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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
BenchmarkMSCI World

Performance

Fund Quarter to Date Year to Date 1 Year3 Year5 Year Since Inception
Gross % -0.2%-11.0%-2.8%0.0%1.5%3.5%
Net % -0.3%-11.7%-4.3%-1.4%-0.0%1.9%
BofAML 90 T Bill 0.1%0.4%0.6%0.3%0.2%0.2%

Portfolio

Position Details as of 31 Jul 2017

Cash65,554,689
Market Value Long97,643,838
Market Value Short-101,694,850
Net Positional Value-4,051,011
NAV61,503,677
Net Exposure-6.59%
Leverage3.24
Long Positions 49
Short Positions 126
Total175

Characteristics as of 31 Jul 2017

Long Portfolio Short Portfolio MSCI World
No. of Exposures 49 126 1635
Wtd Avg Mkt Cap (Mn $US)$80,051$42,130$107,150
FY2 Price/Earnings12.916.115.9
Price/Book Value1.71.72.3
Return on Equity (%)14.28.515.9

Sector Exposure as of 31 Jul 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
Energy19.16-10.738.43
Telecommunication Services15.92-9.336.59
Information Technology32.08-25.786.30
Health Care22.82-18.634.19
Industrials22.72-19.483.24
Real Estate2.23-5.69-3.46
Utilities0.00-3.80-3.80
Materials3.53-7.85-4.32
Consumer Discretionary12.80-17.66-4.86
Financials24.06-30.35-6.29
Consumer Staples3.58-16.14-12.56

Country Exposure as of 31 Jul 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
United Kingdom32.20-21.5910.61
Switzerland12.09-7.904.19
Netherlands3.530.003.53
China4.12-1.172.95
Italy2.93-0.282.65
Spain2.230.002.23
Hong Kong8.49-7.620.87
South Korea7.58-6.910.67
Germany4.55-3.970.58
Sweden0.000.000.00
Denmark0.00-0.59-0.59
Japan15.03-15.69-0.66
Canada3.13-4.47-1.34
France3.92-5.29-1.37
Norway0.00-2.08-2.08
Ireland0.00-2.13-2.13
Finland0.00-3.06-3.06
Australia0.00-4.13-4.13
Singapore0.00-4.91-4.91
Belgium0.00-6.15-6.15
United States59.09-67.51-8.42

TOP 10 Positions as of 31 Jul 2017

Top Ten Long PositionsTop Ten Short Positions
CompanyEnding Weight (%)CompanyEnding Weight (%)
Citigroup, Inc.5.05%China Overseas Land & Investment Ltd.-3.59%
Royal Dutch Shell Plc4.88%Anheuser-Busch InBev SA/NV-3.44%
Novartis AG4.62%Just Energy Group-3.37%
Volkswagen AG4.55%Visa, Inc.-3.33%
Oracle Corp.4.53%Markel Corp.-3.31%
Microsoft Corp.4.52%Acadia Healthcare Co., Inc.-3.30%
China Mobile Ltd.4.51%The Kraft Heinz Co.-3.28%
SK Telecom Co., Ltd.4.32%Toyota Motor Corp.-3.27%
Eli Lilly & Co.4.25%Berkshire Hathaway, Inc.-3.21%
Barclays Plc4.23%Ford Motor Co.-3.17%

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 31 Jul 2017


Causeway Global Absolute Return Portfolio (“Portfolio”) underperformed the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index in the month of July. The Portfolio’s underperformance was driven by the long portfolio, as the long portfolio underperformed the MSCI World Index (“World Index”). The short portfolio underperformed the World Index, contributing positively to overall portfolio return, but not by enough to offset the long portfolio’s underperformance.

Positive economic data emerged across regions in July, with Europe leading the charge, boosting the demand for global equities. The top performing markets in our investable universe included Norway, China, Austria, Belgium, and Italy. The worst performing markets included Israel, Ireland, Sweden, Switzerland, and Germany. The best performing sectors in the World Index were telecommunication services, materials, and information technology. The worst performing sectors were health care, consumer staples, and industrials. Every major currency except the Swiss franc appreciated versus the US dollar during the period, thus amplifying overall returns on overseas assets for US dollar-based investors.

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 underperformed the World Index during the period, due primarily to stock selection. Exposures to the capital goods, pharmaceutical & biotechnology, and semiconductors & semi equipment industry groups contributed the most to relative underperformance. Exposures to the software & services, technology hardware & equipment, and energy industry groups offset some of the relative underperformance. The largest detractor was food beverage & tobacco company, British American Tobacco Plc (United Kingdom). Additional detractors included flow control equipment manufacturer, Flowserve Corporation (United States), pharmaceutical research, development, and manufacturing company, AstraZeneca (United Kingdom), pharmaceutical & consumer healthcare company, GlaxoSmithKline (United Kingdom), and power & automation technology company, ABB Ltd. (Switzerland). The top contributor to performance was internet services provider, Baidu (China). Additional contributors included electrical & electronic equipment manufacturer, Hitachi Ltd. (Japan), exploration and production company, PDC Energy, Inc. (United States), wireless communications operator, SK Telecom Co., Ltd. (South Korea), and energy supermajor, Royal Dutch Shell Plc (United Kingdom).

We use a quantitative approach to select securities exposures for the short portfolio. Our process seeks to obtain exposures to short positions in 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 July, our growth and technical factor categories demonstrated predictive power. Companies with worsening earnings growth dynamics and weak technical indicators underperformed the broader market, as anticipated. However, companies demonstrating potential insolvency and/or accounting chicanery outperformed the broader market, contrary to expectations, and those with expensive valuations performed in line with the broader market.

From an industry group perspective, short-side attribution effects were strongest in the capital goods, healthcare equipment & services, and materials industry groups. Short-side attribution effects were weakest in the food beverage & tobacco, real estate, and energy industry groups. At the stock exposure level, successful short exposures included medical services provider, MEDNAX, Inc. (United States), capital goods manufacturer, Westinghouse Air Brake Technologies Corp. (United States), motor vehicle manufacturer, Hyundai Motor Co., Ltd. (Korea), pharmaceuticals & biotechnology company, CSL Ltd. (Australia), and shipbuilder, Samsung Heavy Industries Co., Ltd. (Korea). Short exposures that detracted from the Portfolio's performance included property developer, China Overseas Land & Investment Ltd. (Hong Kong), specialty insurer, Markel Corporation (United States), broadband and communication services provider, Verizon Communications Inc. (United States), insurance company, Ageas SA/NV (Belgium), and beer producer and distributor, Anheuser-Busch InBev SA/NV (Belgium).*

*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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