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) 7.0%-12.1%2.8%-0.9%2.3%6.2%6.7%
Strategy (net) 7.0%-12.3%2.3%-1.3%1.9%5.7%6.3%
MSCI EAFE 7.6%-4.3%6.6%2.8%5.2%6.4%5.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 7.0%-12.1%2.8%-0.9%2.3%6.2%6.7%
Strategy (net) 7.0%-12.3%2.3%-1.3%1.9%5.7%6.3%
MSCI EAFE 7.6%-4.3%6.6%2.8%5.2%6.4%5.2%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 19.4%-17.8%-10.0%-2.2%0.0%6.0%6.4%
Strategy (net) 19.3%-18.0%-10.4%-2.6%-0.4%5.6%5.9%
MSCI EAFE 15.1%-11.1%-4.7%1.3%2.5%6.2%4.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 19.4%-17.8%-10.0%-2.2%0.0%6.0%6.4%
Strategy (net) 19.3%-18.0%-10.4%-2.6%-0.4%5.6%5.9%
MSCI EAFE 15.1%-11.1%-4.7%1.3%2.5%6.2%4.8%
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 August 31, 2020)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 99.0%
Cash 1.0%
Strategy Characteristics
Strategy Benchmark
No. of holdings 64 900
Weighted avg. market cap (US $MM) $54,987 $55,805
FY2 price/earnings 12.3 15.7
Price/book value 1.1 1.6
Dividend yield (%) 2.7 2.7
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 4.7%
UniCredit S.p.A. Italy 3.9%
BASF SE Germany 3.6%
FANUC Corp. Japan 3.2%
ING Groep NV Netherlands 3.0%
Siemens AG Germany 3.0%
ABB Ltd. Switzerland 2.9%
Samsung Electronics Co., Ltd. South Korea 2.9%
Novartis AG Switzerland 2.8%
Takeda Pharmaceutical Co., Ltd. Japan 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
Industrials 24.4% 15.0%
Financials 22.8% 16.0%
Information Technology 10.5% 8.4%
Consumer Discretionary 10.4% 11.7%
Health Care 9.3% 13.9%
Materials 8.4% 7.6%
Consumer Staples 5.8% 11.8%
Energy 3.0% 3.1%
Communication Services 3.0% 5.4%
Utilities 1.5% 4.0%
Real Estate 0.0% 3.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
Germany 21.5% 9.6%
United Kingdom 17.4% 13.7%
France 14.2% 10.9%
Switzerland 10.3% 10.2%
Japan 9.0% 25.0%
Netherlands 5.5% 4.3%
Spain 5.0% 2.3%
Italy 4.8% 2.3%
China 2.9% 0.0%
South Korea 2.9% 0.0%
Regional Allocation
  • Europe – other 82.5%
  • Pacific 9.6%
  • Emerging Asia 5.8%
  • Emerging Latin America 0.6%
  • North America 0.5%

Commentary (As of August 31, 2020)

Highlights

  • Global equity markets continued to rally in August, as improving economic data in some geographies combined with highly accommodative monetary policy globally and renewed optimism for a COVID-19 vaccine appeared to bolster investor sentiment.
  • The Eurozone seasonally adjusted unemployment rate ticked up marginally in July (from 7.7% in June to 7.9%), suggesting that social safety nets and early action by fiscal authorities at the onset of the pandemic staved off major job losses. We believe this and other indicators are constructive for Europe’s economy to emerge from the pandemic-induced recession in a strong position.
  • Though our investment horizon remains long-term, heightened stock price volatility translates to prices moving faster in this market dislocation. Valuation matters. We remain disciplined on the price we are willing to pay for stocks in our clients’ portfolios that provide, in our view, the best risk-adjusted return potential.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks and semiconductors & semi equipment industry groups, as well as an overweight position in the transportation and automobiles & components industry groups and an underweight position in the household & personal products industry group, contributed to performance relative to the Index. Holdings in the technology hardware & equipment, capital goods, and media & entertainment industry groups, along with an underweight position in the real estate and commercial & professional services industry groups, offset some of the outperformance versus the Index. The top contributor to return was automobile manufacturer, Volkswagen AG (Germany). Other notable contributors included financial services provider, ING Groep NV (Netherlands), diversified chemicals manufacturer, BASF SE (Germany), mail, express & logistics services provider, Deutsche Post AG (Germany), and banking & financial services company, UniCredit S.p.A. (Italy). The largest detractor was electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea). Additional notable detractors included electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan), bank, BBVA SA (Spain), civil construction company, Balfour Beatty Plc (United Kingdom), and pharmaceutical giant, Sanofi (France).

Investment outlook

The COVID-19 pandemic continues to upend normal routines, and for longer than initially anticipated. Yet strong equity returns in August—notably in economically cyclical stocks—appeared to reflect investors’ exuberance for a potential COVID-19 vaccine. We are convinced that with a safe and widely available vaccine, many of the changed behaviors due to the virus will revert and provide a significant revenue boost to companies in the epicenter of COVID-19 restrictions, such as companies in the travel and leisure, aviation, and aerospace industries. We believe a vaccine (and in the meantime, effective therapies) could catalyze an unwinding of the massive premium afforded to growth stocks—particularly high-flying technology companies—that benefit from COVID-19 trends. Despite the prolonged market environment favoring growth stocks, we continue to identify companies that are taking advantage of the crisis to cut costs and improve efficiency. We remain focused on thoroughly assessing the balance sheet strength of our portfolio companies to ensure they can withstand the drop in revenues until the recovery firmly takes hold. Given the uncertainty on the timing of a viable COVID-19 vaccine, we recognize the diminished visibility on near-term earnings. We anticipate some of the greatest upside potential in companies in oligopolistic industry structures (offering pricing power) with strong moats against competition. Finally, though our investment horizon remains long-term, heightened stock price volatility translates to prices moving faster in this market dislocation. Valuation matters. We remain disciplined on the price we are willing to pay for stocks in our clients’ portfolios that provide, in our view, the best risk-adjusted return potential.

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].