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) 1.0%22.3%36.8%14.8%7.1%6.4%7.7%
Strategy (net) 0.9%22.0%36.3%14.4%6.7%6.0%7.3%
MSCI EAFE -0.7%11.3%18.6%6.6%4.6%5.4%5.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 1.0%22.3%36.8%14.8%7.1%6.4%7.7%
Strategy (net) 0.9%22.0%36.3%14.4%6.7%6.0%7.3%
MSCI EAFE -0.7%11.3%18.6%6.6%4.6%5.4%5.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 5.4%21.1%31.6%17.1%6.9%6.9%7.8%
Strategy (net) 5.3%20.9%31.1%16.6%6.5%6.4%7.3%
MSCI EAFE 3.2%12.1%19.4%9.5%4.9%5.9%5.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 5.4%21.1%31.6%17.1%6.9%6.9%7.8%
Strategy (net) 5.3%20.9%31.1%16.6%6.5%6.4%7.3%
MSCI EAFE 3.2%12.1%19.4%9.5%4.9%5.9%5.5%
Fund 202220212020201920182017201620152014201320122011201020092008200720062005200420032002
Strategy (gross) -7.2%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) -7.6%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 -14.0%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
202220212020201920182017201620152014201320122011201020092008200720062005200420032002
-7.2%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%
-7.6%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%
-14.0%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, 2023)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 98.3%
Cash 1.7%
Strategy Characteristics
Strategy Benchmark
No. of holdings 65 798
Weighted avg. market cap (US $MM) $73,428 $72,737
FY2 price/earnings 11.3 12.5
Price/book value 1.8 1.7
Dividend yield (%) 3.1 3.1
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 6.2%
Samsung Electronics Co., Ltd. South Korea 3.6%
UniCredit S.p.A. Italy 3.2%
Enel SpA Italy 3.0%
SAP SE Germany 3.0%
BP Plc United Kingdom 2.9%
Roche Holding AG Switzerland 2.7%
Reckitt Benckiser Group United Kingdom 2.7%
Danone France 2.4%
Prudential Plc United Kingdom 2.4%

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 18.6% 18.6%
Industrials 16.8% 16.1%
Health Care 14.2% 13.4%
Consumer Staples 13.3% 10.0%
Information Technology 10.7% 8.0%
Consumer Discretionary 5.7% 12.3%
Materials 5.6% 7.4%
Utilities 5.3% 3.4%
Energy 5.0% 4.5%
Communication Services 2.9% 4.1%
Real Estate 0.3% 2.3%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 34.3% 14.6%
France 13.6% 12.3%
Germany 9.6% 8.5%
Japan 6.5% 22.8%
Italy 6.2% 2.6%
Switzerland 5.9% 10.2%
Netherlands 5.5% 4.4%
South Korea 5.4% 0.0%
Spain 3.7% 2.6%
Canada 2.2% 0.0%
Regional Allocation
  • Europe – other 81.9%
  • Pacific 12.7%
  • North America 2.2%
  • Emerging Asia 1.0%
  • Emerging Latin America 0.6%

Commentary (As of August 31, 2023)

Highlights

  • Global equity markets paused their rally in August, dipping slightly lower for the month. Expectations of a higher-for-longer interest rate environment and apprehensions surrounding China's slowing economy tempered market enthusiasm.
  • Economic signals in developed economies are mixed. In August, US wages rose year-over-year and employers added jobs, yet the unemployment rate crept up to 3.8%. The core personal consumption expenditures price index rose 0.2% in July, the smallest uptick since late 2020, yet inflation-adjusted consumer spending experienced its greatest increase year-to-date. Euro area inflation for the year-to-date through August period was 5.3%, well exceeding the central bank's 2% policy target, although consumer price increases excluding energy and food cooled.
  • In 2023, global equity markets have signaled economic slowing ahead via the underperformance of cyclical sectors such as financials, materials, and industrials. Yet economically defensive sectors such as utilities, consumer staples, and healthcare also have, uncharacteristically, underperformed. In contrast, information technology—in international and emerging markets as well as the tech-dominant US market—is the largest outperforming sector by a wide margin this year-to-date.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the capital goods, health care equipment & services, and financial services industry groups contributed to relative performance. Holdings in the pharmaceuticals & biotechnology, technology hardware & equipment, and insurance industry groups offset some of the outperformance compared to the Index. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included healthcare equipment & services provider, Koninklijke Philips NV (Netherlands), and global investment bank, UBS Group AG (Switzerland). The largest detractor was electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea). Additional notable detractors included Asian life insurer, Prudential Plc (United Kingdom), and rolling stock, signaling, & services provider for the rail industry, Alstom SA (France).

Economic outlook

Economic signals in developed economies are mixed. In August, US wages rose year-over-year and employers added jobs, yet the unemployment rate crept up to 3.8%. The core personal consumption expenditures price index rose 0.2% in July, the smallest uptick since late 2020, yet inflation-adjusted consumer spending experienced its greatest increase year-to-date. Euro area inflation for the year-to-date through August period was 5.3%, well exceeding the central bank's 2% policy target, although consumer price increases excluding energy and food cooled. Central bank officials must assess if slowing growth can sufficiently reduce inflation or if further rate hikes are warranted. We expect unemployment to rise in the US, UK, and Europe in the first half of 2024 as credit conditions tighten further. The Bank of Japan stated its economy may be reaching a turning point in its 25-year battle with deflation. Official measures showed Japanese demand outpacing supply for the first time in four years.


All eyes are on China as the world’s second-largest economy grapples with a slumping property sector and slowing real GDP growth. China is deploying measures to shore up its property market and address vulnerabilities in its financial system and currency, yet investors remain concerned about the repercussions of flagging Chinese activity on the greater global economy. In coordination with members of our Shanghai-based research subsidiary, Causeway analysts are performing diligent research on companies exposed to the Chinese economy, including goods and commodities suppliers and links in Chinese supply chains.

Investment outlook

In 2023, global equity markets have signaled economic slowing ahead via the underperformance of cyclical sectors such as financials, materials, and industrials. Yet economically defensive sectors such as utilities, consumer staples, and healthcare also have, uncharacteristically, underperformed. In contrast, information technology—in international and emerging markets as well as the tech-dominant US market—is the largest outperforming sector by a wide margin this year-to-date. We believe enthusiasm for artificial-intelligence-related applications has overwhelmed concerns about economic sensitivity. As technology garners most of the attention, we are looking at more unpopular areas of markets. Our team aims to find investment opportunities in companies that can accelerate earnings and cash flows (“underearners”), largely independent of broad macroeconomic trends. These include currently misunderstood and out-of-favor companies in industries such as insurance, chemicals, and consumer non-durables.

In an environment where expensive stocks may be increasingly vulnerable to de-rating, we believe Causeway fundamental client portfolios should be relatively resilient against valuation multiple compression. We generally use conservative assumptions in our stock valuation models, adhere to a multi-year investment horizon, and integrate in-house quantitative risk analysis into our portfolio construction process. Market volatility provides our portfolio management team an opportunity to add to vetted investment candidates at attractive entry points, supporting our efforts to generate competitive returns on behalf of our clients.

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].