Emerging Markets UCITS Fund – EUR

Portfolio Attribution

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

Investment Outlook

Within EM, earnings upgrades have been strongest in materials, energy, and industrials. The improving expectations for these cyclical sectors reflect analyst optimism that economies will continue to reopen as vaccine distribution progresses. The materials sector represents one of the Fund’s largest overweight positions due to attractive growth and price momentum characteristics. Information technology, the Fund’s largest sector overweight, also includes stocks with compelling growth and price momentum attributes. From a country perspective, growth upgrades were particularly strong in Poland, Russia, and Saudi Arabia. South Africa, Indonesia, and China had the weakest net upgrades. The Chinese government is paring back stimulus measures and some of the country’s largest companies are facing elevated regulatory risks as well as increasing spending needs to fund new growth drivers.

We continue to emphasize value factors in our multi-factor investment process. The largest potential headwind for EM value stocks relates to Covid-19 vaccine distribution challenges or efficacy issues against developing virus variants. However, with the MSCI EM Value Index trading at a 52% discount to the MSCI EM Growth Index on a next-twelve-month price-to-earnings basis, we believe that value stocks offer compelling risk-adjusted return potential.

Emerging Markets UCITS Fund

Portfolio Attribution

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

Investment Outlook

Within EM, earnings upgrades have been strongest in materials, energy, and industrials. The improving expectations for these cyclical sectors reflect analyst optimism that economies will continue to reopen as vaccine distribution progresses. The materials sector represents one of the Fund’s largest overweight positions due to attractive growth and price momentum characteristics. Information technology, the Fund’s largest sector overweight, also includes stocks with compelling growth and price momentum attributes. From a country perspective, growth upgrades were particularly strong in Poland, Russia, and Saudi Arabia. South Africa, Indonesia, and China had the weakest net upgrades. The Chinese government is paring back stimulus measures and some of the country’s largest companies are facing elevated regulatory risks as well as increasing spending needs to fund new growth drivers.

We continue to emphasize value factors in our multi-factor investment process. The largest potential headwind for EM value stocks relates to Covid-19 vaccine distribution challenges or efficacy issues against developing virus variants. However, with the MSCI EM Value Index trading at a 52% discount to the MSCI EM Growth Index on a next-twelve-month price-to-earnings basis, we believe that value stocks offer compelling risk-adjusted return potential.

Global Value UCITS Fund

Portfolio Attribution

The Causeway Global Value UCITS Fund (“Fund”) underperformed the Index during the month, due primarily to stock selection. Fund holdings in the software & services, consumer services, technology hardware & equipment, and materials industry groups, along with an overweight position in the capital goods industry group, detracted from relative performance. Holdings in the energy industry group, as well as an underweight position in the telecommunication services, food beverage & tobacco, household & personal products, and health care equipment & services industry groups, offset some of the underperformance compared to the Index. The largest detractor was jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom). Additional notable detractors included travel & tourism technology company, Sabre Corp. (United States), specialty chemicals manufacturer, Ashland Global Holdings, Inc. (United States), banking & financial services company, UniCredit S.p.A. (Italy), and online travel agency, Booking Holdings, Inc. (United States). The top contributor to return was technology conglomerate, Alphabet Inc. (United States). Other notable contributors included pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland), pharmaceutical producer, Novartis AG (Switzerland), business services provider, Concentrix Corp. (United States), and HVAC manufacturer, Carrier Global Corp. (United States).

Investment Outlook

Despite the past 15-month surge in equity markets, amplified by the recovery in cyclical stocks from November 2020 vaccine announcements, we believe attractive valuations remain. With delayed and uneven opening of economies globally, several of the, in our view, high quality aerospace, aviation, travel, and hospitality-oriented stocks have only partially reflected the recovery ahead. We observe significant pent up demand for such services, yet travelers still face uncertainty in certain locations and face burdensome Covid-19-related protocols. As vaccinations proliferate, we believe even the most cautious of governments will likely open their respective borders, compelled by economic necessity. In addition to late-stage pandemic stocks, we are also finding what we believe is market underpricing in companies undergoing operational restructuring and in some traditionally defensive sectors such as utilities (those in transition to renewable energy) and healthcare (European pharmaceutical giants with potentially valuable drug pipelines). Companies in the defensive categories tend to generate cash flows surplus to their operating and investment needs (free cash flow), and thus can pay shareholders to wait for prices to reflect what we estimate will be good news. We believe companies less dependent on earnings realization far out in the future should provide a natural hedge in the portfolio to the prospect of rising interest rates, a function of bond markets reflecting economic growth and inflation. If history is any guide, the side effect of higher discount rates and bond market competition should translate into compression of the most speculative of market multiples.