg. market cap (US $MM) $50,498 $55,606
FY2 price/earnings 9.4 11.0
Price/book value 1.5 1.6
Dividend yield (%) 3.8 3.4
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 3.0%
UniCredit S.p.A. Italy 2.9%
SAP SE Germany 2.5%
Prudential Plc United Kingdom 2.4%
Enel SpA Italy 2.4%
Reckitt Benckiser Group United Kingdom 2.1%
FANUC Corp. Japan 2.1%
Amadeus IT Group SA Spain 2.1%
Sanofi France 1.9%
Unilever United Kingdom 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 18.6% 20.9%
Industrials 16.8% 12.5%
Health Care 12.7% 10.1%
Consumer Staples 11.1% 9.0%
Information Technology 10.4% 10.9%
Consumer Discretionary 7.6% 10.7%
Materials 6.7% 8.1%
Utilities 5.0% 3.3%
Energy 4.2% 6.6%
Communication Services 2.3% 5.7%
Equity Funds 1.3% 0.0%
Real Estate 0.2% 2.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 19.9% 10.0%
France 13.5% 7.5%
Germany 7.0% 5.1%
China 6.8% 7.5%
Japan 6.3% 14.1%
Spain 5.5% 1.6%
Italy 5.2% 1.5%
Switzerland 5.0% 6.7%
Netherlands 4.3% 2.6%
India 4.2% 4.5%
Regional Allocation
  • EURO 37.9%
  • OTHER EUROPE 26.2%
  • EMERGING ASIA 18.9%
  • PACIFIC RIM 6.3%
  • EMERGING EUROPE, MIDDLE EAST, AFRICA 3.5%
  • NORTH AMERICA 2.3%
  • EMERGING LATIN AMERICA 2.0%
  • MULTI REGION EMERGING 0.0%

Commentary (As of October 31, 2022)

Highlights

  • Despite ongoing geopolitical tensions, persistently high inflation, lingering global supply chain constraints (China continues to pursue a zero-Covid policy), and an effort by European governments to shore up natural gas supplies before the onset of winter, global developed equity markets appreciated in October – likely reflecting rising expectations of a moderation in the pace of interest rate increases by developed market central banks. Within emerging markets (“EM”), market weakness in China – MSCI China (31% of the index) was down 17% and weighed on the asset class.
  • Strong labor markets and the aforementioned high inflation compelled further interest rate increases from many developed market central banks. We expect the Fed, ECB, and BoE will likely continue to raise interest rates –even though the result of such tightening will likely not be fully reflected in economic data for at least 12 months.
  • We believe valuations for international equities, regardless of region, are increasingly promising for investors with a multi-year investment horizon. We expect meaningful alpha potential from cyclical European equities that incurred waves of selling after Russia’s invasion of Ukraine and from stocks in developed markets afflicted by China’s zero-Covid policy.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, capital goods, software & services, transportation, and retailing industry groups contributed to relative performance. Holdings in the energy, health care equipment & services, semiconductors & semi equipment, insurance, and automobiles & components 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 jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), business software & services provider, SAP SE (Germany), rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), and low-budget airline, Ryanair Holdings Plc (Ireland). The largest detractor was healthcare equipment & services provider, Koninklijke Philips NV (Netherlands). Additional notable detractors included life insurer, Prudential Plc (United Kingdom), online services company, Tencent Holdings Ltd. (China), integrated circuit manufacturer, Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan), and robotics manufacturer, FANUC Corp.(Japan).

Investment outlook

We believe that valuations for international equities, regardless of region, are increasingly promising for investors with a multi-year investment horizon. Currency slippage versus the US dollar should reverse, at least in part, as the interest rate differential between the US and Europe (for example) closes over the upcoming 12-18 months. Cyclical European equities incurred waves of selling after Russia’s invasion of Ukraine in February. That investor exodus has brought some, in our view, world-class developed market companies, in sectors such as materials, industrials, and consumer discretionary, into our buying range. We expect another area of meaningful alpha potential to come from developed markets stocks afflicted by China’s zero-Covid policy. We used the pessimism from delayed China reopening to gain exposure to, in our view, a broad array of competitively well-positioned companies that generate 10% or more of their respective revenues from the Chinese market. Typical of what Causeway seeks for its holdings, these companies have not wasted time while their China sales are weak; they have implemented operational restructuring to improve efficiency and lower costs in anticipation of a return to revenue expansion. Reopening, albeit gradual and without a precise timeframe, is inevitable in our view. Governments that asphyxiate their economies and cause social instability typically do not remain in power. We are convinced that China is no exception.

Within the EM portion of the Portfolio, we adjusted our earnings growth factor to, in our view, better reflect sentiment for commodity-related stocks. Based on our research, sell-side analyst earnings revisions for this cohort of stocks may be inconsistent with the price movement of the underlying commodities. In some cases, analysts are slow to update estimates, while in other cases, analysts base their forecasts on forward contracts, which adjust with a lag compared to spot prices. Additionally, extreme movements in commodity prices are often met with supply and demand responses, resulting in price reversals. For these reasons, we believe that adjusting our earnings growth factor for commodity-related stocks can potentially improve the Portfolio's risk-adjusted returns. Overall, earnings growth upgrades for EM equities continue to lag those in ex-US developed markets. The EM sectors with the weakest net upgrades were materials, communication services, and industrials. Slowing global growth has contributed to lower expectations for industrials, which reflect weakness in the shipping sector, and materials companies. Communication services is primarily driven by the Chinese internet and technology companies, which have been impacted by the country’s slowing growth. Sectors with positive net upgrades were financials and energy. Financials are benefitting from positive credit cycles in India and Brazil, countries where we are identifying attractive investment opportunities in banks. The energy sector has been buoyed by oil, coal, and natural gas prices, which remain relatively strong. 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 offers attractive risk-adjusted return 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].