Diversified exposure to emerging markets, capturing value and growth
The Emerging Markets strategy invests primarily in common stocks of emerging markets companies. The strategy combines value and growth, and bottom-up and top-down factors. Our quantitative stock selection process is focused on attractively valued companies with superior earnings prospects and positive market sentiment; these companies should produce consistent returns across investment cycles. We use the same approach to select sectors and countries, comparing valuation against earnings growth and market sentiment. At the country level, we also consider the health of the macro-economy. Our quantitative process seeks to combine these factors while attempting to avoid undue sources of risk, which for this strategy we define as tracking error (a measurement of dispersion from a benchmark index).
- Benchmark
- MSCI Emerging Markets in USD
- Inception
- March 29, 2007
Portfolio managers
Joe Gubler, CFA
Mr. Gubler is a quantitative portfolio manager at Causeway. He joined the firm in 2005 and has been a portfolio manager since January 2014. In addition to managing quantitative portfolios and conducting alpha research, Mr. Gubler also leads the efforts to maintain and enhance Causeway’s proprietary risk models. He is also a member of the operating committee.
From 1999 to 2005, Mr. Gubler worked as a software engineer, with employers ranging from startups to established businesses such as Monster.com. From 1998 to 1999, Mr. Gubler worked as a staff scientist for News Corporation, conducting studies on the RF propagation of broadcast signals. While studying astrophysics at UC San Diego, Mr. Gubler worked as a graduate research assistant in the Jet Propulsion Laboratory's stellar interferometry group.
Mr. Gubler earned a BS, cum laude, in physics from UC Irvine, an MS in physics from UC San Diego, and an MBA from the UCLA Anderson Graduate School of Management. Mr. Gubler is a CFA charterholder.
Arjun Jayaraman, PhD, CFA
Quantitative Portfolio Manager
Dr. Jayaraman is a director, quantitative portfolio manager and head of the quantitative research at Causeway and has been with the firm since January 2006. Dr. Jayaraman’s responsibilities and research include stock selection, asset allocation, risk model development, and portfolio construction.
From 2004 to 2005, Dr. Jayaraman was a portfolio manager at PanAgora Asset Management. He was the lead portfolio manager on the non-U.S. large cap core equity portfolios and was the co-portfolio manager on the global large cap core equity portfolios. From 2000 to 2004, Dr. Jayaraman managed the same portfolios at Putnam Investments, in addition to working closely with the teams that managed Putnam's traditional non-U.S. strategies. From 1998 to 2000, Dr. Jayaraman worked as a quantitative analyst at Harborview Trading Associates.
Dr. Jayaraman earned a PhD from New York University at the Stern School of Business and a BA in economics from Columbia University. Dr. Jayaraman is a CFA charterholder.
MacDuff Kuhnert, CFA
Mr. Kuhnert is a director and a quantitative portfolio manager at Causeway and has been with the firm since its inception in June 2001. Mr. Kuhnert’s responsibilities and research include stock selection, asset allocation, risk model development, and portfolio construction.
From 1996 to 2001, Mr. Kuhnert worked for the international team of the Hotchkis & Wiley division of Merrill Lynch Investment Managers (HW-MLIM) as a quantitative research associate. During his tenure at HW-MLIM, Mr. Kuhnert created and developed advanced quantitative models used in the international value investment process. He also helped develop the team’s first equity risk model.
Mr. Kuhnert earned a BA in chemistry from Dartmouth College. He is a CFA charterholder, a member of the CFA Society of Los Angeles, and a member of the Chicago Quantitative Alliance.
Ryan Myers
Mr. Myers is a quantitative portfolio manager at Causeway. He joined the firm in June 2013 and has been a portfolio manager since January 2021. His responsibilities include alpha research, stock selection, and portfolio construction.
From 2010 to 2012, Mr. Myers served as chief investment officer of Iron Castle Asset Management, an investment partnership focused on mid-cap U.S. equities. From 2007 to 2008, Mr. Myers worked as an analyst at Canyon Partners, where he covered the cable, media, telecom and satellite sectors. From 2005 to 2007, Mr. Myers was an associate for Oaktree Capital Management in the distressed opportunities group. Mr. Myers began his professional career in 2003 as an investment banking analyst at Goldman Sachs in the technology, media and telecom group.
Mr. Myers earned a BA, magna cum laude, in economics from Harvard University, where he was elected to Phi Beta Kappa. He earned an MBA from the Stanford Graduate School of Business, where he was an Arjay Miller Scholar. Mr. Myers currently serves on the Board of Trustees of the Yosemite Conservancy, an organization dedicated to supporting projects and programs that preserve Yosemite National Park and enrich the visitor experience.
Performance
Account returns for the Causeway Emerging Markets Composite (“Emerging Markets Composite”) are calculated daily. Monthly account returns are calculated by geometrically linking the daily returns. The return of the Emerging Markets Composite is calculated monthly by weighting monthly account returns by the beginning market values. Valuations and returns are computed and stated in US dollars. Returns include the reinvestment of interest, dividends and any capital gains. Returns are calculated gross of withholding taxes on dividends, interest income, and capital gains. Past performance is no guarantee of future performance. Gross-of-fees returns are presented before management, performance and custody fees but after trading expenses. Net-of-fees returns are presented after the deduction of actual management fees, performance-based fees, and all trading expenses, but before custody fees. Causeway’s basic management fee schedules are described in its firm brochure pursuant to Part 2 of Form ADV. A complete list and description of firm composites is available upon request. This information supplements the composite presentation at Composite Performance. Investing involves risk including loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Diversification does not prevent all investment losses.
Portfolio (as of March 31, 2024)
Asset Allocation
| Strategy | |
|---|---|
| Stocks | 98.6% |
| Cash | 1.4% |
Strategy Characteristics
| Strategy | Benchmark | |
|---|---|---|
| No. of holdings | 193 | 1376 |
| Weighted avg. market cap (US $MM) | $83,525 | $92,065 |
| NTM price/earnings | 8.1 | 12.1 |
| Price/book value | 1.2 | 1.7 |
| Dividend yield (%) | 4.2 | 2.7 |
| NTM EPS revision (wtd. avg) | 13.2 | 2.9 |
TOP 10 HOLDINGS
| Security | Country | Active weight* |
|---|---|---|
| Banco do Brasil SA | Brazil | 1.8% |
| Kia Corp. | South Korea | 1.7% |
| China Construction Bank Corp. | China | 1.6% |
| PetroChina Co., Ltd. | China | 1.6% |
| Petróleo Brasileiro SA | Brazil | 1.3% |
| Agricultural Bank Of China | China | 1.3% |
| REC Ltd. | India | 1.2% |
| Hon Hai Precision Industry Co., Ltd. | Taiwan | 1.1% |
| Vipshop Holdings | China | 1.1% |
| KB Financial Group, Inc. | South Korea | 0.9% |
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. “Earnings-per-share” is the portion of a company’s profit allocated to each outstanding share of common stock. “Earnings-per-share year-over-year estimate growth (next 12 months)” is the average next-twelve-month earnings-per-share estimate from one year ago for an individual company compared with that estimate today; note that this calculation is done on a company by company basis and is aggregated through a weighted average based on the individual company’s weight in the corresponding index. Also note that this characteristic is supplied directly by MSCI.
*Active defined as Portfolio weight minus MSCI EM Index weight. Holdings are subject to change.
SECTOR WEIGHTS
| Sector | Strategy | Benchmark |
|---|---|---|
| Information Technology | 24.1% | 23.7% |
| Financials | 18.3% | 22.4% |
| Consumer Discretionary | 13.0% | 12.4% |
| Industrials | 12.1% | 7.0% |
| Communication Services | 9.7% | 8.6% |
| Energy | 8.2% | 5.3% |
| Health Care | 4.0% | 3.5% |
| Consumer Staples | 3.1% | 5.6% |
| Materials | 2.8% | 7.2% |
| Utilities | 2.3% | 2.8% |
| Real Estate | 1.1% | 1.5% |
TOP 10 COUNTRIES
| Country | Strategy | Benchmark |
|---|---|---|
| China | 26.0% | 25.1% |
| Taiwan | 20.7% | 17.6% |
| India | 20.4% | 17.7% |
| South Korea | 14.7% | 12.8% |
| Brazil | 7.5% | 5.2% |
| Turkey | 3.0% | 0.7% |
| Saudi Arabia | 1.5% | 4.2% |
| Mexico | 1.2% | 2.7% |
| United Arab Emirates | 1.0% | 1.2% |
| Indonesia | 0.9% | 1.9% |
Regional Allocation
- Emerging Asia 83.9%
- Emerging Latin America 8.8%
- Emerging Europe, Middle East, Africa 6.0%
Commentary (As of March 31, 2024)
Highlights
Portfolio Attribution
The Portfolio performed in-line with the Index during the month. We use both bottom-up “stock-specific” and top-down factor categories to seek to forecast alpha for the stocks in the Portfolio's investable universe*. Our bottom-up valuation, growth, and corporate events factors were positive indicators in March. Our technical (price momentum) and competitive strength factors were negative indicators. Our top-down currency factor was positive while our macroeconomic and country/sector aggregate factors were negative indicators during the month.
Quarterly Investment Outlook
The South Korean government has introduced its Corporate Value-Up program with the goal of increasing valuations for companies trading significantly below book value. However, given the voluntary nature of the program, we believe the long-term efficacy of the initiative remains questionable. While the Portfolio was overweight in South Korean stocks at quarter-end, we have been reducing exposure due in part to valuation considerations. In Turkey, the central bank hiked its target interest rate by 500 basis points in March, signaling its commitment to reigning in inflation. This action helped to allay concerns that President Recep Erdogan would interfere with the central bank’s price stability objective in order to spur slowing growth. The Portfolio was overweight Turkish stocks at quarter-end as compelling bottom-up characteristics more than offset the country’s challenging, but improving, top-down headwinds.
The Portfolio was also overweight Indian stocks at quarter-end, reflecting attractive bottom-up and top-down characteristics in the country. The Portfolio's overweight to Indian small caps has contributed to relative performance over the trailing 12-months ended March 31st, attributable in part to optimism leading into the upcoming general election. 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 Portfolio's allocation to small cap stocks was near the high end of the historical range at quarter-end.
*The Causeway Emerging Markets strategy uses quantitative factors that can be grouped into eight categories: valuation, growth, technical indicators, competitive strength, macroeconomic, corporate events, country/sector aggregate, and currency. The return attributed to a factor is the difference between the equally-weighted average return of the highest ranked quintile of companies in the strategy’s emerging markets universe based on that factor and that of the lowest ranked quintile of companies. “Alpha” means performance exceeding the benchmark index.
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].