Emerging Markets UCITS Fund – EUR

Portfolio Attribution

The Causeway Emerging Markets UCITS Fund (“Fund”) underperformed the Index in August 2021. We use both bottom-up “stock-specific” and top-down factor categories to seek to forecast alpha for the stocks in the Fund’s investable universe. Our bottom-up valuation factor was our top performing indicator in August. Our bottom-up price momentum, growth, and competitive strength factors were negative indicators during the month. Of our top-down factors, macroeconomic and country were negative indicators while sector and currency were positive.

Investment Outlook

Earnings upgrades in EM have lagged developed markets, which have been led by the US. Within EM, earnings upgrades have been strongest in Russia, South Korea, and Saudi Arabia. As commodity-linked economies, Russia and Saudi Arabia have benefitted from firm oil prices. South Korea has benefitted from positive earnings revisions within the information technology sector. Indonesia, Thailand, and China have experienced the weakest earnings revisions. Indonesia and Thailand continue to experience economic challenges related to Covid-19. Chinese stocks are facing a myriad of pressures including supply chain disruptions related to Covid-19, reduced stimulus, and regulatory pressures. On a sector basis, materials, energy, and industrials have experienced the strongest earnings upgrades. We are overweight materials stocks in the Fund due to favorable earnings growth and price momentum. The sectors with the weakest earnings upgrade profiles were real estate, communication services, and consumer discretionary. Real estate’s weakness was due in part to the regulatory tightening in China and the issues faced by over-levered developers in the country. We are underweight Chinese real estate stocks in the Fund. While we incorporate bottom-upearnings growth factors into our assessment of each stock, we continue to emphasize valuation in our multi-factor investment process. Despite outperforming year-to-date, we believe the outlook for value stocks remains compelling as many companies in this cohort offer discounted valuations relative to history and attractive dividend yields.

Emerging Markets UCITS Fund

Portfolio Attribution

The Causeway Emerging Markets UCITS Fund (“Fund”) underperformed the Index in August 2021. We use both bottom-up “stock-specific” and top-down factor categories to seek to forecast alpha for the stocks in the Fund’s investable universe. Our bottom-up valuation factor was our top performing indicator in August. Our bottom-up price momentum, growth, and competitive strength factors were negative indicators during the month. Of our top-down factors, macroeconomic and country were negative indicators while sector and currency were positive.

Investment Outlook

Earnings upgrades in EM have lagged developed markets, which have been led by the US. Within EM, earnings upgrades have been strongest in Russia, South Korea, and Saudi Arabia. As commodity-linked economies, Russia and Saudi Arabia have benefitted from firm oil prices. South Korea has benefitted from positive earnings revisions within the information technology sector. Indonesia, Thailand, and China have experienced the weakest earnings revisions. Indonesia and Thailand continue to experience economic challenges related to Covid-19. Chinese stocks are facing a myriad of pressures including supply chain disruptions related to Covid-19, reduced stimulus, and regulatory pressures. On a sector basis, materials, energy, and industrials have experienced the strongest earnings upgrades. We are overweight materials stocks in the Fund due to favorable earnings growth and price momentum. The sectors with the weakest earnings upgrade profiles were real estate, communication services, and consumer discretionary. Real estate’s weakness was due in part to the regulatory tightening in China and the issues faced by over-levered developers in the country. We are underweight Chinese real estate stocks in the Fund. While we incorporate bottom-up earnings growth factors into our assessment of each stock, we continue to emphasize valuation in our multi-factor investment process. Despite outperforming year-to-date, we believe the outlook for value stocks remains compelling as many companies in this cohort offer discounted valuations relative to history and attractive dividend yields.

Global Value UCITS Fund

Portfolio Attribution

The Causeway Global Value UCITS Fund outperformed the Index during the month, due primarily to stock selection. Fund holdings in the capital goods, materials, insurance, consumer services, and media & entertainment industry groups contributed to relative performance. Holdings in the semiconductors & semi equipment, pharmaceuticals & biotechnology, software & services, technology hardware & equipment, and consumer durables & apparel 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 technology conglomerate, Alphabet, Inc. (United States), specialty chemicals manufacturer, Ashland Global Holdings, Inc. (United States), business services provider, Concentrix Corp. (United States), and casino & resort company, Las Vegas Sands Corp. (United States). The largest detractor was luxury goods manufacturer & retailer, Compagnie Financiere Richemont (Switzerland). Additional notable detractors included products & services provider for the electronic components industry, SK hynix, Inc. (South Korea), defense & information technology services provider, Leidos Holdings, Inc. (United States), travel & tourism technology company, Sabre Corp. (United States), and electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea).

Investment Outlook

The rise of the Delta variant portends enduring uncertainty on the timing to reach full normalization. As a result, we are interested in economically cyclical companies with, in our view, strong balance sheets focused on cutting costs. As it relates to companies exposed to travel, leisure, and hospitality, in particular, we find meaningful differentiation amongst companies. Several are exhibiting high cash burn rates, while others are approaching breakeven. We are most interested in the latter, and we engage in rigorous fundamental research to scrutinize which firms may be underappreciated in the market yet poised for, based on our analysis, greater profitability when revenues recover. Furthermore, we believe the rapid pace of change in the economy—for example, from long-dated green initiatives or supplier shifts—could lead to structurally higher earnings in this economic cycle for certain industries. The premium for growth stocks over value stocks narrowed in the wake of vaccine announcements in the fourth quarter of 2020, but overall, it remains significantly higher relative to history in a market awash with liquidity. We believe undervalued stocks will attract more buyers as the cost of money (aka interest rates) rise to more normal levels in most developed countries, reflecting economic recovery and fiscal stimulus. Companies generating solid cash flow and margins, with excellent competitive positioning, attract our attention in this environment.

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