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) 17.7%-11.1%-11.1%0.7%0.7%4.6%3.3%
Strategy (net) 17.6%-11.5%-11.5%0.3%0.3%4.2%3.0%
MSCI ACWI ex US 14.4%-15.6%-15.6%0.5%1.4%4.3%2.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 17.7%-11.1%-11.1%0.7%0.7%4.6%3.3%
Strategy (net) 17.6%-11.5%-11.5%0.3%0.3%4.2%3.0%
MSCI ACWI ex US 14.4%-15.6%-15.6%0.5%1.4%4.3%2.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 17.7%-11.1%-11.1%0.7%0.7%4.6%3.3%
Strategy (net) 17.6%-11.5%-11.5%0.3%0.3%4.2%3.0%
MSCI ACWI ex US 14.4%-15.6%-15.6%0.5%1.4%4.3%2.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 17.7%-11.1%-11.1%0.7%0.7%4.6%3.3%
Strategy (net) 17.6%-11.5%-11.5%0.3%0.3%4.2%3.0%
MSCI ACWI ex US 14.4%-15.6%-15.6%0.5%1.4%4.3%2.2%
Fund 202220212020201920182017201620152014201320122011
Strategy (gross) -11.1%8.0%6.5%23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
Strategy (net) -11.5%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 -15.6%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
202220212020201920182017201620152014201320122011
-11.1%8.0%6.5%23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
-11.5%7.6%6.1%22.9%-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
-15.6%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 December 31, 2022)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 97.7%
Cash 2.3%
Strategy Characteristics
Strategy Benchmark
No. of holdings 235 2261
Weighted avg. market cap (US $MM) $58,066 $62,972
FY2 price/earnings 9.8 11.6
Price/book value 1.5 1.6
Dividend yield (%) 3.6 3.2
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 3.1%
UniCredit S.p.A. Italy 3.0%
Prudential Plc United Kingdom 3.0%
Reckitt Benckiser Group United Kingdom 2.5%
Enel SpA Italy 2.4%
SAP SE Germany 2.2%
FANUC Corp. Japan 2.2%
Amadeus IT Group SA Spain 2.0%
Danone France 2.0%
Roche Holding 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 18.8% 21.0%
Industrials 16.1% 12.3%
Health Care 12.6% 9.8%
Consumer Staples 11.4% 8.9%
Information Technology 10.4% 10.7%
Consumer Discretionary 8.9% 11.4%
Materials 5.8% 8.4%
Utilities 4.9% 3.4%
Energy 3.6% 6.0%
Communication Services 3.3% 5.9%
Equity Funds 1.1% 0.0%
Real Estate 0.2% 2.3%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 21.4% 9.8%
France 12.8% 7.6%
China 9.2% 9.2%
Japan 6.5% 14.0%
Germany 6.0% 5.2%
Spain 5.4% 1.6%
Italy 5.4% 1.5%
Switzerland 4.9% 6.5%
Netherlands 3.9% 2.7%
India 3.8% 4.1%
Regional Allocation
  • EURO 35.8%
  • OTHER EUROPE 27.3%
  • EMERGING ASIA 21.4%
  • PACIFIC RIM 6.5%
  • EMERGING EUROPE, MIDDLE EAST, AFRICA 2.4%
  • NORTH AMERICA 2.1%
  • EMERGING LATIN AMERICA 1.7%
  • MULTI REGION EMERGING 0.0%

Commentary (As of December 31, 2022)

Highlights

  • Despite posting negative returns in December, international equity markets rose sharply in the fourth quarter, on easing inflation concerns and optimism for China’s continued reopening.
  • Currently, recession in major world economies is emerging as a top concern for the coming year. Inflationary pressures should abate in the next few quarters, responding to the delayed impact of rising interest rates in most major economies globally. Re-opening of the Chinese economy should offset some of the global growth headwinds.
  • Lower valuations and relatively greater cyclicality in non-US equity markets should give non-US markets a chance to outperform the US. As economies slow, we expect to reduce the portfolio’s lower-ranked defensive stocks to add more, in our view, competitively well-placed cyclical companies with the potential to improve free cash flow and return more capital to shareholders. We remain focused on identifying management teams able to increase free cash flow, boost dividends and reward shareholders with cash or share buybacks.

Portfolio attribution

The Portfolio outperformed the Index during the month. Portfolio holdings in the banks and insurance industry groups, as well as an underweight position in the energy industry group, contributed to relative performance. Holdings in the household & personal products and technology hardware & equipment industry groups, along with an underweight position in the media & entertainment industry group, offset some of the outperformance compared to the Index. The top individual contributors to return were life insurer, Prudential Plc (United Kingdom), as well as banks, Sumitomo Mitsui Financial Group, Inc. (Japan), and UniCredit S.p.A. (Italy). The top individual detractors from return were integrated circuit manufacturer, Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan), business software & services provider, SAP SE (Germany), and pharmaceuticals & chemicals company, Bayer AG (Germany).

Investment outlook

Weak earnings and a drain of global liquidity – the opposite of the post-GFC bull market - do not bode well for equity markets in the next several months. We anticipate margins coming under pressures as higher costs flow through income statements. Nominal revenue growth may remain elevated, but real earnings growth in certain sectors appears vulnerable in our view. Lower valuations and relatively greater cyclicality in non-US equity markets should give non-US markets a chance to outperform the US. Attractively valued cyclical stocks may deliver relatively good returns in the second half of 2023 as global markets discount post-recession recovery. Further monetary tightening should favor stocks with reasonable valuations and abundant financial strength over those where earnings expectations and multiples still appear too high. Barring another oil supply shock, we believe energy is unlikely to lead the markets to the same extent as in 2022 as global oil & gas demand –besides China – wanes. The end of the era of free money combined with sharply rising short-term interest rates may expose weaknesses in the global financial system. We have reduced our bank weighting and added to economically defensive stocks, which should reduce portfolio risk at the margin. As economies slow, we expect to reduce the portfolio’s lower-ranked defensive stocks to add more, in our view, competitively well-placed cyclical companies with the potential to improve free cash flow and return more capital to shareholders. We remain focused on identifying management teams able to increase free cash flow, boost dividends and reward shareholders with cash or share buybacks.

Within the EM portion of the Portfolio, the sectors with the weakest net upgrades were information technology, materials, and utilities. Forecasts for the information technology sector reflect falling demand for semiconductor memory components. Weak expectations for materials are due in part to the impact of slowing global growth on commodity prices. The sectors with the strongest net upgrades were consumer discretionary, communication services, and energy. Both consumer discretionary and communication services are heavily exposed to China and have benefited from the government’s efforts to rekindle economic growth. While we incorporate growth expectations into our multi-factor EM 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].