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

Chief Executive Officer
Fundamental Portfolio Manager
President
Head of Fundamental Research
Fundamental Portfolio Manager
Fundamental Portfolio Manager
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) -30.9%-30.9%-24.3%-6.1%-2.8%3.1%3.7%
Strategy (net) -30.9%-30.9%-24.6%-6.5%-3.2%2.7%3.3%
MSCI EAFE -22.7%-22.7%-13.9%-1.3%-0.1%3.2%3.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -30.9%-30.9%-24.3%-6.1%-2.8%3.1%3.7%
Strategy (net) -30.9%-30.9%-24.6%-6.5%-3.2%2.7%3.3%
MSCI EAFE -22.7%-22.7%-13.9%-1.3%-0.1%3.2%3.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -30.9%-30.9%-24.3%-6.1%-2.8%3.1%3.7%
Strategy (net) -30.9%-30.9%-24.6%-6.5%-3.2%2.7%3.3%
MSCI EAFE -22.7%-22.7%-13.9%-1.3%-0.1%3.2%3.5%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -30.9%-30.9%-24.3%-6.1%-2.8%3.1%3.7%
Strategy (net) -30.9%-30.9%-24.6%-6.5%-3.2%2.7%3.3%
MSCI EAFE -22.7%-22.7%-13.9%-1.3%-0.1%3.2%3.5%
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%

Portfolio (as of February 29, 2020)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 100.0%
Cash 0.0%
Strategy Characteristics
Strategy Benchmark
No. of holdings 59 918
Weighted avg. market cap (US $MM) $57,219 $50,198
FY2 price/earnings 10.0 12.8
Price/book value 1.1 1.5
Dividend yield (%) 4.3 3.6
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 4.6%
Takeda Pharmaceutical Co., Ltd. Japan 3.6%
BASF SE Germany 3.6%
UniCredit S.p.A. Italy 3.3%
FANUC Corp. Japan 3.3%
Samsung Electronics Co., Ltd. South Korea 3.1%
ABB Ltd. Switzerland 3.1%
China Mobile Ltd. China 3.1%
British American Tobacco plc United Kingdom 3.0%
Novartis AG Switzerland 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
Industrials 19.0% 14.8%
Financials 18.6% 18.4%
Health Care 12.2% 12.7%
Communication Services 11.1% 5.3%
Materials 8.6% 6.7%
Information Technology 8.2% 7.3%
Energy 7.7% 4.2%
Consumer Staples 6.6% 11.4%
Consumer Discretionary 6.2% 11.3%
Utilities 1.6% 4.2%
Real Estate 0.0% 3.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 25.0% 15.6%
Germany 20.6% 8.6%
Japan 12.3% 24.7%
Switzerland 9.2% 9.7%
France 7.1% 11.3%
China 6.7% 0.0%
South Korea 5.4% 0.0%
Italy 3.3% 2.4%
Netherlands 3.0% 4.1%
Canada 2.7% 0.0%
Regional Allocation
  • Europe – other 72.4%
  • Pacific 12.3%
  • Emerging Asia 12.1%
  • North America 2.7%
  • Emerging Latin America 0.4%

Commentary (As of February 29, 2020)

Highlights

  • We expect the outbreak of the coronavirus to weigh on global gross domestic product (“GDP”) growth, with the greatest drag on China and South Korea, as well as already weak economies in Europe and Japan.
  • Monetary policymakers have already begun implementing supportive measures to ease the financial pain of a prolonged slowdown. A more direct response to counter the effects of the demand slowdown from coronavirus is fiscal stimulus. We believe the virus outbreak may act as a catalyst for European economies, in particular, to enact fiscal stimulus.
  • The recent market downdraft has presented Causeway with a rare opportunity to build positions in high-quality companies in some of the industries most impacted by short-term fear, such as transportation, travel and leisure. We believe our overweight position in cyclical stocks relative to broad benchmarks positions our client portfolios for an eventual recovery in demand for the goods and services from some of the world’s, in our view, best-managed companies with strong balance sheets able to withstand the temporary slowdown.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Holdings in the pharmaceuticals & biotechnology, banks, and capital goods industry groups, along with an overweight position in the energy and transportation industry groups, detracted from performance compared to the Index. Portfolio holdings in the media & entertainment and food & staples retailing industry groups, as well as an overweight position in the technology hardware & equipment industry group and an underweight position in the consumer durables & apparel and consumer services industry groups, contributed to relative performance. The largest detractor was diversified chemicals manufacturer, BASF SE (Germany). Additional notable detractors included energy supermajor, Royal Dutch Shell Plc (United Kingdom), automobile manufacturer, Volkswagen AG (Germany), industrial conglomerate, Siemens AG (Germany), and Takeda Pharmaceutical Co., Ltd. (Japan). The top contributor to return was consumer retailer, Carrefour SA (France). Other notable contributors included integrated oil & gas company, SK Innovation Co., Ltd. (South Korea), construction & mining equipment manufacturer, Komatsu Ltd. (Japan), beverage bottler, Coca-Cola European Partners Plc (United Kingdom), and Asian ports operator, China Merchants Holdings Co., Ltd. (China).

Investment outlook

Panic can be one of the best times to invest fundamentally – especially with a value approach. The recent market downdraft has presented Causeway with a rare opportunity to build positions in high-quality companies in some of the industries most impacted by short-term fear, such as transportation, travel and leisure. Though we anticipate temporary earnings reductions for these hardest-hit stocks in the short-term, assets have not been impaired and we are confident in these companies’ management teams. Valuations are increasingly attractive given the precipitous stock price drops in recent weeks. Many multinational companies, as well as those operating entirely in their domestic markets, will likely continue to suffer supply chain delays and rising costs, largely from work disruption in China, Japan, South Korea, and parts of Europe. We believe, however, the earnings and cash flow setbacks will ultimately be temporary, and normalcy should return to supply chains and logistics as virus fears recede over time. Though the nature of the late February selloff broadly punished equities, we have seen the continued divergence between economically cyclical and defensive areas of the markets. In a demand slowdown, we believe stocks at the intersection of cash flow constraints and high debt levels will face larger challenges, which underscores our emphasis on portfolio companies exhibiting superior balance sheet strength. We believe our overweight position in cyclical stocks relative to broad benchmarks positions our client portfolios for an eventual recovery in demand for the goods and services from some of the world’s, in our view, best-managed companies with strong balance sheets able to withstand the temporary slowdown. As we await clarity on the virus and its economic effects, the dividend income from our portfolio holdings is even more attractive relative to sinking bond yields. If the coronavirus does not spark a prolonged period of demand destruction, we feel confident that these companies can maintain their dividends.

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].