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) -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%
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 June 30, 2022)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 98.6%
Cash 1.4%
Strategy Characteristics
Strategy Benchmark
No. of holdings 61 799
Weighted avg. market cap (US $MM) $64,402 $62,822
FY2 price/earnings 10.8 11.4
Price/book value 1.6 1.6
Dividend yield (%) 3.2 3.3
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 3.7%
UniCredit S.p.A. Italy 3.4%
Prudential Plc United Kingdom 3.1%
FANUC Corp. Japan 3.0%
Enel SpA Italy 2.9%
Novartis AG Switzerland 2.9%
Unilever United Kingdom 2.9%
Amadeus IT Group SA Spain 2.8%
Reckitt Benckiser Group United Kingdom 2.8%
SAP SE Germany 2.8%

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 18.9% 14.9%
Financials 18.6% 17.7%
Health Care 16.7% 13.9%
Consumer Staples 12.0% 10.8%
Information Technology 10.5% 7.8%
Consumer Discretionary 7.6% 11.3%
Utilities 5.6% 3.5%
Energy 4.0% 4.8%
Materials 3.4% 7.5%
Communication Services 1.3% 5.0%
Real Estate 0.0% 2.9%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 27.6% 15.9%
France 16.5% 11.2%
Spain 8.2% 2.5%
Switzerland 8.1% 10.5%
Japan 7.7% 22.2%
Germany 7.4% 7.8%
Italy 6.4% 2.3%
Netherlands 4.6% 4.1%
South Korea 3.5% 0.0%
Canada 2.8% 0.0%
Regional Allocation
  • Europe – other 81.7%
  • Pacific 9.6%
  • North America 2.8%
  • Emerging Asia 4.5%

Commentary (As of June 30, 2022)

Highlights

  • Equity prices continued to decline in June as accelerated central bank tightening and recession fears weighed on the outlook for economic growth.
  • Exacerbated by Russia’s weaponization of energy and agricultural products, fuel and food costs are rising in most regions globally, placing upward pressure on wages. Short-term interest rates may need to rise substantially—with the median US Federal Reserve Board member expecting to raise rates to 3.8% by the end of next year—to quell inflationary pressures, even with some alleviation of supply chain disruptions. Monetary tightening typically impacts the global economy with a lag; however, signs of economic softening have already emerged.
  • Some of the portfolio’s most promising companies have not yet fully recovered from the pandemic’s suppression of global travel, leisure, and hospitality. We believe pent-up demand for these services bodes well for a future recovery in their share prices.

Portfolio attribution

The Portfolio performed in-line with the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, technology hardware & equipment, utilities, transportation, and retailing industry groups detracted from relative performance. Holdings in the consumer services and capital goods industry groups, as well as an overweight position in the household & personal products industry group and an underweight position in the semiconductors & semi equipment and materials industry groups, offset some of the underperformance compared to the Index. The largest detractor was banking & financial services company, UniCredit S.p.A. (Italy). Additional notable detractors included electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea), electric, gas & renewables power generation & distribution company, Enel SpA (Italy), paints & coatings producer, Akzo Nobel (Netherlands), and low-budget airline, Ryanair Holdings Plc - ADR (Ireland). The top contributor to return was integrated resort developer & operator, Sands China Ltd. (Hong Kong). Other notable contributors included airport operator, Beijing Capital International Airport Co., Ltd. (China), communication services provider, Deutsche Telekom AG (Germany), and pharmaceutical company, AstraZeneca Plc (United Kingdom).

Investment outlook

As monetary authorities raise interest rates and accelerate quantitative tightening, we believe consumer and industrial demand will soften and corporate earnings forecasts will decline. In a notable departure from the post-GFC years, massive excess private sector bank reserves suggest, in our view, that the Fed will need to tighten monetary policy considerably more than market participants are currently expecting to combat inflation. As recession looms, we believe companies in sectors such as healthcare, consumer staples, and utilities may prove defensive. These are likely areas we will use to fund more cyclical portfolio exposure as economies weaken and valuations of high-quality cyclicals become more compelling. Some of the portfolio’s most promising companies have not yet fully recovered from the pandemic’s suppression of global travel, leisure, and hospitality. We believe pent-up demand for these services bodes well for a future recovery in their share prices. The Russian invasion of Ukraine also precipitated a sell-off in many European banks. Historically, bank stocks weaken in advance of economic slowing and recover sharply in advance of economic recovery. We believe several of these banks are well-capitalized and are attractively valued, implying compelling upside potential. While we wait for the market to discount the recovery, these banks may be positioned to return capital to shareholders in the form of share buybacks and dividends, which are particularly attractive in an environment where rising bond yields are weighing heavily on asset 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].