Seeking diversified exposure to international small cap companies

The international small cap strategy invests primarily in common stocks of companies with smaller market capitalizations located in developed and emerging markets outside the US. The portfolio normally invests at least 80% of its total assets in equity securities of companies with smaller market capitalizations. Smaller market capitalization companies are companies with market capitalizations that do not exceed the highest market capitalization of a company within the portfolio’s benchmark, the MSCI ACWI ex USA Small Cap Index (Gross), at the time of purchase. Some of these companies, although small by US standards, might be large companies in their local markets. The portfolio may continue to hold securities of a company that appreciate above the smaller market capitalization threshold and thus may from time to time hold less than 80% of its total assets in equity securities of companies with smaller market capitalizations. The portfolio may invest in a wide range of industries.

Benchmark
MSCI AC World ex USA Small Cap
Inception
November 30, 2014
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Strategy overview

The portfolio managers discuss our International Small Cap strategy.

Portfolio managers

Quantitative Portfolio Manager
Head of Quantitative Research
Quantitative Portfolio Manager
Quantitative Portfolio Manager
Quantitative Portfolio Manager

Performance

Table Header QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.2%2.2%7.0%10.1%19.8%9.1%9.4%
Strategy (net) 2.1%2.1%6.2%9.4%19.0%8.2%8.5%
MSCI ACWI ex USA Small Cap 0.8%0.8%2.4%1.5%12.3%5.8%5.8%
Table Header QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.2%2.2%7.0%10.1%19.8%9.1%9.4%
Strategy (net) 2.1%2.1%6.2%9.4%19.0%8.2%8.5%
MSCI ACWI ex USA Small Cap 0.8%0.8%2.4%1.5%12.3%5.8%5.8%
Table Header QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.2%2.2%7.0%10.1%19.8%9.1%9.4%
Strategy (net) 2.1%2.1%6.2%9.4%19.0%8.2%8.5%
MSCI ACWI ex USA Small Cap 0.8%0.8%2.4%1.5%12.3%5.8%5.8%
Table Header QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.2%2.2%7.0%10.1%19.8%9.1%9.4%
Strategy (net) 2.1%2.1%6.2%9.4%19.0%8.2%8.5%
MSCI ACWI ex USA Small Cap 0.8%0.8%2.4%1.5%12.3%5.8%5.8%
Fund 2024202320222021202020192018201720162015
Strategy (gross) 12.3%29.7%-9.7%22.3%4.3%21.6%-20.4%36.4%4.6%6.1%
Strategy (net) 11.5%28.8%-10.3%21.5%3.6%20.7%-21.2%35.1%3.6%5.0%
MSCI ACWI ex USA Small Cap 3.9%16.2%-19.6%13.4%14.7%22.9%-17.9%32.1%4.3%3.0%
Table Header
Strategy (gross)
Strategy (net)
MSCI ACWI ex USA Small Cap
2024202320222021202020192018201720162015
12.3%29.7%-9.7%22.3%4.3%21.6%-20.4%36.4%4.6%6.1%
11.5%28.8%-10.3%21.5%3.6%20.7%-21.2%35.1%3.6%5.0%
3.9%16.2%-19.6%13.4%14.7%22.9%-17.9%32.1%4.3%3.0%

Portfolio (as of March 31, 2025)

Benchmark: MSCI ACWI ex USA Small Cap
Asset Allocation
Table Header Strategy
Stocks 98.5%
Cash 1.5%
Strategy Characteristics
Table Header Strategy Benchmark
No. of holdings 176 4142
Weighted avg. market cap (US $MM) $2,883 $2,128
FY2 price/earnings 8.5 11.7
Price/book value 1.0 1.3
Dividend yield (%) 4.5 2.9
TOP 10 HOLDINGS
Security Country Active weight*
Unipol Gruppo SpA Italy 2.0%
FinVolution Group China 1.9%
JB Hi-Fi Ltd. Australia 1.9%
Simplo Technology Co., Ltd. Taiwan 1.7%
Power Finance Corp. Ltd. India 1.7%
Credit Saison Co., Ltd. Japan 1.7%
Iveco Group NV Italy 1.6%
Celestica Canada 1.5%
Sankyo Co., Ltd. Japan 1.5%
KPIT Technologies Ltd. India 1.5%

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.

*Active defined as Portfolio weight minus MSCI ACWI ex USA Small Cap Index weight. Holdings are subject to change.

SECTOR WEIGHTS
Sector Strategy Benchmark
Industrials 22.6% 20.9%
Financials 16.5% 12.2%
Information Technology 14.4% 10.1%
Consumer Discretionary 9.9% 11.9%
Materials 7.8% 11.9%
Health Care 6.4% 6.7%
Utilities 5.6% 3.1%
Real Estate 5.1% 9.7%
Communication Services 5.0% 3.9%
Energy 2.6% 3.8%
Consumer Staples 1.6% 5.7%
Equity Funds 0.9% 0.0%
TOP 10 COUNTRIES
Country Strategy Benchmark
Japan 27.9% 23.4%
Taiwan 9.5% 5.6%
Australia 7.3% 6.4%
Canada 6.8% 6.7%
Italy 6.4% 2.1%
United Kingdom 6.2% 8.7%
India 5.8% 8.0%
South Korea 4.3% 3.2%
China 3.9% 3.3%
Singapore 2.3% 1.4%
Regional Allocation
  • Pacific 38.2%
  • Emerging Asia 25.2%
  • Europe – other 21.9%
  • North America 6.8%
  • Emerging Europe, Middle East, Africa 2.4%
  • Developed Middle East 1.9%
  • Emerging Latin America 1.3%
  • Multi Region All Country 0.9%

Commentary (As of March 31, 2025)

Highlights

  • Global equity markets began the year on an optimistic note, but US stocks faltered amid tax policy uncertainty and shifting tariff pronouncements.
  • The strategy outperformed for the period.
  • Relative to their larger-cap peers, international small caps tend to derive a much higher percentage of revenue from their domestic market which we believe better protects them from rising barriers to trade or tariffs.

Portfolio Attribution

The Portfolio modestly underperformed the Index during the month. To evaluate stocks in our investable universe, our multi-factor quantitative model employs five bottom-up factor categories - valuation, sentiment, technical indicators, quality, and corporate events -and two top-down factor categories assessing macroeconomic and country aggregate characteristics. Though alpha factor performance was mixed in March, most alpha factors posted positive performance in the first quarter overall. Valuation was the best-performing alpha factor category in March and over the last twelve months. The strategy's sentiment and technical factors delivered negative returns in March, though both were relatively flat for the first quarter. Our quality and corporate events alpha factors both posted positive returns for March and the first quarter. Our macroeconomic and country aggregate factors posted negative returns in March as countries exhibiting stronger metrics (such as Taiwan) underperformed those with relatively weaker characteristics (such as India and Brazil). All factor groups remain positive on an inception to date basis.

Quarterly Investment Outlook

The US is expected to announce substantial tariff increases on imports from nearly all US trading partners in early April. Many countries may retaliate, creating rising barriers to global trade. Generally speaking, small cap stocks should be less impacted than their larger peers due to greater focus on their home market. Constituents of the Index derive, on average, 66% of their revenue from their home market, compared to just 48% for constituents of the ACWI ex US Index.

In China, we are optimistic about the recent consumption-oriented stimulus measures announced in March as well as the vow to “stabilize the stock market.” Market participants remain skeptical about China hitting GDP growth targets, however the clear pivot to stimulus indicates the government’s willingness to do whatever it takes to boost the economy. Although China is just 3% of the Index, recent stimulus measures should be supportive of global economic growth.

International small caps continue to trade at a rare discount to their larger-cap (ACWI ex USA Index) peers on a forward P/E basis. In addition to the attractive relative valuation of the asset class overall, Causeway’s International Small Cap portfolio continues to trade at a substantial discount to the Index while simultaneously exhibiting more favorable growth, quality, momentum, and positive estimate revisions than the Index. We believe that this highly attractive combination of characteristics better insulates our portfolio from future volatility.

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].