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

Sarah Ketterer

Chief Executive Officer
Fundamental Portfolio Manager

Ms. Ketterer is the chief executive officer at Causeway, fundamental portfolio manager, and is responsible for investment research across all sectors. Ms. Ketterer co-founded the firm in June 2001 and is a member of the operating committee. 

From 1996 to 2001, Ms. Ketterer worked for the Hotchkis & Wiley division of Merrill Lynch Investment Managers (HW-MLIM). At HW-MLIM, she was a managing director and co-head of the firm's HW-MLIM International and Global Value team. From 1990 to 1996, Ms. Ketterer was a portfolio manager at Hotchkis & Wiley, where she founded the International Equity product.

Ms. Ketterer earned a BA in economics and political science from Stanford University and an MBA from the Tuck School, Dartmouth College. She is currently a member of the Stanford University Board of Trustees, co-chair of the Los Angeles World Affairs Council and Town Hall, chair of the investment committee for the Music Center Foundation, and serves on the Girls Who Invest President’s Council.

Harry Hartford

President
Head of Fundamental Research
Fundamental Portfolio Manager

Mr. Hartford is the president at Causeway, fundamental portfolio manager, and head of fundamental research. Mr. Hartford co-founded the firm in June 2001 and is a member of the operating committee. 
 
From 1996 to June 2001, Mr. Hartford was a managing director for the Hotchkis & Wiley division of Merrill Lynch Investment Managers (HW-MLIM) and co-head of the firm's HW-MLIM international and global value team. From 1994 to 1996, Mr. Hartford was a portfolio manager for Hotchkis and Wiley. From 1984 to 1994, Mr. Hartford was with The Investment Bank of Ireland, where he gained ten years’ experience in both international and global equity management. During this time, Mr. Hartford also managed the Irish Investment Fund, a closed-end country fund quoted on the NYSE. Before entering the investment business, Mr. Hartford lectured in micro and macroeconomics at Oklahoma State University.

Mr. Hartford earned a BA, with honors, in economics from the University of Dublin, Trinity College, an MSc in economics from Oklahoma State University, and is a Phi Kappa Phi member. Mr. Hartford is a member of The Ireland Funds America Board of Directors and serves as chair of the Los Angeles Regional Board.

Jonathan Eng

Fundamental Portfolio Manager

Mr. Eng is a director and fundamental portfolio manager at Causeway and is responsible for investment research in the global consumer discretionary, industrials, and energy sectors. He joined the firm in July 2001 and has been a portfolio manager since February 2002.
 
From 1997 to 2001, Mr. Eng was an equity research associate for the Hotchkis and Wiley division of Merrill Lynch Investment Managers (HW-MLIM). In 1996, Mr. Eng worked as a summer research associate for Hotchkis and Wiley, performing U.K. and European equity research. From 1993 to 1995, Mr. Eng analyzed merger and acquisition candidates at Slusser Associates. From 1990 to 1993, Mr. Eng worked as a middle market corporate lender for Bank of Boston.

Mr. Eng earned a BA in history and economics from Brandeis University and an MBA from the UCLA Anderson Graduate School of Management

Conor Muldoon, CFA

Fundamental Portfolio Manager

Mr. Muldoon is a director and fundamental portfolio manager at Causeway and is responsible for investment research in the global financials and materials sectors. He joined the firm in August 2003 and has been a portfolio manager since September 2010. He is also a member of the operating committee.
 
From 1995 to 2003, Mr. Muldoon was an investment consultant for Fidelity Investments where he served as a liaison between institutional clients and investment managers within Fidelity. He was responsible for communicating current information on the financial markets, the economy and investment performance.

Mr. Muldoon earned a BSc and an MA from the University of Dublin, Trinity College and an MBA, with high honors, from the University of Chicago. Mr. Muldoon was inducted into the Beta Gamma Sigma honors society and is also a CFA charterholder.

Alessandro Valentini, CFA

Fundamental Portfolio Manager

Mr. Valentini is a director and fundamental portfolio manager at Causeway and is responsible for investment research in the global healthcare, financials, and materials sectors. He joined the firm in July 2006 and has been a portfolio manager since April 2013.
 
During the summer of 2005, Mr. Valentini worked as a research analyst at Thornburg Investment Management, where he conducted fundamental research for the International Value Fund and the Value Fund, focusing on the European telecommunication and Canadian oil sectors. From 2000 to 2004, Mr. Valentini worked as a financial analyst at Goldman Sachs in the European equities research-sales division in New York.

Mr. Valentini earned an MBA from Columbia Business School, with honors, an MA in economics from Georgetown University and a BS, magna cum laude, from Georgetown University. Mr. Valentini was inducted into the Beta Gamma Sigma honors society, is a Phi Beta Kappa member, and is a CFA charterholder.

Ellen Lee

Fundamental Portfolio Manager

Ms. Lee is a director and fundamental portfolio manager at Causeway and is responsible for investment research in the global consumer and utilities sectors. Prior to the current role, she also covered transportation and autos. She joined the firm in August 2007 and has been a portfolio manager since January 2015.
 
During the summer of 2006, Ms. Lee interned at Tiger Asia, a long short equity hedge fund focused on China, Japan, and Korea. From 2001 to 2004, Ms. Lee was an associate in the mergers and acquisitions division of Credit Suisse First Boston in Seoul, where she advised Korean corporates and multinational corporations. From 1999 to 2000, she was an analyst in the mergers and acquisitions division of Credit Suisse First Boston in Hong Kong.

Ms. Lee earned a BA in business administration from Seoul National University and an MBA from the Stanford Graduate School of Business. She currently serves on the audit and investment committee at the Center for Early Education in West Hollywood.

Steven Nguyen, CFA

Fundamental Portfolio Manager

Mr. Nguyen is a director and fundamental portfolio manager at Causeway and is responsible for investment research in the industrials, energy, utilities, and healthcare sectors. He joined the firm in April 2012 and has been a portfolio manager since January 2019.
 
From 2006 to 2012, Mr. Nguyen was a senior credit analyst at Bradford & Marzec covering high yield and investment grade companies in the telecommunication services, cable, media, gaming, insurance, and REIT industries. From 2003 to 2006, Mr. Nguyen was a credit analyst/portfolio manager in the corporate bond department of Allegiance Capital.

Mr. Nguyen earned a BA in business economics from Brown University and an MBA, with honors, from the UCLA Anderson School of Management. Mr. Nguyen was the president of the Anderson Student Asset Management association. Mr. Nguyen is a CFA charterholder.

Performance

QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -4.8%-19.7%-13.8%-5.8%0.5%3.9%4.6%
Strategy (net) -4.8%-19.9%-14.1%-6.1%0.2%3.5%4.1%
MSCI EAFE -4.0%-10.4%-6.5%-0.8%3.3%4.3%4.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -4.8%-19.7%-13.8%-5.8%0.5%3.9%4.6%
Strategy (net) -4.8%-19.9%-14.1%-6.1%0.2%3.5%4.1%
MSCI EAFE -4.0%-10.4%-6.5%-0.8%3.3%4.3%4.4%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.0%-15.6%-5.8%-3.7%3.0%4.9%5.0%
Strategy (net) 1.9%-15.9%-6.1%-4.0%2.6%4.5%4.5%
MSCI EAFE 4.9%-6.7%0.9%1.1%5.8%5.1%4.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 2.0%-15.6%-5.8%-3.7%3.0%4.9%5.0%
Strategy (net) 1.9%-15.9%-6.1%-4.0%2.6%4.5%4.5%
MSCI EAFE 4.9%-6.7%0.9%1.1%5.8%5.1%4.7%
Fund 20192018201720162015201420132012201120102009
Strategy (gross) 21.2%-17.2%29.5%1.5%-1.3%-4.3%27.2%24.7%-9.6%13.2%35.4%
Strategy (net) 20.8%-17.5%29.1%1.1%-1.7%-4.7%26.8%24.3%-9.9%12.7%34.8%
MSCI EAFE 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
20192018201720162015201420132012201120102009
21.2%-17.2%29.5%1.5%-1.3%-4.3%27.2%24.7%-9.6%13.2%35.4%
20.8%-17.5%29.1%1.1%-1.7%-4.7%26.8%24.3%-9.9%12.7%34.8%
22.7%-13.4%25.6%1.5%-0.4%-4.5%23.3%17.9%-11.7%8.2%32.5%

Account returns for the Causeway International Value Select Composite ("International Value Select Composite") are calculated daily. Monthly account returns are calculated by geometrically linking the daily returns. The return of the International Value Select Composite is calculated monthly by weighting monthly account returns by the beginning market values. Valuations and returns are computed and stated in US dollars. Returns include the reinvestment of interest, dividends and any capital gains. Returns are calculated gross of withholding taxes on dividends, interest income, and capital gains. Past performance is no guarantee of future performance. Gross-of-fees returns are presented before management, performance and custody fees but after trading expenses. Net-of-fees returns are presented after the deduction of actual management fees, performance-based fees, and all trading expenses, but before custody fees. Causeway’s basic management fee schedules are described in its firm brochure pursuant to Part 2 of Form ADV. A complete list and description of firm composites is available upon request. The information in the downloadable Composite Performance report supplements the performance presented. MSCI has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI data or use it as a basis for other indices or investment products. Investing involves risk including loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Diversification does not prevent all investment losses.

Portfolio (as of October 31, 2020)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 99.4%
Cash 0.6%
Strategy Characteristics
Strategy Benchmark
No. of holdings 60 899
Weighted avg. market cap (US $MM) $50,806 $51,015
FY2 price/earnings 10.7 14.8
Price/book value 1.0 1.5
Dividend yield (%) 3.1 2.8
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 4.2%
UniCredit S.p.A. Italy 3.6%
Samsung Electronics Co., Ltd. South Korea 3.3%
ING Groep NV Netherlands 3.2%
BASF SE Germany 3.1%
Novartis AG Switzerland 2.8%
Takeda Pharmaceutical Co., Ltd. Japan 2.8%
FANUC Corp. Japan 2.8%
Barclays Plc United Kingdom 2.7%
ABB Ltd. Switzerland 2.6%

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 25.2% 15.4%
Industrials 21.9% 15.3%
Information Technology 12.6% 8.4%
Health Care 10.3% 13.8%
Consumer Discretionary 9.5% 12.2%
Materials 6.8% 7.6%
Consumer Staples 5.7% 11.8%
Energy 2.9% 2.7%
Utilities 2.4% 4.0%
Communication Services 2.0% 5.7%
Real Estate 0.0% 3.1%
TOP 10 COUNTRIES
Country Strategy Benchmark
Germany 17.0% 9.0%
France 15.9% 10.6%
United Kingdom 14.4% 13.2%
Switzerland 11.2% 10.2%
Japan 10.5% 26.5%
Spain 6.3% 2.2%
Netherlands 6.2% 4.4%
Italy 5.3% 2.2%
South Korea 5.0% 0.0%
China 2.6% 0.0%
Regional Allocation
  • Europe – other 79.4%
  • Pacific 11.5%
  • Emerging Asia 7.6%
  • Emerging Latin America 0.9%

Commentary (As of October 31, 2020)

Highlights

  • Optimism surrounding additional fiscal stimulus packages in the US and Europe bolstered equity markets in the first half of October; however, renewed coronavirus lockdowns in several European countries and a surge in cases in the US weakened investor sentiment and developed markets finished the month in negative territory.
  • In the UK, the deadline to negotiate a Brexit deal marches closer without a resolution. Ultimately, we believe that a deal will be reached to prevent a further dampening of the UK economy in the face of the pandemic-induced recession.
  • We believe that undervaluation alone is never enough, so we seek businesses that have used this crisis to reduce their cost bases by unprecedented levels, which should reinvigorate earnings as demand improves.
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Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the insurance, pharmaceuticals & biotechnology,software & services, food beverage & tobacco, and consumer durables & apparel industry groups detracted from performance relative to the Index. Holdings in the capital goods, technology hardware & equipment, transportation, and media & entertainment industry groups, as well as an underweight position in the commercial & professional services industry group, offset some of the underperformance versus the Index. The largest detractor was business software & services provider, SAP SE (Germany). Additional notable detractors included Takeda Pharmaceutical Co., Ltd. (Japan), banking & financial services company, UniCredit S.p.A. (Italy), diversified chemicals manufacturer, BASF SE (Germany), and pharmaceutical producer, Novartis AG (Switzerland). The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included robotics manufacturer, FANUC Corp. (Japan), banking & financial services company, Barclays Plc (United Kingdom), banking & financial services company, Grupo Financiero Banorte SAB de CV (Mexico), and electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan).

Investment outlook

We currently expect an end to the extremely negative economic effects wrought on the global economy by the pandemic in 2021, facilitated by widely available and efficacious testing, therapies, and potential vaccines. We used October’s weakness in COVID-sensitive stocks to add to positions that we believe have some of the highest expected returns in the portfolio. With no relief from the pandemic thus far in early November, market participants have sold several stocks that we consider having significant potential upside from current prices. Some of our favorites include well-managed travel and aerospace equipment-related businesses, as well as those in travel software & services. In financials, our investment theses do not depend on rising nominal interest rates for our portfolio companies to perform well. For example, European and Japanese banks and insurance companies have contended with low-to-negative interest rates for the past several years, yet valuations are currently trading at three standard deviations below the post-2008 Global Financial Crisis mean. Several of these banks boast capital positions well in excess of regulatory requirements. As we ultimately exit the COVID-19 crisis, we expect these financials to rebound in profitability. That recovery, combined with financial strength, provides the potential for these stocks to re-rate upward. Our analysis indicates that these companies are well-positioned to return excess capital to shareholders. We believe that undervaluation alone is never enough, so we seek businesses that have used this crisis to reduce their cost bases by unprecedented levels, which should reinvigorate earnings as demand improves. Well-managed cyclical stocks trade at prices that imply permanent demand destruction, and the COVID-19 pandemic presents, in our view, a once-in-a-generation opportunity for disciplined value investors.

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].

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