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
Fundamental Portfolio Manager

Performance

QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -4.7%-4.7%8.5%6.0%3.9%6.9%7.4%
Strategy (net) -4.7%-4.7%8.0%5.6%3.5%6.4%6.9%
MSCI EAFE -2.1%-2.1%12.7%8.3%5.6%6.2%5.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -4.7%-4.7%8.5%6.0%3.9%6.9%7.4%
Strategy (net) -4.7%-4.7%8.0%5.6%3.5%6.4%6.9%
MSCI EAFE -2.1%-2.1%12.7%8.3%5.6%6.2%5.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 11.8%22.5%22.5%8.9%5.1%7.1%7.7%
Strategy (net) 11.6%22.0%22.0%8.4%4.6%6.7%7.2%
MSCI EAFE 8.2%22.7%22.7%10.1%6.2%6.0%5.6%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 11.8%22.5%22.5%8.9%5.1%7.1%7.7%
Strategy (net) 11.6%22.0%22.0%8.4%4.6%6.7%7.2%
MSCI EAFE 8.2%22.7%22.7%10.1%6.2%6.0%5.6%
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 January 31, 2020)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 99.6%
Cash 0.4%
Strategy Characteristics
Strategy Benchmark
No. of holdings 61 917
Weighted avg. market cap (US $MM) $62,645 $54,776
FY2 price/earnings 11.4 14.3
Price/book value 1.3 1.7
Dividend yield (%) 3.8 3.3
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 4.4%
Takeda Pharmaceutical Co., Ltd. Japan 4.0%
BASF SE Germany 3.7%
UniCredit S.p.A. Italy 3.4%
FANUC Corp. Japan 3.2%
China Mobile Ltd. China 3.2%
British American Tobacco plc United Kingdom 3.1%
ABB Ltd. Switzerland 2.9%
Siemens AG Germany 2.8%
Samsung Electronics Co., Ltd. South Korea 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 20.0% 15.1%
Financials 17.6% 18.3%
Health Care 12.4% 12.6%
Communication Services 11.2% 5.2%
Materials 8.7% 6.9%
Energy 8.3% 4.6%
Information Technology 7.2% 7.1%
Consumer Staples 6.7% 11.4%
Consumer Discretionary 6.0% 11.3%
Utilities 1.6% 4.0%
Real Estate 0.0% 3.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 26.0% 16.2%
Germany 20.1% 8.6%
Japan 13.0% 24.7%
Switzerland 8.5% 9.6%
France 7.8% 11.3%
China 6.4% 0.0%
South Korea 5.1% 0.0%
Canada 3.6% 0.0%
Italy 3.4% 2.3%
Netherlands 2.8% 3.9%
Regional Allocation
  • Europe – other 71.2%
  • Pacific 13.0%
  • Emerging Asia 11.6%
  • North America 3.6%
  • Emerging Latin America 0.2%

Commentary (As of January 31, 2020)

Highlights

  • After delivering impressive returns in calendar 2019, equity markets faltered in January in local currency terms, as concerns over the coronavirus outbreak may have weighed on investor optimism.
  • In China, key infrastructure and travel were shut down in an attempt to slow the spread of the coronavirus, which will likely be a near-term drag on Chinese (and global) economic growth. Chinese authorities will likely enact additional targeted stimulus in response to the outbreak.
  • Our fundamental research seeks to identify well-managed companies with strong balance sheets, with company leaders committed to improving earnings. As we wait for these companies to emerge from operational setbacks and reignite growth, they typically generate sufficient cash flow to reward shareholders via dividends and share buybacks.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Holdings in the energy, banks, materials, and pharmaceuticals & biotechnology industry groups, along with an overweight position in the transportation industry group, detracted from performance compared to the Index. Portfolio holdings in the media & entertainment, technology hardware & equipment, and food beverage & tobacco industry groups, as well as an underweight position in the consumer services and retailing industry groups, contributed to relative performance. The largest detractor was oil exploration & production company, Ovintiv (Canada). Additional notable detractors included automobile manufacturer, Volkswagen AG (Germany), diversified chemicals manufacturer, BASF SE (Germany), banking & financial services company, UniCredit S.p.A. (Italy), and energy supermajor, Royal Dutch Shell Plc (United Kingdom). The top contributor to return was British American Tobacco plc (United Kingdom). Other notable contributors included utilities provider, SSE Plc (United Kingdom), pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland), print & publishing company, RELX PLC (United Kingdom), and payment terminal provider, Ingenico Group SA (France).

Investment outlook

In the prevailing global interest rate environment with the opportunity cost of owning long duration growth stocks low to negative, investors have continued to bid up expensive stocks to even higher valuations. Should these seemingly speculative, currently high valuation stocks fail to live up to their elevated expectations, we anticipate that the stable cash flows of economically sensitive, yet financially robust, companies would attract investor attention. Our fundamental research seeks to identify well-managed companies with strong balance sheets, with company leaders committed to improving earnings. As we wait for these companies to emerge from operational setbacks and reignite growth, they typically generate sufficient cash flow to reward shareholders via dividends and share buybacks. In the current low interest rate environment, we find the income from these undervalued stocks especially compelling as a major component of total return.

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].