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) 1.0%10.0%46.5%9.6%9.4%8.2%6.7%
Strategy (net) 0.9%9.7%45.9%9.2%9.0%7.8%6.3%
MSCI EAFE 2.5%11.5%34.8%12.1%10.3%7.9%6.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 1.0%10.0%46.5%9.6%9.4%8.2%6.7%
Strategy (net) 0.9%9.7%45.9%9.2%9.0%7.8%6.3%
MSCI EAFE 2.5%11.5%34.8%12.1%10.3%7.9%6.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -0.7%9.0%38.1%6.5%8.9%9.3%6.7%
Strategy (net) -0.8%8.7%37.6%6.1%8.5%8.9%6.3%
MSCI EAFE -0.4%8.8%26.3%8.1%9.3%8.6%5.9%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -0.7%9.0%38.1%6.5%8.9%9.3%6.7%
Strategy (net) -0.8%8.7%37.6%6.1%8.5%8.9%6.3%
MSCI EAFE -0.4%8.8%26.3%8.1%9.3%8.6%5.9%
Fund 202020192018201720162015201420132012201120102009
Strategy (gross) 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) 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 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
202020192018201720162015201420132012201120102009
6.9%21.2%-17.2%29.5%1.5%-1.3%-4.3%27.2%24.7%-9.6%13.2%35.4%
6.5%20.8%-17.5%29.1%1.1%-1.7%-4.7%26.8%24.3%-9.9%12.7%34.8%
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, 2021)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 99.3%
Cash 0.7%
Strategy Characteristics
Strategy Benchmark
No. of holdings 59 843
Weighted avg. market cap (US $MM) $74,005 $70,595
FY2 price/earnings 12.1 15.0
Price/book value 1.7 1.9
Dividend yield (%) 2.7 2.5
TOP 10 HOLDINGS
Security Country Percent
Rolls-Royce Holdings Plc United Kingdom 4.5%
BP Plc United Kingdom 3.4%
UniCredit S.p.A. Italy 3.4%
TotalEnergies SE France 3.2%
SAP SE Germany 3.2%
FANUC Corp. Japan 3.1%
Novartis AG Switzerland 3.1%
Amadeus IT Group SA Spain 3.1%
Sanofi France 3.0%
Samsung Electronics Co., Ltd. South Korea 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 21.7% 17.4%
Industrials 20.5% 15.6%
Health Care 14.6% 12.7%
Information Technology 12.0% 9.7%
Energy 7.9% 3.5%
Consumer Discretionary 6.8% 12.9%
Consumer Staples 6.6% 10.2%
Utilities 4.6% 3.4%
Materials 4.5% 7.3%
Real Estate 0.0% 2.8%
Communication Services 0.0% 4.5%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 20.1% 14.6%
France 17.1% 11.5%
Germany 12.5% 9.0%
Switzerland 10.8% 9.9%
Japan 9.5% 22.9%
Spain 7.6% 2.4%
Italy 5.9% 2.5%
Netherlands 4.2% 5.0%
South Korea 3.8% 0.0%
Ireland 1.6% 0.7%
Regional Allocation
  • Europe – other 80.7%
  • Pacific 10.8%
  • North America 1.6%
  • Emerging Asia 5.1%
  • Emerging Latin America 1.0%

Commentary (As of September 30, 2021)

Highlights

  • Equities declined in September amid concerns over a moderation in economic growth rates, supply chain disruptions, and rising inflation.
  • Global economic data in September revealed a modest loss of momentum in the recovery, including headwinds from China. Virtually all companies we queried reported rising input costs across geographies as supply chain disruptions exacerbated inflationary pressures.
  • We believe that many of the, in our view, world class companies in aviation, travel, leisure, and hospitality that we added to our clients’ portfolios in prior months should continue to outperform markets. With a turnaround in cash flows, many of these companies should be well positioned for a return to normalcy.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the capital goods, software & services, and transportation industry groups, as well as an overweight position in the banks and energy industry groups, contributed to relative performance. Holdings in the consumer services and utilities industry groups, along with an overweight position in the pharmaceuticals & biotechnology industry group and an underweight position in the automobiles & components and telecommunication services industry groups, offset some of the outperformance compared to the Index. The top contributor to return was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Other notable contributors included crude oil & natural gas company, BP Plc (United Kingdom), integrated oil & gas company, TotalEnergies SE (France), electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan), and travel & tourism information technology provider, Amadeus IT Group SA (Spain). The largest detractor was integrated resort developer & operator, Sands China Ltd. (Hong Kong). Additional notable detractors included electric, gas and renewables power generation and distribution company, Enel SpA (Italy), pharmaceutical producer, Novartis AG (Switzerland), business software & services provider, SAP SE (Germany), and pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland).

Investment outlook

As the global economy recovers from the pandemic, stocks in Covid-impacted industries performed well in September. We believe that many of the, in our view, world class companies in aviation, travel, leisure, and hospitality that we added to our clients’ portfolios in prior months should continue to outperform markets. With a turnaround in cash flows, many of these companies should be well positioned for a return to normalcy. We believe improvements to their cost structures, balance sheets, and competitive position (as weaker competitors lost market share) suggest that future levels of profitability should exceed pre-pandemic levels, even at lower volumes. After pausing dividends and share buybacks for much of the Covid era, key regulators in our investable universe have approved banks to resume capital returns in the fourth quarter. Many of these companies held in our client portfolios have accrued dividends throughout the pandemic, which we believe should result in not only normal dividend payments but also the return of excess capital. With dividend income constituting an important component of total return, we eagerly anticipate the normalization of dividend policy for portfolio companies that have maintained strong capital positions over the last year and a half. Finally, the prospect of global bond yields rising further—even to levels that are still low versus historical yields—should favor undervaluation and exposure to economic recovery.

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].