Seeking value primarily in the non-US developed markets

The international value portfolio is constructed from an equity universe composed of companies with market capitalizations typically greater than $1 billion located throughout the non-US developed and emerging market countries. Through rigorous, bottom-up company analysis, we seek to identify undervalued stocks with upside potential. The investment process comprises three stages: quantitative screening and initial analysis, fundamental research and portfolio construction.

Strategy overview

The portfolio managers discuss our International Value strategy.

Portfolio managers

Fundamental Portfolio Manager
Fundamental Portfolio Manager
President
Head of Fundamental Research
Fundamental Portfolio Manager
Chief Executive Officer
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager

Performance

QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 27.1%6.1%6.1%2.1%6.7%6.3%7.6%
Strategy (net) 26.9%5.6%5.6%1.7%6.3%5.9%7.2%
MSCI EAFE 16.1%8.3%8.3%4.8%8.0%6.0%5.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 27.1%6.1%6.1%2.1%6.7%6.3%7.6%
Strategy (net) 26.9%5.6%5.6%1.7%6.3%5.9%7.2%
MSCI EAFE 16.1%8.3%8.3%4.8%8.0%6.0%5.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 27.1%6.1%6.1%2.1%6.7%6.3%7.6%
Strategy (net) 26.9%5.6%5.6%1.7%6.3%5.9%7.2%
MSCI EAFE 16.1%8.3%8.3%4.8%8.0%6.0%5.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 27.1%6.1%6.1%2.1%6.7%6.3%7.6%
Strategy (net) 26.9%5.6%5.6%1.7%6.3%5.9%7.2%
MSCI EAFE 16.1%8.3%8.3%4.8%8.0%6.0%5.8%
Fund 2020201920182017201620152014201320122011201020092008200720062005200420032002
Strategy (gross) 6.1%22.5%-18.0%28.6%1.1%-1.9%-4.6%27.6%24.6%-10.2%13.9%37.7%-43.0%9.8%27.5%9.0%29.5%48.4%-8.9%
Strategy (net) 5.6%22.0%-18.4%28.0%0.7%-2.3%-5.0%27.1%24.1%-10.5%13.4%37.1%-43.2%9.4%27.0%8.5%29.0%47.8%-9.2%
MSCI EAFE 8.3%22.7%-13.4%25.6%1.5%-0.4%-4.5%23.3%17.9%-11.7%8.2%32.5%-43.1%11.6%26.9%14.0%20.7%39.2%-15.7%
Strategy (gross)
Strategy (net)
MSCI EAFE
2020201920182017201620152014201320122011201020092008200720062005200420032002
6.1%22.5%-18.0%28.6%1.1%-1.9%-4.6%27.6%24.6%-10.2%13.9%37.7%-43.0%9.8%27.5%9.0%29.5%48.4%-8.9%
5.6%22.0%-18.4%28.0%0.7%-2.3%-5.0%27.1%24.1%-10.5%13.4%37.1%-43.2%9.4%27.0%8.5%29.0%47.8%-9.2%
8.3%22.7%-13.4%25.6%1.5%-0.4%-4.5%23.3%17.9%-11.7%8.2%32.5%-43.1%11.6%26.9%14.0%20.7%39.2%-15.7%

Portfolio (as of December 31, 2020)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 99.0%
Cash 1.0%
Strategy Characteristics
Strategy Benchmark
No. of holdings 58 876
Weighted avg. market cap (US $MM) $68,156 $59,572
FY2 price/earnings 13.7 16.9
Price/book value 1.3 1.8
Dividend yield (%) 2.5 2.4
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 4.1%
Samsung Electronics Co., Ltd. South Korea 3.8%
Rolls-Royce Holdings Plc United Kingdom 3.7%
Novartis AG Switzerland 3.0%
BASF SE Germany 3.0%
UniCredit S.p.A. Italy 2.9%
Takeda Pharmaceutical Co., Ltd. Japan 2.8%
ING Groep NV Netherlands 2.7%
Siemens AG Germany 2.6%
Murata Manufacturing Co. Ltd. Japan 2.5%

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.

Holdings are subject to change.

SECTOR WEIGHTS
Sector Strategy Benchmark
Industrials 22.2% 15.2%
Financials 21.9% 16.3%
Information Technology 13.9% 8.9%
Health Care 11.5% 12.9%
Consumer Discretionary 9.9% 12.5%
Materials 6.0% 7.9%
Consumer Staples 6.0% 10.9%
Utilities 3.3% 3.9%
Energy 2.8% 3.1%
Communication Services 1.5% 5.2%
Real Estate 0.0% 3.1%
TOP 10 COUNTRIES
Country Strategy Benchmark
France 16.2% 11.1%
Germany 16.2% 9.4%
United Kingdom 13.2% 14.0%
Switzerland 11.8% 9.6%
Japan 9.5% 25.3%
Spain 7.4% 2.4%
South Korea 5.9% 0.0%
Netherlands 5.7% 3.9%
Italy 4.7% 2.4%
China 2.1% 0.0%
Regional Allocation
  • Europe – other 78.2%
  • Pacific 10.5%
  • Emerging Asia 7.9%
  • North America 1.7%
  • Emerging Latin America 0.6%

Commentary (As of December 31, 2020)

Highlights

  • Bolstered by optimism for an end to the COVID-19 pandemic as several countries began rolling out vaccines, global equity markets rose in December to close out the year.
  • We believe that as vaccine rollout efforts ramp up, beleaguered economies will begin to return to normality before year end. In order to bridge the economic gap, central banks and governments have continued to provide monetary and fiscal support, creating demand.
  • We believe the consequences of record high levels of fiscal and monetary stimulus will, at some stage, feed into the real economy. A value-focused portfolio remains, in our view, one of the few ways to hedge higher interest rates and/or inflation.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the technology hardware & equipment, media & entertainment, semiconductors & semi equipment, and capital goods industry groups, as well as an underweight position in the household & personal products industry group, contributed to relative performance. Holdings in the banks, materials, and utilities industry groups, along with an overweight position in the transportation industry group and an underweight position in the consumer durables & apparel industry group, offset some of the outperformance compared to the Index. The top contributor to return was electronic equipment manufacturer, Samsung Electronics Co., Ltd.(South Korea). Other notable contributors included internet services provider, Baidu - ADR (China), products & services provider for the electronic components industry, SK hynix, Inc. (South Korea), automobile manufacturer, Volkswagen AG (Germany), and jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). The largest detractor was banking & financial services company, UniCredit S.p.A. (Italy). Additional notable detractors included financial services provider, ING Groep NV (Netherlands), pharmaceutical giant, Sanofi (France), airline, AIR Canada (Canada), and toll road & car parks concessions operator, Vinci (France).

Investment outlook

As economies return to normal in 2021, we expect the narrow concentration of performance in global indices—as well as the value-growth spread—to reverse. We believe that the rally in economically sensitive stocks should continue in 2021, amplified by those companies who have used this crisis to eliminate excess cost and boost efficiency, resulting in increased profitability as revenues recover. We have deliberately emphasized these companies engaging in operational restructuring. As profitability recovers, so should free cash flow. We are optimistic that companies will return surplus cash to shareholders in the form of dividends and share buybacks in 2021, an important component of total return. We believe the consequences of record high levels of fiscal and monetary stimulus will, at some stage, feed into the real economy.A value-focused portfolio remains, in our view, one of the few ways to hedge higher interest rates and/or inflation.

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].