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) 2.4%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%
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 June 30, 2021)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 97.3%
Cash 2.7%
Strategy Characteristics
Strategy Benchmark
No. of holdings 59 845
Weighted avg. market cap (US $MM) $79,450 $66,247
FY2 price/earnings 12.7 15.3
Price/book value 1.7 1.9
Dividend yield (%) 2.4 2.3
TOP 10 HOLDINGS
Security Country Percent
Samsung Electronics Co., Ltd. South Korea 3.9%
Novartis AG Switzerland 3.4%
UniCredit S.p.A. Italy 3.3%
Rolls-Royce Holdings Plc United Kingdom 3.3%
Sanofi France 3.3%
Roche Holding AG Switzerland 3.2%
Takeda Pharmaceutical Co., Ltd. Japan 3.1%
Amadeus IT Group SA Spain 3.0%
SAP SE Germany 2.9%
Total France 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 20.3% 15.5%
Financials 19.6% 17.0%
Information Technology 15.3% 9.1%
Health Care 14.8% 12.4%
Consumer Staples 7.3% 10.5%
Materials 5.3% 7.9%
Consumer Discretionary 5.0% 13.0%
Utilities 4.9% 3.4%
Energy 4.8% 3.2%
Communication Services 0.0% 4.9%
Real Estate 0.0% 3.0%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 16.4% 14.4%
France 16.3% 11.5%
Switzerland 13.0% 9.8%
Germany 11.3% 9.4%
Japan 9.8% 23.2%
Spain 7.7% 2.5%
South Korea 6.5% 0.0%
Italy 6.0% 2.5%
Netherlands 4.2% 4.3%
Canada 1.8% 0.0%
Regional Allocation
  • Europe – other 76.2%
  • Pacific 10.9%
  • North America 1.8%
  • Emerging Asia 7.5%
  • Emerging Latin America 1.0%

Commentary (As of June 30, 2021)

Highlights

  • Developed market equities largely delivered positive returns in local currency terms during the month of June as vaccination campaigns facilitated further easing of Covid-19-related economic restrictions. Despite the progress, the Delta variant of the virus and differing vaccination rates across geographies have resulted in an uneven recovery.
  • In order to rebuild inventories, we expect business capital expenditures to increase this year. Combined with massive fiscal spending, this should propel further economic gains.
  • With delayed and uneven opening of economies globally, several of the, in our view, high quality aerospace, aviation, travel, and hospitality-oriented stocks have only partially reflected the recovery ahead.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the capital goods, transportation, software & services, and insurance industry groups, along with an overweight position in the banks industry group, detracted from relative performance. Holdings in the consumer durables & apparel and commercial & professional services industry groups, as well as an overweight position in the technology hardware & equipment industry group and an underweight position in the telecommunication services 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 banking & financial services company, UniCredit S.p.A.(Italy), travel & tourism information technology provider, Amadeus IT Group SA (Spain), life insurer, Prudential Plc (United Kingdom), and airline, AIR Canada (Canada). The top contributor to return was pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland). Other notable contributors included pharmaceutical producer, Novartis AG (Switzerland), business software & services provider, SAP SE (Germany), electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan), and beverage producer, Pernod Ricard SA (France).

Investment outlook

Despite the past 15-month surge in equity markets, amplified by the recovery in cyclical stocks from November 2020 vaccine announcements, we believe attractive valuations remain. With delayed and uneven opening of economies globally, several of the, in our view, high quality aerospace, aviation, travel, and hospitality-oriented stocks have only partially reflected the recovery ahead. We observe significant pent up demand for such services, yet travelers still face uncertainty in certain locations and face burdensome Covid-19-related protocols. As vaccinations proliferate, we believe even the most cautious of governments will likely open their respective borders, compelled by economic necessity. In addition to late-stage pandemic stocks, we are also finding what we believe is market underpricing in companies undergoing operational restructuring and in some traditionally defensive sectors such as utilities (those in transition to renewable energy) and healthcare (European pharmaceutical giants with potentially valuable drug pipelines). Companies in the defensive categories tend to generate cash flows surplus to their operating and investment needs (free cash flow), and thus can pay shareholders to wait for prices to reflect what we estimate will be good news. We believe companies less dependent on earnings realization far out in the future should provide a natural hedge in the portfolio to the prospect of rising interest rates, a function of bond markets reflecting economic growth and inflation. If history is any guide, the side effect of higher discount rates and bond market competition should translate into compression of the most speculative of market multiples.

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].