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

Chief Executive Officer
Fundamental Portfolio Manager
President
Head of Fundamental Research
Fundamental Portfolio Manager
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) 13.9%-21.6%-9.0%-3.9%-1.5%5.5%6.1%
Strategy (net) 13.9%-21.7%-9.4%-4.3%-1.9%5.1%5.7%
MSCI EAFE 11.2%-14.0%-2.4%0.1%1.3%5.8%4.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 13.9%-21.6%-9.0%-3.9%-1.5%5.5%6.1%
Strategy (net) 13.9%-21.7%-9.4%-4.3%-1.9%5.1%5.7%
MSCI EAFE 11.2%-14.0%-2.4%0.1%1.3%5.8%4.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -31.2%-31.2%-23.9%-6.3%-3.3%2.8%5.5%
Strategy (net) -31.3%-31.3%-24.2%-6.7%-3.7%2.3%5.0%
MSCI EAFE -22.7%-22.7%-13.9%-1.3%-0.1%3.2%4.1%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -31.2%-31.2%-23.9%-6.3%-3.3%2.8%5.5%
Strategy (net) -31.3%-31.3%-24.2%-6.7%-3.7%2.3%5.0%
MSCI EAFE -22.7%-22.7%-13.9%-1.3%-0.1%3.2%4.1%
Fund 201920182017201620152014201320122011201020092008200720062005200420032002
Strategy (gross) 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) 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 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
201920182017201620152014201320122011201020092008200720062005200420032002
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%
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%
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 May 31, 2020)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 99.0%
Cash 1.0%
Strategy Characteristics
Strategy Benchmark
No. of holdings 66 915
Weighted avg. market cap (US $MM) $52,032 $51,262
FY2 price/earnings 11.4 14.3
Price/book value 1.0 1.5
Dividend yield (%) 2.9 2.9
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 4.5%
BASF SE Germany 4.0%
UniCredit S.p.A. Italy 3.9%
Takeda Pharmaceutical Co., Ltd. Japan 3.4%
FANUC Corp. Japan 3.3%
Siemens AG Germany 3.3%
ABB Ltd. Switzerland 3.1%
Barclays Plc United Kingdom 3.0%
Samsung Electronics Co., Ltd. South Korea 2.8%
Novartis AG Switzerland 2.7%

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 24.0% 14.6%
Financials 20.2% 15.7%
Health Care 11.5% 14.7%
Information Technology 10.2% 8.0%
Materials 9.1% 7.1%
Consumer Discretionary 8.3% 11.6%
Communication Services 6.0% 5.4%
Consumer Staples 5.3% 12.2%
Energy 3.2% 3.5%
Utilities 1.2% 4.1%
Real Estate 0.0% 3.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
Germany 23.8% 8.8%
United Kingdom 21.5% 14.5%
Japan 11.2% 26.4%
Switzerland 9.5% 10.3%
France 8.7% 10.6%
South Korea 4.5% 0.0%
Italy 4.2% 2.1%
Netherlands 4.1% 4.3%
Spain 3.9% 2.5%
China 3.2% 0.0%
Regional Allocation
  • Europe – other 79.0%
  • Pacific 11.3%
  • Emerging Asia 7.7%
  • Emerging Latin America 0.5%
  • North America 0.4%

Commentary (As of May 31, 2020)

Highlights

  • Equity markets continued to rally in May, likely responding to massive monetary and fiscal stimulus. Investor bias in favor of growth stocks persisted with the MSCI EAFE Growth Index outpacing the MSCI EAFE Value Index for the fifth month in a row. We anticipate a pickup in global economic activity as countries gradually relax COVID-19 pandemic lockdown measures.
  • Though global fiscal and monetary authorities’ quick action to cushion the economic blow is encouraging, stimulus should end later this year. In the next several months, we expect the private sector in most regions to resume hiring, tap bank credit for resumption of operations, and boost capital expenditures. These actions are likely to push up prices, mitigating the deflationary impact of the lockdowns and lower oil prices.
  • The intense market dislocation resulting from the pandemic afforded us the rare opportunity to purchase portfolio companies exhibiting, in our view, extreme undervaluation, recovery potential in earnings and cash flow growth, and quality characteristics such as talented management, defensible market position, and financial strength.

Portfolio attribution

The Portfolio modestly outperformed the Index during the month, due primarily to country allocation (a byproduct of our bottom-up stock selection process). Portfolio holdings in the banks, semiconductors & semi equipment, telecommunication services, and transportation industry groups, as well as an underweight position in the real estate industry group, contributed to relative performance. Holdings in the capital goods, technology hardware & equipment, and consumer durables & apparel industry groups, along with an underweight position in the retailing and health care equipment & services industry groups, detracted from performance compared to the Index. The top contributor to return was industrial conglomerate, Siemens AG (Germany). Other notable contributors included banking & financial services company, UniCredit S.p.A. (Italy), financial services provider, ING Groep NV (Netherlands), banking & financial services company, BNP Paribas SA (France), and low-budget airline, Ryanair Holdings - ADR (Ireland). The largest detractor was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Additional notable detractors included life insurer, Prudential Plc (United Kingdom), mobile telecommunications operator, China Mobile Ltd. (China), passenger & cargo airline company, Air France-KLM SA (France), and civil construction company, Balfour Beatty Plc (United Kingdom).

Investment outlook

The speed and magnitude of stimulus from global central banks and governments has likely allowed investors to anticipate the recovery. Market volatility remains high (relative to early February, before the acceleration of the pandemic), as the path to widely available COVID-19 therapies and vaccines remains unclear. Against this backdrop, we have increased our exposure to companies in the most severely impacted segments of the market (such as banks, transportation, and capital goods) that we believe boast superior balance sheet strength and liquidity positions to withstand the downturn in revenues. We also deployed capital to growth-oriented cyclical stocks—largely in the technology sector—that currently trade at undemanding valuations. The intense market dislocation resulting from the pandemic afforded us the rare opportunity to purchase portfolio companies exhibiting, in our view, extreme undervaluation, recovery potential in earnings and cash flow growth, and quality characteristics such as talented management, defensible market position, and financial strength. Based on the last three market cycles, and the recent recovery in markets from the late March 2020 lows, we are convinced that cyclical sectors will –once again –outperform the more defensive areas of the market. We believe that this crisis has brought the extraordinary occasion to own some of the best positioned cyclical companies in materials, consumer discretionary, industrials (especially capital goods), and financials. A resumption in dividend payout for a wide array of companies should add another important component to total return.

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].