Seeking value primarily in the non-US developed markets

The International Value Select portfolio is constructed from an equity universe composed of companies with market capitalizations typically greater than $5 billion located in non-US developed and emerging market countries. The strategy uses our international value equity strategy with two distinctions: the select portfolio has greater liquidity (by way of investing in larger capitalization companies) and fewer holdings. We believe that concentrating the holdings can compensate for the loss of small/mid cap exposure. 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 Select 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) 7.1%7.1%65.9%6.1%9.6%6.8%6.8%
Strategy (net) 7.0%7.0%65.3%5.7%9.2%6.4%6.4%
MSCI EAFE 3.6%3.6%45.2%6.5%9.4%6.0%5.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 7.1%7.1%65.9%6.1%9.6%6.8%6.8%
Strategy (net) 7.0%7.0%65.3%5.7%9.2%6.4%6.4%
MSCI EAFE 3.6%3.6%45.2%6.5%9.4%6.0%5.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 7.1%7.1%65.9%6.1%9.6%6.8%6.8%
Strategy (net) 7.0%7.0%65.3%5.7%9.2%6.4%6.4%
MSCI EAFE 3.6%3.6%45.2%6.5%9.4%6.0%5.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 7.1%7.1%65.9%6.1%9.6%6.8%6.8%
Strategy (net) 7.0%7.0%65.3%5.7%9.2%6.4%6.4%
MSCI EAFE 3.6%3.6%45.2%6.5%9.4%6.0%5.8%
Fund 202020192018201720162015201420132012201120102009
Strategy (gross) 6.9%21.2%-17.2%29.5%1.5%-1.3%-4.3%27.2%24.7%-9.6%13.2%35.4%
Strategy (net) 6.5%20.8%-17.5%29.1%1.1%-1.7%-4.7%26.8%24.3%-9.9%12.7%34.8%
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%
Strategy (gross)
Strategy (net)
MSCI EAFE
202020192018201720162015201420132012201120102009
6.9%21.2%-17.2%29.5%1.5%-1.3%-4.3%27.2%24.7%-9.6%13.2%35.4%
6.5%20.8%-17.5%29.1%1.1%-1.7%-4.7%26.8%24.3%-9.9%12.7%34.8%
8.3%22.7%-13.4%25.6%1.5%-0.4%-4.5%23.3%17.9%-11.7%8.2%32.5%

Portfolio (as of March 31, 2021)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 98.2%
Cash 1.8%
Strategy Characteristics
Strategy Benchmark
No. of holdings 59 876
Weighted avg. market cap (US $MM) $75,404 $60,285
FY2 price/earnings 13.2 15.7
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%
Rolls-Royce Holdings Plc United Kingdom 3.6%
Novartis AG Switzerland 3.3%
Sanofi France 3.2%
UniCredit S.p.A. Italy 3.2%
BASF SE Germany 3.0%
Total France 3.0%
Takeda Pharmaceutical Co., Ltd. Japan 2.9%
Amadeus IT Group SA Spain 2.8%
Siemens AG 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
Financials 21.3% 17.3%
Industrials 21.0% 15.5%
Information Technology 15.1% 9.0%
Health Care 13.1% 11.9%
Consumer Staples 7.4% 10.3%
Materials 5.6% 8.0%
Consumer Discretionary 5.0% 12.8%
Energy 5.0% 3.3%
Utilities 4.3% 3.7%
Communication Services 0.3% 5.2%
Real Estate 0.0% 3.1%
TOP 10 COUNTRIES
Country Strategy Benchmark
France 16.7% 11.1%
United Kingdom 16.1% 14.3%
Germany 13.8% 9.5%
Switzerland 11.5% 9.2%
Japan 9.9% 24.8%
Spain 7.6% 2.4%
South Korea 6.2% 0.0%
Italy 5.7% 2.5%
Netherlands 4.9% 4.2%
Ireland 1.6% 0.7%
Regional Allocation
  • Europe – other 78.1%
  • Pacific 11.1%
  • Emerging Asia 7.4%
  • North America 1.0%
  • Emerging Latin America 0.6%

Commentary (As of March 31, 2021)

Highlights

  • Equity markets continued to ascend in March amid a steady progression in vaccination rollouts, historically high levels of fiscal and monetary accommodation, and renewed optimism in the outlook for global growth.
  • The rapid reopening of economies and consumers’ pent up demand could lead to a surge in spending, thereby adding to inflation pressures. However, we believe the long-term deflationary forces of demographics and technological advancement (such as digitization and automation) remain in place.
  • Consistent with prior market recoveries, stocks in economically defensive industries lag the overall markets. Several of these low beta stocks have risen to the top half of our risk-adjusted return ranking, making them potentially attractive portfolio candidates.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to country allocation (a byproduct of our bottom-up stock selection process). Portfolio holdings in the pharmaceuticals & biotechnology, automobiles & components, banks, materials, and insurance industry groups contributed to relative performance. Holdings in the capital goods, semiconductors & semi equipment, technology hardware & equipment, diversified financials, and transportation industry groups offset some of the outperformance compared to the Index. The top contributor to return was automobile manufacturer, Volkswagen AG (Germany). Other notable contributors included financial services provider, ING Groep NV (Netherlands), Takeda Pharmaceutical Co., Ltd. (Japan), banking & financial services company, Barclays Plc (United Kingdom), and British American Tobacco plc (United Kingdom). The largest detractor was financial services provider, Credit Suisse Group AG (Switzerland). Additional notable detractors included products & services provider for the electronic components industry, SK hynix, Inc.(South Korea), electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan), jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), and internet services provider, Baidu, Inc. - ADR (China).

Investment outlook

With vaccination rates accelerating, investors turned their attention to undervalued stocks that were sharply sold off when the pandemic accelerated a year ago. Value stocks outpaced their growth peers during the first quarter, largely led by cyclical sectors such as industrials, materials, consumer discretionary, financials, and the more economically sensitive portion of technology. As high-quality cyclical stocks re-rate upward, we are using this opportunity to lower portfolio risk, measured as prospective volatility versus the benchmark. Consistent with prior market recoveries, stocks in economically defensive industries lag the overall markets. Several of these low beta stocks have risen to the top half of our risk-adjusted return ranking, making them potentially attractive portfolio candidates. A common theme for many of our portfolio companies, whether cyclical or defensive, is operational restructuring. We believe companies with experienced management teams can prove to the market that they have used the crisis to reduce expenses and boost efficiency. In our view, this effort should enhance operating leverage and facilitate higher levels of profitability from these well-positioned companies. As free cash flow rises, we believe companies will return capital to shareholders in the form of dividends and share buybacks, providing a critical boost to 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].