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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 % -5.8%-5.8%4.4%1.1%2.9%4.6%
Net % -6.2%-6.2%2.8%-0.4%1.3%3.0%
BofAML 90 T Bill 0.1%0.1%0.4%0.2%0.1%0.1%

Portfolio

Position Details as of 31 Mar 2017

Cash73,010,947
Market Value Long106,478,514
Market Value Short-110,640,197
Net Positional Value-4,161,683
NAV68,849,264
Net Exposure-6.04%
Leverage3.15
Long Positions 51
Short Positions 128
Total179

Characteristics as of 31 Mar 2017

Long Portfolio Short Portfolio MSCI World
No. of Exposures 51 128 1630
Wtd Avg Mkt Cap (Mn $US)$72,318$35,110$102,613
FY2 Price/Earnings12.716.215.5
Price/Book Value1.72.02.3
Return on Equity (%)13.79.315.8

Sector Exposure as of 31 Mar 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
Telecommunication Services14.63-7.926.71
Energy15.23-9.605.63
Health Care20.82-18.212.61
Industrials21.55-20.600.95
Information Technology26.53-25.710.82
Financials27.33-28.19-0.86
Utilities5.37-6.61-1.24
Materials4.64-7.40-2.76
Real Estate1.53-4.76-3.23
Consumer Discretionary13.60-16.92-3.32
Consumer Staples3.79-14.85-11.06

Country Exposure as of 31 Mar 2017

Long Exposure (%)Short Exposure (%)Net Exposure (%)
United Kingdom34.57-24.5010.07
Switzerland14.91-5.519.40
Netherlands4.640.004.64
Spain3.590.003.59
France6.51-3.722.79
Hong Kong8.09-6.261.83
China3.00-1.791.21
South Korea6.69-6.280.41
Denmark0.00-0.25-0.25
Norway0.00-0.72-0.72
Italy1.99-2.72-0.73
Japan13.87-15.17-1.30
Sweden0.00-1.63-1.63
Canada3.14-5.19-2.05
Belgium0.00-2.98-2.98
Finland0.00-3.02-3.02
Germany4.59-8.28-3.69
Australia0.00-4.22-4.22
Singapore0.00-5.23-5.23
United States49.44-63.32-13.88

TOP 10 Positions as of 31 Mar 2017

Top Ten Long PositionsTop Ten Short Positions
CompanyEnding Weight (%)CompanyEnding Weight (%)
Royal Dutch Shell Plc4.92%Acadia Healthcare Co., Inc.-3.32%
Citigroup, Inc.4.72%2U, Inc.-3.25%
Akzo Nobel NV4.64%Cerner Corp.-3.14%
Volkswagen AG4.59%The Royal Bank of Scotland Plc-3.12%
China Mobile Ltd.4.49%Markel Corp.-3.11%
Novartis AG4.41%Daimler AG-3.09%
Oracle Corp.4.38%Bayerische Motoren Werke AG-3.08%
KDDI Corp.4.22%Shire Pharmaceuticals-3.04%
Microsoft Corp.4.18%Nokia Oyj-3.02%
Roche Holding AG4.04%Avago Technologies-3.01%

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 Mar 2017


Causeway Global Absolute Return Portfolio (“Portfolio”) outperformed its benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index, in the month of March. The Portfolio’s outperformance was driven by the long portfolio: the long portfolio outperformed the MSCI World Index (“World Index”), while the short portfolio contributed negatively to overall portfolio return.

Global equity markets extended their positive performance through the end of the first quarter of 2017, as hopes for regulatory and tax reform in the US drive continued improvement in business and consumer confidence globally. The top performing markets in our investable universe included Spain, Italy, Portugal, France, and the Netherlands. The worst performing markets included New Zealand, Norway, Japan, the United States, and Israel. The best performing sectors in the World Index were information technology, consumer discretionary, and utilities. The worst performing sectors were real estate, financials, and energy.

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 materials, insurance, pharmaceuticals & biotechnology, banks, and utilities industry groups contributed to relative performance. Exposures to the energy, technology hardware & equipment, transportation, automobiles & components, and semiconductors & semiconductor equipment industry groups offset some of the relative outperformance. The top contributor to long portfolio performance was paints & coatings producer, Akzo Nobel NV (Netherlands). Other notable contributors included multinational electric utility company, ENGIE SA (France), retail bank, CaixaBank SA (Spain), wireless communications operator, SK Telecom Co., Ltd. (South Korea), and banking & financial services company, UniCredit S.p.A. (Italy). The largest detractor was oil exploration & production company, PDC Energy, Inc.(United States). Additional detractors included electronic payment services provider, VeriFone Systems, Inc. (United States), automobile components retailer, Advance Auto Parts, Inc. (United States), major passenger railway operator, East Japan Railway Co. (Japan), and energy exploration & production company, Halliburton Co. (United States).

We use a quantitative approach to select securities for the short portfolio. Our process seeks to take 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 March, our value and growth factor categories demonstrated only modest predictive power. Companies with expensive valuations and worsening earnings growth dynamics slightly underperformed the broader market, as anticipated. However, returns of our technical and quality factor categories were modestly negative – companies with weak technical indicators and those demonstrating potential insolvency and/or accounting chicanery slightly outperformed the broader market, contrary to expectations.

From an industry group perspective, short-side attribution effects were weakest in the telecommunication services, banks, and utilities sectors. Short-side attribution effects were strongest in the capital goods, diversified financials, and consumer durables & apparel sectors. At the stock exposure level, short exposures that detracted from the Portfolio’s performance included telecommunications services provider, Telefonica (Spain), software & services company, 2U (United States), food beverage & tobacco company, Monster Beverage Corp. (United States), auto manufacturer, Hyundai Motor Co., Ltd. (South Korea), and commercial & professional services provider, Intertek Group Plc (United Kingdom). Successful shorts included China National Building Material Co. Ltd. (China), aerospace engineering company, TransDigm Group Inc. (United States), diversified financial company, Element Financial (Canada), automaker, Ford Motor Co. (United States), and biopharmaceutical company, Shire Plc (United Kingdom).*

*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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