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.

Benchmark
MSCI EAFE
Inception
June 11, 2001
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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) 0.6%10.7%33.5%7.6%9.1%8.0%7.9%
Strategy (net) 0.6%10.4%33.0%7.1%8.7%7.5%7.4%
MSCI EAFE 2.5%12.0%26.7%9.5%10.2%7.8%6.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 0.6%10.7%33.5%7.6%9.1%8.0%7.9%
Strategy (net) 0.6%10.4%33.0%7.1%8.7%7.5%7.4%
MSCI EAFE 2.5%12.0%26.7%9.5%10.2%7.8%6.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.4%10.0%42.0%7.4%10.2%6.5%7.9%
Strategy (net) 2.3%9.8%41.4%6.9%9.7%6.1%7.5%
MSCI EAFE 5.4%9.2%32.9%8.8%10.8%6.4%6.1%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.4%10.0%42.0%7.4%10.2%6.5%7.9%
Strategy (net) 2.3%9.8%41.4%6.9%9.7%6.1%7.5%
MSCI EAFE 5.4%9.2%32.9%8.8%10.8%6.4%6.1%
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 August 31, 2021)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 97.7%
Cash 2.3%
Strategy Characteristics
Strategy Benchmark
No. of holdings 58 843
Weighted avg. market cap (US $MM) $75,862 $69,588
FY2 price/earnings 12.5 15.2
Price/book value 1.7 1.9
Dividend yield (%) 2.5 2.5
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 3.8%
UniCredit S.p.A. Italy 3.5%
Novartis AG Switzerland 3.3%
Sanofi France 3.2%
SAP SE Germany 3.0%
Takeda Pharmaceutical Co., Ltd. Japan 3.0%
Samsung Electronics Co., Ltd. South Korea 2.9%
Roche Holding AG Switzerland 2.8%
Amadeus IT Group SA Spain 2.7%
Total France 2.6%

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 22.1% 16.7%
Industrials 20.0% 15.8%
Health Care 15.4% 12.9%
Information Technology 12.1% 9.8%
Consumer Staples 6.7% 10.2%
Consumer Discretionary 6.0% 12.7%
Materials 5.4% 7.8%
Energy 5.1% 3.0%
Utilities 4.9% 3.5%
Communication Services 0.0% 4.7%
Real Estate 0.0% 3.0%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 19.2% 14.3%
France 16.6% 11.5%
Germany 11.4% 9.3%
Switzerland 11.0% 10.0%
Japan 10.6% 23.0%
Spain 7.5% 2.4%
Italy 6.1% 2.5%
Netherlands 4.1% 5.0%
South Korea 3.9% 0.0%
Canada 1.8% 0.0%
Regional Allocation
  • Europe – other 78.1%
  • Pacific 11.8%
  • North America 1.8%
  • Emerging Latin America 1.1%
  • Emerging Asia 4.9%

Commentary (As of August 31, 2021)

Highlights

  • Equities marched higher again in August, spurred by continuing ultra-loose monetary conditions, a likely multi-trillion-dollar US fiscal spending boost, and evidence of global economic recovery. Despite the increase in Covid cases linked to the spread of the Delta variant, investors appear optimistic that any impact will likely disrupt supply chains rather than spur the reinstatement of economically devastating lockdowns.
  • Strong global economic data in August confirmed a further normalization of activity in the wake of Covid lockdowns. In China, regulatory actions continued to dominate headlines. In our view, increased regulations in certain industries are long overdue. As long as they remain well-established, consistent, and transparent, our belief is that stronger standards in the country should ultimately benefit stakeholders.
  • We believe undervalued stocks will attract more buyers as the cost of money (aka interest rates) rise to more normal levels in most developed countries, reflecting economic recovery and fiscal stimulus. Companies generating solid cash flow and margins, with excellent competitive positioning, attract our attention in this environment.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the semiconductors & semi equipment, pharmaceuticals & biotechnology, software & services, technology hardware & equipment, and transportation industry groups detracted from relative performance. Holdings in the insurance, capital goods, banks, and diversified financials industry groups, as well as an underweight position in the automobiles & components industry group, offset some of the underperformance compared to the Index. The largest detractor was luxury goods manufacturer & retailer, Compagnie Financiere Richemont (Switzerland). Additional notable detractors included products & services provider for the electronic components industry, SK hynix, Inc. (South Korea), travel & tourism information technology provider, Amadeus IT Group SA (Spain), electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea), and integrated resort developer & operator, Sands China Ltd. (Hong Kong). The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included life insurer, Prudential Plc (United Kingdom), electric utility provider, RWE AG (Germany), financial services company, Zurich Financial Services (Switzerland), and insurer, AXA SA (France).

Investment outlook

The rise of the Delta variant portends enduring uncertainty on the timing to reach full normalization. As a result, we are interested in economically cyclical companies with, in our view, strong balance sheets focused on cutting costs. As it relates to companies exposed to travel, leisure, and hospitality, in particular, we find meaningful differentiation amongst companies. Several are exhibiting high cash burn rates, while others are approaching breakeven. We are most interested in the latter, and we engage in rigorous fundamental research to scrutinize which firms may be underappreciated in the market yet poised for, based on our analysis, greater profitability when revenues recover. Furthermore, we believe the rapid pace of change in the economy—for example, from long-dated green initiatives or supplier shifts—could lead to structurally higher earnings in this economic cycle for certain industries. The premium for growth stocks over value stocks narrowed in the wake of vaccine announcements in the fourth quarter of 2020, but overall, it remains significantly higher relative to history in a market awash with liquidity. We believe undervalued stocks will attract more buyers as the cost of money (aka interest rates) rise to more normal levels in most developed countries, reflecting economic recovery and fiscal stimulus. Companies generating solid cash flow and margins, with excellent competitive positioning, attract our attention in this environment.

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].