Emerging Markets UCITS Fund – EUR
Portfolio Attribution
The Causeway Emerging Markets UCITS Fund (“Fund”), on a net asset value basis, outperformed the Index in June 2024. 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 technical (price momentum), growth, competitive strength, and corporate events factors were positive indicators in June. Valuation was a negative indicator during the month. Our top-down currency factor was a positive indicator while country/sector aggregate and macroeconomic were negative indicators in June.
Quarterly Investment Outlook
The Indian general election concluded in June with the Narendra Modi-led Bharatiya Janata party (“BJP”) losing its standalone majority in the lower house. However, the party retained a majority as part of the National Democratic Alliance. While this result initially disappointed the market, Indian stocks rebounded as the BJP indicated that it would remain committed to investing in infrastructure and instituting reforms. Moreover, Prime Minister Modi’s cabinet appointments were largely holdovers from his last cabinet, allaying concerns that the alliance partners were exerting significant influence over these appointments. We remain confident in our India exposure due to valuation support-the portfolio’s Indian stocks currently trade at significant price-to-earnings discounts versus the MSCI India Index. In South Africa, elections appear to be progressing in a business-friendly manner. The African National Congress formed a government of national unity with center-leaning parties. While we believe the new government is well-positioned to address the country’s economic challenges – low growth, fiscal deficits, and poor infrastructure – it remains to be seen if the leaders will be able to implement effective policies in these areas. South Africa was the largest country underweight in the Fund as of quarter-end due to valuation and top-down considerations. We continue to monitor South Africa’s economic environment.
After appearing less attractive for much of 2023, earnings growth upgrades for EM equities are currently more attractive than those in ex-US developed markets. Within EM, growth upgrades appear attractive in Taiwan and South Korea. In contrast, the growth outlook for Mexican and Brazilian stocks has slumped. Economic growth rates in these countries have been falling and the US Federal Reserve’s hawkishness has prevented them from more aggressively lowering their domestic interest rates to spur growth. Within EM more broadly, we continue to identify, in our view, attractive investment opportunities in small cap companies. Historically, our investment process has uncovered EM small cap stocks with alpha potential. The Fund’s allocation to small cap stocks remains near the high end of the historical range.