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
Portfolio managers
Brian Cho
Mr. Cho is a fundamental portfolio manager at Causeway. He joined the firm in September 2013 and has been a portfolio manager since January 2021. His current responsibilities include coverage of companies in the technology and communication services sectors.
From 2011 to 2013, Mr. Cho was a vice president at BofA-ML Equity Research, covering the IT hardware and supply chain sector. From 2007 to 2011, he worked as an associate at Goldman Sachs Equity Research covering the same sector. From 2006 to 2007, he worked as an analyst at Morgan Stanley Equity Research covering the internet and interactive software sector. Prior to that, he worked as an analyst at PA Consulting Group in the financial services practice.
Mr. Cho earned a BSc in management science from Massachusetts Institute of Technology.
Read our interview with Brian about value investing in the technology sector.
Jonathan Eng
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
Harry Hartford
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.
Sarah Ketterer
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, a board member 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.
Ellen Lee
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.
Conor Muldoon, CFA
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.
Steven Nguyen, CFA
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.
Alessandro Valentini, CFA
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.
Performance
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. This information supplements the composite presentation at Composite Performance. 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 May 31, 2021)
Asset Allocation
| Strategy | |
|---|---|
| Stocks | 98.1% |
| Cash | 1.9% |
Strategy Characteristics
| Strategy | Benchmark | |
|---|---|---|
| No. of holdings | 61 | 844 |
| Weighted avg. market cap (US $MM) | $78,680 | $65,616 |
| FY2 price/earnings | 12.9 | 15.3 |
| 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 | 3.8% |
| UniCredit S.p.A. | Italy | 3.8% |
| Rolls-Royce Holdings Plc | United Kingdom | 3.6% |
| Novartis AG | Switzerland | 3.3% |
| Sanofi | France | 3.2% |
| Amadeus IT Group SA | Spain | 3.2% |
| Takeda Pharmaceutical Co., Ltd. | Japan | 3.1% |
| Roche Holding AG | Switzerland | 3.0% |
| SAP SE | Germany | 2.9% |
| Total | France | 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 | 21.1% | 17.6% |
| Industrials | 20.9% | 15.5% |
| Information Technology | 15.7% | 8.8% |
| Health Care | 13.7% | 11.9% |
| Consumer Staples | 7.4% | 10.4% |
| Materials | 5.1% | 8.0% |
| Utilities | 4.9% | 3.5% |
| Energy | 4.8% | 3.2% |
| Consumer Discretionary | 4.3% | 13.0% |
| Communication Services | 0.2% | 5.0% |
| Real Estate | 0.0% | 3.0% |
TOP 10 COUNTRIES
| Country | Strategy | Benchmark |
|---|---|---|
| France | 16.6% | 11.6% |
| United Kingdom | 15.3% | 14.6% |
| Switzerland | 12.9% | 9.5% |
| Germany | 11.6% | 9.5% |
| Japan | 10.0% | 23.0% |
| Spain | 8.3% | 2.6% |
| South Korea | 6.5% | 0.0% |
| Italy | 6.4% | 2.5% |
| Netherlands | 4.4% | 4.3% |
| Canada | 1.7% | 0.0% |
Regional Allocation
- Europe – other 76.5%
- Pacific 11.1%
- North America 1.7%
- Emerging Asia 7.7%
- Emerging Latin America 0.7%
Commentary (As of April 30, 2021)
Highlights
Portfolio attribution
The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the pharmaceuticals & biotechnology, banks, semiconductors & semi equipment, food beverage & tobacco, and technology hardware & equipment industry groups detracted from relative performance. Holdings in the capital goods and commercial & professional services industry groups, as well as an underweight position in the automobiles & components, food & staples retailing, and telecommunication services industry groups, offset some of the underperformance compared to the Index. The largest detractor was Takeda Pharmaceutical Co., Ltd. (Japan). Additional notable detractors included integrated oil & gas company, Total (France), travel & tourism information technology provider, Amadeus IT Group SA (Spain), banking & financial services company, Barclays Plc (United Kingdom), and bank, Sumitomo Mitsui Financial Group, Inc. (Japan). The top contributor to return was business software & services provider, SAP SE (Germany). Other notable contributors included pharmaceutical giant, Sanofi (France), paints & coatings producer, Akzo Nobel (Netherlands), beverage producer, Pernod Ricard SA (France), and bank, Banco Bilbao Vizcaya Argentaria SA (Spain).
Investment outlook
Since November 2020, global equity markets have generally favored companies poised to benefit from economic reopening and recovery. As we have noted in prior reviews, cyclical sectors usually outperform market indices in periods following recessions and market lows, as earnings momentum shifts in favor of economically sensitive businesses. This cycle has fit that pattern, with extremely rapid and large increases in the share prices of cyclical companies. Within the MSCI EAFE Index, the industrials, materials, energy, consumer discretionary, and financials sectors have, on average delivered 91% absolute returns from the Covid-19 crisis market trough in March 2020 through April 2021, outperforming the other sectors in the Index by 34%. Given the rapid upward re-rating, we have responded by reducing the portfolio’s cyclical exposure and reinvesting sale proceeds into, in our view, high quality, less economically sensitive businesses with less earnings volatility. For example, we reduced significantly what had once been one of the largest-weighted holdings in client fundamental portfolios, an auto manufacturer that finally was recognized for its electric vehicle transition. After a period of strong performance, based on our analysis, its risk-adjusted expected return ranked less competitively relative to other stocks. In asset markets awash in monetary liquidity, the price discounting mechanism has accelerated, and stock prices have reflected future good news quickly, sometimes long before earnings uplift occurs. At present, we are more interested in defensive companies that have lagged the cyclical rally, including innovative pharmaceutical companies trading near all-time-low relative valuations, and forward-thinking utilities repositioning their companies for the renewable energy transition. We have also been adding to defensive information technology companies that generate recurring revenue from critical infrastructure software. The portfolio remains cyclically positioned, but we believe its lowered risk profile, diversified across risk factors, should be resilient in a broader range of market outcomes. Generally, our portfolio companies are engaged in operational restructuring. We believe we have identified companies that used the Covid-19 crisis to cut costs and boost efficiency and should emerge from the pandemic with improved earnings power and a stronger competitive positioning. We expect these companies to re-rate upward as the market recognizes their progress and look forward to increasing levels of capital returned to shareholders with dividends and share buybacks.
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].