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) -2.8%-17.0%-17.1%4.4%1.5%5.3%6.5%
Strategy (net) -2.9%-17.2%-17.4%4.0%1.1%4.9%6.1%
MSCI EAFE 0.0%-19.2%-19.4%2.9%2.1%5.5%4.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -2.8%-17.0%-17.1%4.4%1.5%5.3%6.5%
Strategy (net) -2.9%-17.2%-17.4%4.0%1.1%4.9%6.1%
MSCI EAFE 0.0%-19.2%-19.4%2.9%2.1%5.5%4.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -10.1%-14.6%-14.2%3.1%2.6%6.1%6.7%
Strategy (net) -10.2%-14.8%-14.5%2.7%2.2%5.7%6.3%
MSCI EAFE -14.3%-19.3%-17.3%1.5%2.7%5.9%4.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -10.1%-14.6%-14.2%3.1%2.6%6.1%6.7%
Strategy (net) -10.2%-14.8%-14.5%2.7%2.2%5.7%6.3%
MSCI EAFE -14.3%-19.3%-17.3%1.5%2.7%5.9%4.8%
Fund 20212020201920182017201620152014201320122011201020092008200720062005200420032002
Strategy (gross) 10.5%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) 10.1%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 11.8%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
20212020201920182017201620152014201320122011201020092008200720062005200420032002
10.5%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%
10.1%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%
11.8%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, 2022)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 96.8%
Cash 3.2%
Strategy Characteristics
Strategy Benchmark
No. of holdings 59 800
Weighted avg. market cap (US $MM) $59,516 $61,780
FY2 price/earnings 10.9 11.6
Price/book value 1.6 1.6
Dividend yield (%) 3.2 3.3
TOP 10 HOLDINGS
Security Country Percent
UniCredit S.p.A. Italy 4.0%
Rolls-Royce Holdings Plc United Kingdom 3.5%
Prudential Plc United Kingdom 3.0%
Reckitt Benckiser Group United Kingdom 3.0%
Enel SpA Italy 2.9%
Samsung Electronics Co., Ltd. South Korea 2.9%
SAP SE Germany 2.7%
Unilever United Kingdom 2.7%
Amadeus IT Group SA Spain 2.6%
Roche Holding AG Switzerland 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 19.0% 17.5%
Industrials 17.8% 15.2%
Health Care 15.7% 13.1%
Consumer Staples 12.3% 11.0%
Information Technology 10.7% 8.1%
Consumer Discretionary 7.0% 11.6%
Utilities 5.8% 3.4%
Materials 4.9% 7.4%
Energy 2.0% 4.9%
Communication Services 1.7% 4.8%
Real Estate 0.0% 2.9%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 26.7% 15.5%
France 16.6% 11.2%
Germany 7.3% 7.5%
Japan 7.3% 23.0%
Spain 7.2% 2.3%
Italy 6.9% 2.2%
Switzerland 6.7% 10.3%
Netherlands 5.4% 4.1%
South Korea 3.7% 0.0%
Canada 2.9% 0.0%
Regional Allocation
  • Europe – other 80.1%
  • Pacific 12.8%
  • North America 2.9%
  • Emerging Asia 0.9%

Commentary (As of August 31, 2022)

Highlights

  • Equity markets declined again in August in response to central banks’ commitment to tamp down inflation and growing concerns about the risks to global economic activity.
  • We currently expect inflation in the developed world to remain well above its near three-decades-long average for some time to come. The Covid pandemic highlighted the vulnerability of long and complex supply chains, and costly investment will be required as companies and their governments attempt to onshore critical production. As transitory inflation pressures have risen, stickier wage expectations will likely embed lasting inflationary pressures into developed economies.
  • In our investable universe, we believe the best-positioned industrials, materials, financials, and consumer discretionary companies—those with, in our view, balance sheet strength and excellent management teams—should lead markets upward in the next stage of the economic cycle.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the capital goods, pharmaceuticals & biotechnology, insurance, and materials industry groups, along with an underweight position in the energy industry group, detracted from relative performance. Holdings in the transportation industry group, as well as an overweight position in the banks industry group and an underweight position in the semiconductors & semi equipment, consumer durables & apparel, and media & entertainment industry groups, offset some of the underperformance compared to the Index. The largest detractor was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Additional notable detractors included life insurer, Prudential Plc (United Kingdom), pharmaceutical giant, Sanofi (France), healthcare equipment & services provider, Koninklijke Philips NV (Netherlands), and rolling stock, signaling, & services provider for the rail industry, Alstom SA (France). The top contributor to return was insurer, AXA SA (France). Other notable contributors included crude oil & natural gas company, BP Plc (United Kingdom), banking & financial services company, UniCredit S.p.A. (Italy), airport operator, Beijing Capital International Airport Co., Ltd. (China), and tobacco products company, British American Tobacco plc (United Kingdom).

Investment outlook

Inflationary pressures, rising interest rates, and concerns about a slowdown in global economic activity have hampered equity returns this year. The ongoing weakness in the Chinese economy just adds to the negative ramifications for the earnings of companies and industries globally. We believe central banks (other than the Bank of China) should continue raising interest rates and draining monetary liquidity from their respective financial systems, which will likely add downward pressures to valuation multiples. After a surge upward in the past 12 months, oil and gas stocks have moved down our risk-adjusted return ranking. As a result, we reduced exposure to the energy sector in favor of other economically sensitive stocks where we believe valuations offer more upside potential over the next two years. For European cyclicals in particular, rising inflation, monetary tightening, and currency weakness have weighed heavily on stock prices. However, we believe valuations are quite low, likely already discounting a recession. In our investable universe, we believe the best-positioned industrials, materials, financials, and consumer discretionary companies—those with, in our view, balance sheet strength and excellent management teams—should lead markets upward in the next stage of the economic cycle. Historically, cyclicals outperform as markets begin to discount recovery. We expect management teams of our portfolio companies to amplify profitability via leaner operations and greater efficiency (operational restructuring), creating the potential for even more uplift in their share prices.

 

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].