Emerging Markets UCITS Fund – EUR

Portfolio Attribution

The Causeway Emerging Markets UCITS Fund (“Fund”) outperformed the Index in January 2023. 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 a positive indicator during the month. Our technical (price momentum), growth, and competitive strength factors were negative. Of our top-down factors, country and currency were positive while sector and macroeconomic were negative indicators during the month.

Investment Outlook

After lagging ex-US developed markets for nearly all of 2022, the earnings growth upgrades for EM equities are now, in our view, relatively more attractive. The primary driver of this shift has been the improving earnings growth upgrade ratio for Chinese companies, due in part to the country’s easing Covid-19 restrictions. We remain overweight Chinese stocks in the Fund due to favorable valuation, growth, and macroeconomic characteristics. Earnings growth upgrades in Turkey were also strong due to the country’s high nominal growth rate. Net upgrades in Indonesia were positive due in part to the impact of increasing commodity prices. On the negative side, upgrades have been weak for export-oriented companies in South Korea and Taiwan due to slowing global growth. From a sector perspective, consumer discretionary and communication services both exhibit strong net upgrades, due in part to the prominence of Chinese stocks in these sectors. With a balance of favorable valuation, growth, and price momentum characteristics relative to the Index, we believe the portfolio offers attractive risk-adjusted return potential looking forward.

Emerging Markets UCITS Fund

Portfolio Attribution

The Causeway Emerging Markets UCITS Fund (“Fund”) performed in-line with the Index in April 2022. 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 and price momentum factors were positive indicators during the month while growth and competitive strength were negative. Of our top-down factors, our macroeconomic and currency factors were positive. Our country and sector factors were negative indicators in April.

Investment Outlook

Earnings growth upgrades for EM equities continue to lag those in developed markets. EM sectors with the weakest earnings upgrades were communication services, consumer discretionary, and real estate. All three of these sectors are dominated by Chinese stocks, which were impacted by the Covid-19 lockdowns. The sectors with the strongest earnings upgrades were energy, information technology, and financials. Energy benefitted from strong oil prices and information technology benefitted from positive revisions for a few larger capitalization stocks. Financials benefitted from rising interest rates. The countries with the weakest net upgrades include China, India, and Thailand. While Covid-19 containment policies have weighed on Chinese stocks, rising commodity prices have dampened the growth outlook for Indian equities. The countries with the strongest net upgrades include Taiwan, Turkey, and Mexico. Positive revisions for larger capitalization companies drove strength in Taiwan. We are overweight Taiwanese stocks in the Fund due to attractive bottom-up and top-down characteristics. Mexican stocks have benefitted from economic linkages with the US. While we incorporate growth expectations into our multi-factor investment process, we continue to emphasize valuation in our approach. With a balance of favorable valuation, growth, and price momentum characteristics relative to the Index, we believe the portfolio provides outperformance potential looking forward.

Global Value UCITS Fund

Portfolio Attribution

The Causeway Global Value UCITS Fund (“Fund”) outperformed the Index during the month, due primarily to stock selection. Fund holdings in the capital goods, banks, and insurance industry groups contributed to relative performance. Holdings in the software & services industry group, along with an underweight position in the automobiles & components, retailing, and semiconductors & semi equipment industry groups, 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 life insurer, Prudential Plc (United Kingdom), and jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). The largest detractor was defense & information technology services provider, Leidos Holdings, Inc. (United States). Additional notable detractors included snack & confectionary producer, Mondelez International, Inc. (United States), and pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland).

Investment Outlook

Amid the recent rally, we have remained disciplined in our stock-ranking process, trimming strong performers, and recycling the proceeds into companies with higher risk-adjusted expected returns. The weights of portfolio holdings in more economically insulated sectors—consumer staples and utilities—remain toward the upper bound of their ten-year ranges, giving the portfolio a slightly defensive posture. But recent purchases for client portfolios include economically cyclical companies (for example, in automation and semiconductor manufacturing). Our analysts are taking bargain-hunting research trips to Europe, Japan, and beyond, conducting primary research to enhance the fundamental valuation analysis that forms the cornerstone of our equity strategy. Our ranking of investment candidates is populated with stocks across the defensive to cyclical spectrum, giving our portfolio management team a rich opportunity set from which to seek to exploit market pullbacks or volatility.

As liquidity drains from the global financial system, valuation multiple expansion is unlikely to drive share price returns: cheap alone is not enough. Instead, we are allocating capital to shares of companies in recovery mode—businesses managing through earnings setbacks—and companies restructuring for improved profitability. These companies generally appear expensive on valuation ratios using earnings or cash flows. But we believe their earnings recoveries can lead share prices higher (and portfolio valuation multiples lower), providing clients with fundamentally driven, idiosyncratic sources of portfolio return.

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Causeway Funds plc (the "Fund") is authorised by the Central Bank of Ireland as an Undertaking for Collective Investment in Transferable Securities pursuant to the European Communities (Undertaking for Collective Investment in Transferable Securities) Regulations 2011 (S.I. 352 of 2011) of Ireland, as amended.

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