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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
Benchmark BofA ML 3M US TBill

Performance

Fund Quarter to Date Year to Date 1 Year3 Year5 Year Since Inception
Gross % 0.4%-7.4%-8.6%0.5%3.0%3.9%
Net % 0.2%-8.5%-9.9%-0.9%1.5%2.3%
BofAML 90 T Bill 0.2%0.8%0.8%0.4%0.3%0.2%

Portfolio

Position Details as of 30 Nov 2017

Cash47,735,134
Market Value Long71,836,550
Market Value Short-73,915,612
Net Positional Value-2,079,062
NAV45,656,072
Net Exposure-4.55%
Leverage3.19
Long Positions 50
Short Positions 126
Total176

Characteristics as of 30 Nov 2017

Long Portfolio Short Portfolio MSCI World
No. of Exposures 50 126 1634
Wtd Avg Mkt Cap (Mn $US)$82,783$34,968$119,255
FY2 Price/Earnings13.316.816.6
Price/Book Value1.71.72.4
Return on Equity (%)14.65.416.6

Sector Exposure as of 30 Nov 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
Telecommunication Services14.62-4.909.72
Energy16.35-10.735.62
Health Care24.39-18.825.57
Information Technology29.95-26.393.56
Industrials24.82-21.922.90
Real Estate2.14-5.07-2.93
Utilities1.28-5.07-3.79
Consumer Discretionary14.92-18.88-3.96
Materials2.64-6.61-3.97
Financials22.34-29.40-7.06
Consumer Staples4.07-14.12-10.05

Country Exposure as of 30 Nov 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
United Kingdom28.40-18.439.97
Switzerland10.71-6.244.47
China3.71-1.042.67
Japan17.56-14.912.65
Netherlands2.640.002.64
Italy2.430.002.43
Spain2.140.002.14
Germany6.51-5.281.23
Hong Kong5.48-4.401.08
Canada5.34-5.230.11
South Korea6.83-6.96-0.13
Denmark0.00-0.28-0.28
Ireland0.00-1.28-1.28
Sweden0.00-1.44-1.44
Norway0.00-1.93-1.93
Finland0.00-2.92-2.92
Belgium0.00-3.07-3.07
Singapore0.00-3.28-3.28
Australia0.00-3.84-3.84
France3.79-8.21-4.42
United States61.98-73.18-11.20

TOP 10 Positions as of 30 Nov 2017

Top Ten Long PositionsTop Ten Short Positions
CompanyEnding Weight (%)CompanyEnding Weight (%)
Volkswagen AG6.51%Novocure-3.34%
Citigroup, Inc.5.12%Shire Pharmaceuticals-3.24%
Barclays Plc4.94%Ford Motor Co.-3.22%
East Japan Railway Co.4.82%Hyundai Motor Co., Ltd.-3.22%
KDDI Corp.4.58%Westinghouse Air Brake Technologies Corp.-3.20%
China Mobile Ltd.4.35%The Kraft Heinz Co.-3.17%
Microsoft Corp.4.13%Berkshire Hathaway, Inc.-3.17%
SM Energy Co.4.10%The Royal Bank of Scotland Plc-3.16%
Eli Lilly & Co.4.09%AIR Liquide-3.09%
British American Tobacco plc4.07%Loews Corp.-3.08%

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 Oct 2017


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

The synchronized global economic recovery continued in October, boosting equity market performance. The top performing markets in our investable universe included South Korea, Singapore, Japan, China, and the United States. The worst performing markets included New Zealand, Israel, Finland, Portugal, and Switzerland. The best performing sectors in the World Index were information technology, materials, and utilities. The worst performing sectors were telecommunication services, health care, 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 underperformed the World Index during the period, due primarily to stock selection. Exposures to the retailing, banks, semiconductors & semi equipment, and materials industry groups, along with an overweight position in the pharmaceuticals & biotechnology industry group, contributed the most to relative underperformance. Exposures to the energy, automobiles & components, transportation, telecommunication services, and capital goods industry groups offset a portion of the underperformance. The top detractor from performance was automobile components retailer, Advance Auto Parts, Inc.(United States). Additional detractors included pharmaceuticals & biotechnology company, Roche Holding AG (Switzerland), pharmaceutical & consumer healthcare company, GlaxoSmithKline Plc (United Kingdom), regional bank, UniCredit S.p.A.(Italy), and global entertainment content company, Viacom, Inc. (United States). The largest contributor was energy exploration & production company, SM Energy Co. (United States). Additional contributors included automobile manufacturer, Volkswagen AG (Germany), software giant, Microsoft Corp. (United States), electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea), and electrical & electronic equipment manufacturer, Hitachi Ltd. (Japan).

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 October, our growth and technical factor categories demonstrated predictive power. Consistent with expectations, companies with worsening earnings growth dynamics and weak technical indicators underperformed the broader market. However, companies with expensive valuations and those demonstrating potential insolvency and/or accounting chicanery outperformed, contrary to expectations.

From an industry group perspective, short-side attribution effects were weakest in the media, automobiles & components, food & staples retailing, banks, and pharmaceuticals & biotechnology industry groups. Short-side attribution effects were strongest in the technology hardware & equipment, health care equipment & services, energy, semiconductors & semi equipment, and utilities industry groups. Short exposures that detracted from the Portfolio’s performance included multimedia software developer, Autodesk, Inc. (United States), automobile manufacturer, Hyundai Motor Co.Ltd. (South Korea),aerospace and defense company, Rolls-Royce Holdings Plc (United Kingdom), semiconductor developer, Broadcom Ltd. (Singapore), and international media and education company, Pearson Plc (United Kingdom). Successful short exposures included telecommunications services provider, Nokia Oyj (Finland), healthcare services company, Cardinal Health, Inc. (United States), fast-casual restaurant operator, Chipotle Mexican Grill, Inc. (United States), international banking and financial services company, Deutsche Bank AG (Germany), and energy services company, Weatherford International (Switzerland).*

*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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