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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 % 0.8%0.1%0.5%1.9%3.9%3.8%
Net % 0.7%-0.3%-0.7%0.5%2.4%2.3%
BofAML 90 T Bill 0.1%0.5%1.2%0.6%0.4%0.3%

Portfolio

Position Details as of 30 Apr 2018

Cash42,683,239
Market Value Long57,273,010
Market Value Short-60,552,580
Net Positional Value-3,279,570
NAV39,403,669
Net Exposure-8.32%
Leverage2.99
Long Positions 49
Short Positions 148
Total195

Characteristics as of 30 Apr 2018

Long Portfolio Short Portfolio MSCI World
No. of Exposures 49 148 1630
Wtd Avg Mkt Cap (Mn $US)$79,737$32,680$120,933
FY2 Price/Earnings12.415.114.6
Price/Book Value1.81.82.4
Return on Equity (%)14.47.316.9

Sector Exposure as of 30 Apr 2018

Long Exposure (%)Short Exposure (%)Net Exposure (%)
Health Care23.52-17.535.99
Telecommunication Services13.53-8.714.82
Energy11.41-8.163.25
Utilities6.32-6.070.25
Industrials17.62-18.61-0.99
Materials6.94-8.63-1.69
Financials25.13-26.98-1.85
Information Technology22.84-25.61-2.77
Real Estate1.17-4.63-3.46
Consumer Discretionary12.44-17.91-5.47
Consumer Staples6.81-13.17-6.36

Country Exposure as of 30 Apr 2018

Long Exposure (%)Short Exposure (%)Net Exposure (%)
United Kingdom31.15-22.848.31
Switzerland8.76-4.244.52
China3.30-0.422.88
Italy2.740.002.74
Germany7.95-5.262.69
Canada6.03-5.200.83
Hong Kong5.74-5.390.35
South Korea3.15-2.990.16
Japan14.59-14.580.01
Spain1.17-1.35-0.18
Ireland0.00-0.58-0.58
Netherlands3.31-4.10-0.79
Norway0.00-1.03-1.03
Denmark0.00-1.13-1.13
Belgium0.00-1.95-1.95
Finland0.00-2.63-2.63
Singapore0.00-2.65-2.65
Sweden0.00-2.96-2.96
Australia0.00-3.76-3.76
France0.00-6.49-6.49
United States59.83-66.46-6.63

TOP 10 Positions as of 30 Apr 2018

Top Ten Long PositionsTop Ten Short Positions
CompanyEnding Weight (%)CompanyEnding Weight (%)
Eli Lilly & Co.4.54%China Unicom (Hong Kong) Ltd.-3.14%
China Mobile Ltd.4.52%Equinix, Inc.-3.09%
British American Tobacco plc4.41%Gartner, Inc.-3.07%
Volkswagen AG4.26%Chicago Bridge & Iron Co-3.07%
East Japan Railway Co.4.16%AIR Liquide-3.07%
Flowserve Corp.4.03%Nissan Motor Co., Ltd.-3.05%
Halliburton Co.4.02%American International Group, Inc.-3.01%
Barclays Plc3.98%Westinghouse Air Brake Technologies Corp.-2.97%
Microsoft Corp.3.96%Analog Devices, Inc.-2.97%
Advance Auto Parts, Inc.3.79%LafargeHolcim Ltd.-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 Apr 2018


Causeway Global Absolute Return outperformed the ICE BofAML 3-Month U.S. Treasury Bill Index in the month of April. The Portfolio’s outperformance was driven by the long portfolio, which outperformed the MSCI World Index (“World Index”). This outperformance was partially offset by the short portfolio, which also outperformed the World Index, contributing negatively to overall performance.

Developed market equities rose during the month, despite the resumption of stock market volatility. The top performing markets in our investable universe included Singapore, Italy, Finland, France, and the United Kingdom. The worst performing markets included Belgium, Denmark, Austria, Sweden, and New Zealand. The best performing sectors in the World Index were energy, utilities, and consumer discretionary. The worst performing sectors were consumer staples, industrials, and information technology.

The Portfolio takes long and short notional exposures to securities under swap agreements. We use our fundamental value approach to select exposures for the long portfolio. The long portfolio outperformed the World Index during the period, due primarily to stock selection. Exposures to the technology hardware & equipment, energy, and software & services industry groups contributed the most to relative performance. Exposures to the pharmaceuticals & biotechnology, retailing, and consumer durables & apparel industry groups offset a portion of the outperformance. The top contributor to performance was electronic payment services provider, VeriFone Systems, Inc. (United States). Additional contributors included energy exploration & production company, SM Energy Co. (United States), energy exploration & production company, Halliburton Co. (United States), internet services provider, Baidu (China), and enterprise infrastructure software company, Micro Focus International Plc (United Kingdom). The largest detractor from performance was Takeda Pharmaceutical Co., Ltd. (Japan). Additional detractors included British American Tobacco Plc (United Kingdom), digital wireless communications equipment manufacturer, QUALCOMM, Inc. (United States), automobile components retailer, Advance Auto Parts, Inc. (United States), and travel & tourism technology company, Sabre Corp. (United States).

We use a quantitative approach to select securities for the short portfolio. Our process seeks 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 April, value was the only factor category to demonstrate predictive power. Consistent with expectations, stocks with expensive valuations underperformed. However, stocks with weak technical indicators outperformed, while stocks with worsening earnings growth dynamics and stocks demonstrating potential insolvency and/or accounting chicanery performed in-line with the World Index.

From an industry group perspective, short-side attribution effects were weakest in the capital goods, health care equipment & services, and automobiles & components industry groups. Short-side attribution effects were strongest in the food beverage & tobacco, retailing, and banks industry groups. Short exposures that detracted from the Portfolio’s performance included healthcare services company, Novocure (United States), mobile telecommunication services provider, China Unicom (Hong Kong) Ltd. (Hong Kong), automaker, Hyundai Motor Co., Ltd. (South Korea), oil exploration & production company, Hess Corp. (United States), and railway air brake manufacturer, Westinghouse Air Brake Technologies Corp. (United States). Successful short exposures included snack foods producer, The Kraft Heinz Co. (United States), tobacco company, Philip Morris International, Inc. (United States), electronic components manufacturer, Murata Manufacturing Co. Ltd. (Japan), Metro Bank Plc (United Kingdom), and beverage manufacturer, 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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