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) 7.2%-17.3%-17.0%1.6%0.3%5.0%5.2%
Strategy (net) 7.2%-17.6%-17.3%1.2%0.0%4.6%4.8%
MSCI EAFE 5.4%-22.8%-22.6%-0.8%0.4%4.6%4.1%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 7.2%-17.3%-17.0%1.6%0.3%5.0%5.2%
Strategy (net) 7.2%-17.6%-17.3%1.2%0.0%4.6%4.8%
MSCI EAFE 5.4%-22.8%-22.6%-0.8%0.4%4.6%4.1%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -10.3%-22.9%-21.9%0.6%-0.7%4.3%4.8%
Strategy (net) -10.4%-23.1%-22.2%0.2%-1.1%3.9%4.4%
MSCI EAFE -9.3%-26.8%-24.7%-1.4%-0.4%4.2%3.8%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -10.3%-22.9%-21.9%0.6%-0.7%4.3%4.8%
Strategy (net) -10.4%-23.1%-22.2%0.2%-1.1%3.9%4.4%
MSCI EAFE -9.3%-26.8%-24.7%-1.4%-0.4%4.2%3.8%
Fund 2021202020192018201720162015201420132012201120102009
Strategy (gross) 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) 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 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
2021202020192018201720162015201420132012201120102009
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%
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%
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 October 31, 2022)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 98.8%
Cash 1.2%
Strategy Characteristics
Strategy Benchmark
No. of holdings 61 799
Weighted avg. market cap (US $MM) $58,013 $60,452
FY2 price/earnings 11.4 11.4
Price/book value 1.7 1.6
Dividend yield (%) 3.2 3.3
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 4.0%
UniCredit S.p.A. Italy 3.8%
Prudential Plc United Kingdom 3.2%
Enel SpA Italy 3.1%
SAP SE Germany 3.0%
Samsung Electronics Co., Ltd. South Korea 2.8%
Reckitt Benckiser Group United Kingdom 2.8%
FANUC Corp. Japan 2.8%
Amadeus IT Group SA Spain 2.8%
Sanofi France 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
Industrials 20.0% 15.3%
Financials 17.7% 17.7%
Health Care 15.3% 13.9%
Consumer Staples 12.8% 10.8%
Information Technology 12.1% 8.1%
Consumer Discretionary 5.7% 11.0%
Utilities 5.7% 3.3%
Materials 5.7% 7.3%
Energy 2.1% 5.3%
Communication Services 1.8% 4.8%
Real Estate 0.0% 2.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 24.6% 15.6%
France 17.4% 11.7%
Germany 8.5% 7.9%
Japan 8.5% 22.1%
Spain 7.2% 2.4%
Italy 6.9% 2.4%
Switzerland 6.5% 10.5%
Netherlands 5.6% 4.1%
South Korea 4.1% 0.0%
Canada 2.9% 0.0%
Regional Allocation
  • Europe – other 81.2%
  • Pacific 13.9%
  • North America 2.9%
  • Emerging Asia 0.7%

Commentary (As of October 31, 2022)

Highlights

  • Despite ongoing geopolitical tensions, persistently high inflation, lingering global supply chain constraints (China continues to pursue a zero-Covid policy), and an effort by European governments to shore up natural gas supplies before the onset of winter, global equity markets appreciated in October – likely reflecting rising expectations of a moderation in the pace of interest rate increases by developed market central banks.
  • Strong labor markets and the aforementioned high inflation compelled further interest rate increases from many developed market central banks. We expect the Fed, ECB, and BoE will likely continue to raise interest rates –even though the result of such tightening will likely not be fully reflected in economic data for at least 12 months.
  • We believe valuations for international equities, regardless of region, are increasingly promising for investors with a multi-year investment horizon. We expect meaningful alpha potential from cyclical European equities that incurred waves of selling after Russia’s invasion of Ukraine and from stocks in developed markets afflicted by China’s zero-Covid policy.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, software & services, capital goods, transportation, and materials industry groups contributed to relative performance. Holdings in the consumer services, health care equipment & services, insurance, and semiconductors & semi equipment industry groups, along with an underweight position in the energy industry group, offset some of the outperformance compared to the Index. The top contributor to return was banking & financial services company, UniCredit S.p.A. (Italy). Other notable contributors included jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), rolling stock, signaling, & services provider for the rail industry, Alstom SA (France), business software & services provider, SAP SE (Germany), and electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea). The largest detractor was integrated resort developer & operator, Sands China Ltd. (Hong Kong). Additional notable detractors included healthcare equipment & services provider, Koninklijke Philips NV (Netherlands), life insurer, Prudential Plc (United Kingdom), robotics manufacturer, FANUC Corp. (Japan), and beverage producer, Pernod Ricard SA (France).

Investment outlook

We believe that valuations for international equities, regardless of region, are increasingly promising for investors with a multi-year investment horizon. Currency slippage versus the US dollar should reverse, at least in part, as the interest rate differential between the US and Europe (for example) closes over the upcoming 12-18 months. Cyclical European equities incurred waves of selling after Russia’s invasion of Ukraine in February. That investor exodus has brought some, in our view, world-class companies, in sectors such as materials, industrials, and consumer discretionary, into our buying range. We expect another area of meaningful alpha potential to come from developed markets stocks afflicted by China’s zero-Covid policy. We used the pessimism from delayed China reopening to gain exposure to, in our view, a broad array of competitively well-positioned companies that generate 10% or more of their respective revenues from the Chinese market. Typical of what Causeway seeks for its holdings, these companies have not wasted time while their China sales are weak; they have implemented operational restructuring to improve efficiency and lower costs in anticipation of a return to revenue expansion. Reopening, albeit gradual and without a precise timeframe, is inevitable in our view. Governments that asphyxiate their economies and cause social instability typically do not remain in power. We are convinced that China is no exception.

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].