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) -0.6%11.5%6.5%13.1%3.6%5.0%3.9%
Strategy (net) -0.6%11.3%6.0%12.6%3.2%4.6%3.6%
MSCI ACWI ex US -1.8%5.1%-0.9%7.8%2.7%4.3%2.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -0.6%11.5%6.5%13.1%3.6%5.0%3.9%
Strategy (net) -0.6%11.3%6.0%12.6%3.2%4.6%3.6%
MSCI ACWI ex US -1.8%5.1%-0.9%7.8%2.7%4.3%2.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 12.2%12.2%5.6%18.0%3.5%5.5%4.0%
Strategy (net) 12.1%12.1%5.2%17.5%3.1%5.2%3.7%
MSCI ACWI ex US 7.0%7.0%-4.6%12.3%3.0%4.7%2.6%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 12.2%12.2%5.6%18.0%3.5%5.5%4.0%
Strategy (net) 12.1%12.1%5.2%17.5%3.1%5.2%3.7%
MSCI ACWI ex US 7.0%7.0%-4.6%12.3%3.0%4.7%2.6%
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 April 30, 2023)

Benchmark: MSCI ACWI ex US
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

  • Global equity markets continued to rise in April, with international developed markets outpacing US and emerging markets.
  • 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.
  • 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.

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].