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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 % -7.9%-7.9%0.3%0.7%2.4%4.3%
Net % -8.1%-8.1%-1.1%-0.8%0.9%2.7%
BofAML 90 T Bill 0.1%0.1%0.4%0.2%0.1%0.1%

Portfolio

Position Details as of 28 Feb 2017

Cash74,473,613
Market Value Long109,651,308
Market Value Short-115,516,352
Net Positional Value-5,865,044
NAV68,608,569
Net Exposure-8.55%
Leverage3.28
Long Positions 51
Short Positions 125
Total176

Characteristics as of 28 Feb 2017

Long Portfolio Short Portfolio MSCI World
No. of Exposures 51 125 1632
Wtd Avg Mkt Cap (Mn $US)$75,765$37,842$101,398
FY2 Price/Earnings12.816.415.5
Price/Book Value1.62.02.3
Return on Equity (%)13.411.616.1

Sector Exposure as of 28 Feb 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
Telecommunication Services14.72-9.185.54
Health Care23.74-18.645.10
Energy14.13-9.604.53
Information Technology28.64-24.733.91
Industrials18.97-19.50-0.53
Utilities5.68-6.93-1.25
Financials29.09-31.42-2.33
Consumer Discretionary14.86-17.78-2.92
Materials4.84-8.56-3.72
Real Estate1.56-6.53-4.97
Consumer Staples3.71-15.25-11.54

Country Exposure as of 28 Feb 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
United Kingdom35.90-25.8010.10
Switzerland15.20-6.268.94
Netherlands4.840.004.84
France6.46-3.672.79
Hong Kong8.07-5.372.70
Germany4.99-4.190.80
Spain3.82-3.160.66
South Korea6.63-6.590.04
Japan15.17-15.26-0.09
China2.88-3.01-0.13
Norway0.00-0.75-0.75
Denmark0.00-1.38-1.38
Sweden0.00-1.69-1.69
Canada1.54-4.47-2.93
Belgium0.00-3.17-3.17
Finland0.00-3.21-3.21
Italy1.54-4.85-3.31
Australia0.00-4.27-4.27
Singapore0.00-5.49-5.49
United States52.89-65.53-12.64

TOP 10 Positions as of 28 Feb 2017

Top Ten Long PositionsTop Ten Short Positions
CompanyEnding Weight (%)CompanyEnding Weight (%)
Citigroup, Inc.5.28%Acadia Healthcare Co., Inc.-3.45%
Volkswagen AG4.99%Hyundai Motor Co., Ltd.-3.41%
Royal Dutch Shell Plc4.97%Shire Pharmaceuticals-3.30%
Akzo Nobel NV4.84%Markel Corp.-3.27%
Oracle Corp.4.78%Nokia Oyj-3.21%
Novartis AG4.66%Berkshire Hathaway, Inc.-3.19%
China Mobile Ltd.4.53%Avago Technologies-3.19%
East Japan Railway Co.4.42%2U, Inc.-3.17%
Microsoft Corp.4.32%Anheuser-Busch InBev SA/NV-3.17%
Prudential Plc4.30%Telefonica-3.16%

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

Commentary

PERFORMANCE REVIEW for the month ended 28 Feb 2017


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

Global equities continued to appreciate in February, as promising economic data emerged across regions which added strength to business and consumer confidence. The top performing markets in our investable universe included Israel, the United States, Australia, the Netherlands, and China. The worst performing markets included Norway, Canada, Denmark, Ireland, and Italy. The best performing sectors in the World Index were health care, information technology, and consumer staples. The worst performing sectors were energy, materials, and telecommunication services.

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 global long portfolio of the Fund. The global long portfolio underperformed the World Index this month. Fund exposures in the energy, retailing, capital goods, technology hardware & equipment, and software & services industry groups detracted from relative performance. Exposures to the pharmaceuticals & biotechnology, banks, and semiconductors & semi equipment industry groups, as well as underweight exposures in the materials and media industry groups, offset some of the relative underperformance. The largest detractor was specialty retail jeweler, Signet Group (United States). Additional detractors included energy exploration & production company, SM Energy Co. (United States), oil exploration & production company, PDC Energy, Inc. (United States), automobile manufacturer, Volkswagen AG (Germany), and energy company CNOOC Ltd. (Hong Kong). The top contributor to performance was pharmaceutical company, AstraZeneca Plc (United Kingdom). Other notable contributors included electronic payment services provider, VeriFone Systems, Inc. (United States), global financial services giant, Citigroup, Inc. (United States), pharmaceutical & consumer healthcare products producer, Novartis AG (Switzerland), and enterprise management software provider, Oracle Corp. (United States).

We use a quantitative approach to select securities exposures for the global short portfolio. Our process seeks 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 February, our financial strength factors were the only category to demonstrate predictive power. Companies demonstrating potential insolvency and/or accounting chicanery underperformed, as anticipated. Stocks with expensive valuations performed in line with the broader market, while returns to technical and growth factor categories were negative. Companies with weak technical indicators and worsening earnings growth dynamics outperformed the broader market, contrary to expectations.

From an industry group perspective, short-side attribution effects were weakest in materials, capital goods, commercial services & supplies, consumer durables & apparel, and semiconductors & semiconductor equipment. Short-side attribution effects were strongest in the technology hardware & equipment, energy, pharmaceuticals & biotechnology, household & personal products, and banks sectors. At the stock exposure level, short exposures that detracted from the Portfolio’s performance included China National Building Material Co. Ltd. (China), healthcare equipment and services provider, Acadia healthcare Co., Inc. (United States), telecommunications infrastructure company, Nokia Oyj (Finland), auto manufacturer, Hyundai Motor Co., Ltd. (South Korea), and biopharmaceutical company, Shire Plc (United Kingdom). Successful shorts included energy company, Saipem SpA (Italy), international banking and financial services company, Standard Chartered PLC (United Kingdom), energy exploration and production company, EOG Resources, Inc. (United States), auto manufacturer, Daimler AG (Germany), and technology hardware & equipment manufacturer, Lenovo Group Ltd. (Hong Kong).*

*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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