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) 1.2%18.8%27.3%10.6%5.5%5.7%4.3%
Strategy (net) 1.1%18.5%26.8%10.1%5.1%5.3%3.9%
MSCI ACWI ex US -0.6%9.2%12.5%4.5%3.8%4.9%2.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 1.2%18.8%27.3%10.6%5.5%5.7%4.3%
Strategy (net) 1.1%18.5%26.8%10.1%5.1%5.3%3.9%
MSCI ACWI ex US -0.6%9.2%12.5%4.5%3.8%4.9%2.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 4.7%17.4%23.9%13.1%5.2%6.0%4.3%
Strategy (net) 4.6%17.2%23.4%12.6%4.8%5.6%3.9%
MSCI ACWI ex US 2.7%9.9%13.3%7.7%4.0%5.2%2.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 4.7%17.4%23.9%13.1%5.2%6.0%4.3%
Strategy (net) 4.6%17.2%23.4%12.6%4.8%5.6%3.9%
MSCI ACWI ex US 2.7%9.9%13.3%7.7%4.0%5.2%2.7%
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 August 31, 2023)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks 98.8%
Cash 1.2%
Strategy Characteristics
Strategy Benchmark
No. of holdings 247 2306
Weighted avg. market cap (US $MM) $61,553 $69,576
FY2 price/earnings 10.0 12.1
Price/book value 1.6 1.7
Dividend yield (%) 3.5 3.1
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 5.3%
UniCredit S.p.A. Italy 2.7%
Enel SpA Italy 2.6%
SAP SE Germany 2.4%
Roche Holding AG Switzerland 2.3%
Reckitt Benckiser Group United Kingdom 2.3%
Danone France 2.0%
Prudential Plc United Kingdom 2.0%
Barclays PLC United Kingdom 2.0%
Deutsche Telekom AG Germany 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 19.2% 20.7%
Industrials 16.9% 13.2%
Health Care 13.0% 9.7%
Consumer Staples 12.5% 8.6%
Information Technology 10.8% 11.7%
Consumer Discretionary 7.3% 12.0%
Utilities 5.2% 3.1%
Materials 5.1% 7.8%
Communication Services 4.1% 5.4%
Energy 2.5% 5.7%
Equity Funds 0.9% 0.0%
Real Estate 0.4% 2.0%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 25.3% 9.5%
France 11.2% 8.0%
China 8.2% 8.3%
Germany 8.0% 5.5%
Japan 5.5% 14.7%
Italy 5.4% 1.7%
Switzerland 5.0% 6.6%
Netherlands 4.6% 2.8%
Taiwan 4.4% 4.2%
India 4.0% 4.1%
Regional Allocation
  • EURO 34.6%
  • OTHER EUROPE 30.5%
  • EMERGING ASIA 21.3%
  • PACIFIC RIM 6.2%
  • EMERGING LATIN AMERICA 1.9%
  • NORTH AMERICA 1.9%
  • EMERGING EUROPE, MIDDLE EAST, AFRICA 1.8%
  • MULTI REGION EMERGING 0.0%

Commentary (As of August 31, 2023)

Highlights

  • Global equity markets paused their rally in August, dipping slightly lower for the month. Expectations of a higher-for-longer interest rate environment and apprehensions surrounding China's slowing economy tempered market enthusiasm.
  • We believe enthusiasm for artificial intelligence-related applications has overwhelmed concerns about economic sensitivity. As technology garners most of the attention, we are looking at more unpopular areas of markets in the developed markets portion of the Portfolio. Our team aims to find investment opportunities in companies that can accelerate earnings and cash flows (“underearners”), largely independent of broad macroeconomic trends.
  • Within the emerging markets portion of the Portfolio, we aggregated two “top down” factors, country and sector, as part of our continuous effort to enhance our quantitative model. This country-sector aggregate factor combines country and sector analysis, recognizing that many sectors are locally-oriented and may not be comparable across countries, while other sectors are global in nature.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the capital goods, health care equipment & services, and banks industry groups contributed to relative performance. Holdings in the pharmaceuticals & biotechnology, automobiles & components, and insurance industry groups offset some of the outperformance compared to the Index. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included healthcare equipment & services provider, Koninklijke Philips NV (Netherlands), and global investment bank, UBS Group AG (Switzerland). The largest detractor was Asian life insurer, Prudential Plc (United Kingdom). Additional notable detractors included rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), and pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland).

Economic outlook

Economic signals in developed economies are mixed. In August, US wages rose year-over-year and employers added jobs, yet the unemployment rate crept up to 3.8%. The core personal consumption expenditures price index rose 0.2% in July, the smallest uptick since late 2020, yet inflation-adjusted consumer spending experienced its greatest increase year-to-date. Euro area inflation for the year-to-date through August period was 5.3%, well exceeding the central bank's 2% policy target, although consumer price increases excluding energy and food cooled. Central bank officials must assess if slowing growth can sufficiently reduce inflation or if further rate hikes are warranted. We expect unemployment to rise in the US, UK, and Europe in the first half of 2024 as credit conditions tighten further. The Bank of Japan stated its economy may be reaching a turning point in its 25-year battle with deflation. Official measures showed Japanese demand outpacing supply for the first time in four years.


All eyes are on China as the world’s second-largest economy grapples with a slumping property sector and slowing real GDP growth. China is deploying measures to shore up its property market and address vulnerabilities in its financial system and currency, yet investors remain concerned about the repercussions of flagging Chinese activity on the greater global economy. The Portfolio is underweight Chinese equities due to the underweight allocation to emerging markets, which is largely due to weak earnings estimate revisions for emerging markets, of which China is by far the largest equity market. While almost all sectors in China are trading at significant discounts to their historic valuations, we currently are finding the most attractive opportunities in energy, industrials, financials, and interactive media companies. We are underweight companies in China’s real estate sector, a particularly vulnerable segment of the country’s economy.

Investment outlook

In 2023, global equity markets have signaled economic slowing ahead via the underperformance of cyclical sectors such as financials, materials, and industrials. Yet economically defensive sectors such as utilities, consumer staples, and healthcare also have, uncharacteristically, underperformed. In contrast, information technology—in international and emerging markets as well as the tech-dominant US market—is the largest outperforming sector by a wide margin this year-to-date. We believe enthusiasm for artificial intelligence-related applications has overwhelmed concerns about economic sensitivity. As technology garners most of the attention, we are looking at more unpopular areas of markets in the developed markets portion of the Portfolio. Our team aims to find investment opportunities in companies that can accelerate earnings and cash flows (“underearners”), largely independent of broad macroeconomic trends. These include currently misunderstood and out-of-favor companies in industries such as insurance, chemicals, and consumer non-durables.


In an environment where expensive stocks may be increasingly vulnerable to de-rating, we believe the portfolio should be relatively resilient against valuation multiple compression. In the developed markets portion of the Portfolio, we generally use conservative assumptions in our stock valuation models, adhere to a multi-year investment horizon, and integrate in-house quantitative risk analysis into our portfolio construction process. Market volatility provides our portfolio management team an opportunity to add to vetted investment candidates at attractive entry points, supporting our efforts to generate competitive returns on behalf of our clients.


Within the emerging markets portion of the Portfolio, we aggregated two “top down” factors, country and sector, as part of our continuous effort to enhance our quantitative model. This country-sector aggregate factor combines country and sector analysis, recognizing that many sectors are locally-oriented and may not be comparable across countries, while other sectors are global in nature. For example, we believe comparing financials companies across countries has little predictive value as each country has its own central bank, interest rate dynamics, and macroeconomic drivers affecting the credit cycle. However, comparing energy or mining companies across different countries can be useful since these businesses tend to sell into a global marketplace. The country-sector aggregate factor has two components – self-relative valuation and earnings growth –and it has a 12.5% weight in the strategy’s alpha model.

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].