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.

Benchmark
MSCI EAFE
Inception
March 31, 2005
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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) -1.4%-1.4%14.8%10.4%9.6%6.2%6.9%
Strategy (net) -1.5%-1.5%14.4%10.0%9.2%5.8%6.5%
MSCI EAFE 0.6%0.6%10.6%5.1%7.4%5.3%5.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -1.4%-1.4%14.8%10.4%9.6%6.2%6.9%
Strategy (net) -1.5%-1.5%14.4%10.0%9.2%5.8%6.5%
MSCI EAFE 0.6%0.6%10.6%5.1%7.4%5.3%5.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 9.5%29.5%29.5%10.1%11.6%5.9%7.0%
Strategy (net) 9.4%29.1%29.1%9.7%11.2%5.5%6.6%
MSCI EAFE 10.5%18.9%18.9%4.5%8.7%4.8%5.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 9.5%29.5%29.5%10.1%11.6%5.9%7.0%
Strategy (net) 9.4%29.1%29.1%9.7%11.2%5.5%6.6%
MSCI EAFE 10.5%18.9%18.9%4.5%8.7%4.8%5.4%
Fund 202320222021202020192018201720162015201420132012201120102009
Strategy (gross) 29.5%-6.7%10.4%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) 29.1%-7.1%10.0%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 18.9%-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%
Strategy (gross)
Strategy (net)
MSCI EAFE
202320222021202020192018201720162015201420132012201120102009
29.5%-6.7%10.4%6.9%21.2%-17.2%29.5%1.5%-1.3%-4.3%27.2%24.7%-9.6%13.2%35.4%
29.1%-7.1%10.0%6.5%20.8%-17.5%29.1%1.1%-1.7%-4.7%26.8%24.3%-9.9%12.7%34.8%
18.9%-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%

Portfolio (as of January 31, 2024)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 98.8%
Cash 1.2%
Strategy Characteristics
Strategy Benchmark
No. of holdings 64 783
Weighted avg. market cap (US $MM) $77,432 $79,620
FY2 price/earnings 11.5 13.4
Price/book value 1.7 1.8
Dividend yield (%) 3.2 3.0
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 4.8%
Samsung Electronics Co., Ltd. South Korea 4.1%
Reckitt Benckiser Group United Kingdom 3.1%
Roche Holding AG Switzerland 2.9%
BP Plc United Kingdom 2.8%
Prudential Plc United Kingdom 2.7%
Barclays PLC United Kingdom 2.6%
Shell United Kingdom 2.5%
Diageo Plc United Kingdom 2.5%
Deutsche Telekom AG Germany 2.5%

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 17.5% 18.9%
Industrials 16.3% 16.4%
Consumer Staples 15.3% 9.2%
Health Care 14.7% 13.0%
Information Technology 10.9% 9.0%
Consumer Discretionary 5.5% 12.1%
Energy 5.3% 4.2%
Utilities 4.5% 3.3%
Materials 4.4% 7.4%
Communication Services 3.4% 4.2%
Real Estate 1.1% 2.4%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 34.6% 14.7%
France 13.8% 12.0%
Germany 8.9% 8.5%
Japan 7.2% 23.4%
Switzerland 6.2% 9.9%
Netherlands 6.0% 4.9%
South Korea 4.8% 0.0%
Italy 4.7% 2.6%
Spain 3.6% 2.6%
Canada 2.4% 0.0%
Regional Allocation
  • Europe – other 81.3%
  • Pacific 13.7%
  • North America 2.4%
  • Emerging Asia 0.9%
  • Emerging Latin America 0.5%

Commentary (As of January 31, 2024)

Highlights

  • In January, a surge in US and European technology stocks boosted developed equity markets, while a sell-off in Chinese technology drove emerging equity markets into negative territory.
  • The valuation discounts of non-US developed equity markets versus the US are, in our view, only partially attributable to sector differences and greater capital efficiency (higher returns on invested capital).
  • We continue to focus on the long-term rewards from operational restructuring. In our experience, capable and motivated management teams of underearning companies can—and often do—boost returns to shareholders.

Portfolio Attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the technology hardware & equipment and semiconductors & semi equipment industry groups, along with an underweight position in the automobiles & components industry group, detracted from relative performance. Holdings in the household & personal products and software & services industry groups, as well as an underweight position in the materials industry group, offset some of the underperformance compared to the Index. The largest detractor was electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea). Additional notable detractors included electric utility provider, RWE AG (Germany), and Asian life insurer, Prudential Plc (United Kingdom). The top contributor to return was business software & services provider, SAP SE (Germany). Other notable contributors included banking & financial services company, UniCredit S.p.A. (Italy), and pharmaceutical & consumer healthcare company, GSK Plc (United Kingdom).

Quarterly Investment Outlook

The valuation discounts of non-US developed equity markets versus the US are, in our view, only partially attributable to sector differences and greater capital efficiency (higher returns on invested capital). We are skeptical that the upward valuation re-rating the US market experienced in 2023 can persist in 2024, largely due to shrinking global monetary liquidity. US money supply, as measured by M2*, continues to decrease as savings decline and major central banks reduce their balance sheets via quantitative tightening.

A slow interest rate cutting cycle leaves plenty of room for successful stock selection, as economic uncertainty generally creates price volatility, especially in cyclical sectors. Given the fear of re-igniting inflation, we believe major central banks must keep real interest rates positive in this cycle and aim for an equilibrium rate to maximize economic growth at a stable approximately 2% inflation rate. Positive real interest rates typically bode well for the value investment style, especially when coupled with intensive fundamental research.

We continue to focu on the long-term rewards from operational restructuring. In our experience, capable and motivated management teams of underearning companies can - and often do - boost returns to shareholders. Importantly, we aim to identify and buy these stocks many months before markets perceive positive catalysts. Many of the global and international portfolio holdings we expect to outperform in 2024 add, in our view, operational restructuring upside potential to the portfolio across a range of sectors, such as consumer discretionary, industrials, consumer staples and information technology.

*M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under$100,000, and shares in retail money market mutual funds.

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].