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Global Absolute Return

Strategy Profile

Causeway's Global Absolute Return (GAR) strategy is designed for investors who want equity-like returns with lower volatility and low equity market correlation. The strategy invests in global developed markets equities and may invest in emerging markets, using swap agreements or direct investments to obtain long and short exposures to equity securities.

Inception Date28 Feb 2011
BenchmarkBofA ML 3M US TBill

Performance

Fund Quarter to Date Year to Date 1 Year3 Year5 Year Since Inception
Gross % 3.4%-7.7%-2.0%0.2%2.0%3.9%
Net % 3.1%-8.7%-3.4%-1.3%0.5%2.4%
BofAML 90 T Bill 0.3%0.6%0.7%0.3%0.2%0.2%

Portfolio

Position Details as of 30 Sep 2017

Cash48,413,721
Market Value Long72,633,975
Market Value Short-74,386,494
Net Positional Value-1,752,519
NAV46,661,201
Net Exposure-3.76%
Leverage3.15
Long Positions 49
Short Positions 127
Total176

Characteristics as of 30 Sep 2017

Long Portfolio Short Portfolio BofA ML 3M US TBill
No. of Exposures 49 127
Wtd Avg Mkt Cap (Mn $US)$79,208$39,798$0
FY2 Price/Earnings13.216.50.0
Price/Book Value1.71.60.0
Return on Equity (%)13.98.40.0

Sector Exposure as of 30 Sep 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
Energy21.34-12.358.99
Telecommunication Services13.44-7.216.23
Health Care23.25-17.635.62
Information Technology30.21-25.135.08
Industrials22.94-20.542.40
Real Estate1.77-4.52-2.75
Consumer Discretionary13.67-18.16-4.49
Materials3.45-7.95-4.50
Utilities0.00-4.74-4.74
Financials21.81-27.47-5.66
Consumer Staples3.93-13.70-9.77

Country Exposure as of 30 Sep 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
United Kingdom30.91-20.7610.15
Switzerland9.93-5.024.91
Netherlands3.450.003.45
Hong Kong8.32-5.143.18
Japan15.50-12.892.61
Italy2.510.002.51
Spain1.770.001.77
China3.76-3.050.71
South Korea6.28-6.39-0.11
Denmark0.00-0.59-0.59
Canada5.02-6.04-1.02
Ireland0.00-1.48-1.48
Sweden0.00-1.64-1.64
Norway0.00-1.89-1.89
Germany4.89-7.03-2.14
France3.74-6.22-2.48
Finland0.00-2.58-2.58
Belgium0.00-3.06-3.06
Singapore0.00-3.69-3.69
Australia0.00-3.90-3.90
United States59.74-68.00-8.26

TOP 10 Positions as of 30 Sep 2017

Top Ten Long PositionsTop Ten Short Positions
CompanyEnding Weight (%)CompanyEnding Weight (%)
Royal Dutch Shell Plc5.39%Deutsche Bank AG-3.15%
Volkswagen AG4.89%AIR Liquide-3.07%
Citigroup, Inc.4.83%Anheuser-Busch InBev SA/NV-3.06%
PDC Energy, Inc.4.56%China Oilfield Services Ltd.-3.05%
East Japan Railway Co.4.51%Hyundai Motor Co., Ltd.-3.04%
Barclays Plc4.49%Shire Pharmaceuticals-3.03%
Microsoft Corp.4.39%Just Energy Group-3.01%
Halliburton Co.4.27%Ford Motor Co.-3.00%
China Mobile Ltd.4.25%Loews Corp.-2.99%
KDDI Corp.4.12%The Royal Bank of Scotland Plc-2.97%

Holdings are subject to change. Weights are notional exposures over net assets.

Approach

Causeway's Global Absolute Return (GAR) strategy is designed for investors who want equity-like returns with lower volatility and low equity market correlation. The strategy invests in global developed markets equities and may invest in emerging markets, using swap agreements or direct investments to obtain long and short exposures to equity securities.

Causeway uses its fundamental global value equity strategy to manage the long exposures and its quantitative investment strategy to manage the short exposures. Both the long and short portfolios seek to add alpha(return in excess of index), which is amplified by leverage up to 4x, with a target of 3x.

The GAR strategy seeks to mitigate risk in a number of ways: on the short side, qualitative risk may be captured by a fundamental review of short positions, and short exposures are constrained. Unrealized gains or losses through swap agreements are also constrained, limiting counterparty risk. There are approximately twice as many short exposures as long, mitigating idiosyncratic risk in the short portfolio.

The GAR portfolio typically has 85-180 long/short exposures. The dollar amount of the long exposures is generally within 10 percentage points of the dollar amount of the short exposures, but the portfolio may have sector or regional biases.

Commentary

PERFORMANCE REVIEW for the month ended 30 Sep 2017


Causeway Global Absolute Return Portfolio (“Portfolio”) outperformed the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index in the month of September. The Portfolio’s outperformance was driven by both the long and short portfolios: The global long portfolio outperformed the MSCI World Index (“World Index”), and the global short portfolio underperformed the World Index, also contributing positively to overall portfolio return.

Developed equity markets rose during the month as rising employment and improving consumer confidence data indicated a healthy global economy. The top performing markets in our investable universe included Ireland, Germany, France, Israel, and Norway. The worst performing markets included Singapore, Australia, Denmark, Hong Kong, and New Zealand. The best performing sectors in the World Index were energy, financials, and industrials. The worst performing sectors were utilities, real estate, and consumer staples.

The Portfolio takes long and short notional exposures to securities under swap agreements. We use our fundamental value approach to select securities exposures for the long portfolio. The long portfolio outperformed the World Index during the period, due primarily to stock selection. Exposures to the energy, technology hardware & equipment, pharmaceuticals & biotechnology, and banks industry groups, as well as an overweight exposure to the automobiles & components industry group, contributed the most to relative outperformance. Exposures to the telecommunication services, semiconductors & semiconductor equipment, and materials industry groups, along with an overweight exposure to the software & services industry group and an underweight exposure to the diversified financials industry group, offset a portion of the outperformance. The top contributor to performance was oil exploration & production company, PDC Energy, Inc. (United States). Additional contributors included energy exploration & production company, SM Energy Co. (United States), energy exploration & production company, Halliburton Co. (United States), energy supermajor, Royal Dutch Shell Plc (United Kingdom), and automobile manufacturer, Volkswagen AG (Germany). The largest detractor was mobile telecommunications operator, China Mobile Ltd. (Hong Kong). Additional detractors included enterprise management software provider, Oracle Corp. (United States), metallurgical and thermal coal producer, Arch Coal, Inc. (United States), travel and tourism technology solutions provider, Sabre Corp. (United States), and telecommunication services provider, Vodafone Group (United Kingdom).

We use a quantitative approach to select securities exposures for the short portfolio. Our process seeks to obtain short exposures to stocks which we believe are overvalued and have deteriorating earnings growth dynamics, poor technical price movements, and insolvency risk and/or inferior quality of earnings. During the month of September, our value and growth factor categories demonstrated predictive power. Consistent with expectations, companies with expensive valuations and worsening earnings growth dynamics underperformed. However, companies with weak technical indicators and those demonstrating potential insolvency and/or accounting chicanery outperformed, contrary to expectations.

From an industry group perspective, short-side attribution effects were strongest in the health care equipment & service, semiconductors & semiconductor equipment, and food beverage & tobacco industry groups. Short-side attribution effects were weakest in the automobiles & components, materials, and energy industry groups. At the stock exposure level, successful short exposures included medical device manufacturer, DexCom, Inc. (United States), brewer, Molson Coors Brewing Co. (United States), biopharmaceutical company, Intercept Pharmaceuticals, Inc. (United States), property developer, China Overseas Land & Investment Ltd. (Hong Kong), and telecommunications services provider, China Unicom Ltd. (Hong Kong). Short exposures that detracted from the Portfolio’s performance included international banking and financial services company, The Royal Bank of Scotland Plc (United Kingdom), oil & gas exploration company, EOG Resources, Inc. (United States), specialty chemical company, Air Liquide SA (France), construction and industrial products distributor, HD Supply Holdings, Inc. (United States), and automobile manufacturer, Ford Motor Co.(United States).*

*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 moutes@causewaycap.com.

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