Seeking diversified exposure to international small cap companies

The Fund invests primarily in common stocks of companies with smaller market capitalizations located in developed and emerging markets outside the US. The Fund normally invests at least 80% of its total assets in equity securities of companies with smaller market capitalizations. Smaller market capitalization companies are companies with market capitalizations that do not exceed the highest market capitalization of a company within the Fund’s benchmark, the MSCI ACWI ex USA Small Cap Index (Gross), at the time of purchase. Some of these companies, although small by US standards, might be large companies in their local markets. The Fund may continue to hold securities of a portfolio company that appreciate above the smaller market capitalization threshold and thus may from time to time hold less than 80% of its total assets in equity securities of companies with smaller market capitalizations. The Fund may invest in a wide range of industries. The Fund’s investment objective is to seek long-term growth of capital.

YTD Return*
-0.35%
Nav*
$11.39, -0.10
Inception
October 20, 2014
Cusip
14949P802
Benchmark
MSCI ACWI ex USA Small Cap
Minimum Investment
$5,000
Sales Charge
None
Net Expense Ratio
1.42%
Gross Expense Ratio
2.26%
*As of January 23, 2020

Strategy overview

The portfolio managers discuss our International Small Cap strategy.

Portfolio managers

Head of Quantitative Research
Quantitative Portfolio Manager
Quantitative Portfolio Manager
Quantitative Portfolio Manager

Performance

QTDYTD1 year3 yearsSince inception
Fund10.2%18.5%18.5%7.8%6.4%
MSCI ACWI ex USA Small Cap11.1%22.9%22.9%10.1%7.3%
QTDYTD1 year3 yearsSince inception
Fund10.2%18.5%18.5%7.8%6.4%
MSCI ACWI ex USA Small Cap11.1%22.9%22.9%10.1%7.3%
QTDYTD1 year3 yearsSince inception
Fund10.2%18.5%18.5%7.8%6.4%
MSCI ACWI ex USA Small Cap11.1%22.9%22.9%10.1%7.3%
QTDYTD1 year3 yearsSince inception
Fund10.2%18.5%18.5%7.8%6.4%
MSCI ACWI ex USA Small Cap11.1%22.9%22.9%10.1%7.3%
20192018201720162015
Fund18.5%-21.3%34.5%3.1%4.4%
MSCI ACWI ex USA Small Cap22.9%-17.9%32.1%4.3%3.0%
Fund
MSCI ACWI ex USA Small Cap
20192018201720162015
18.5%-21.3%34.5%3.1%4.4%
22.9%-17.9%32.1%4.3%3.0%

Portfolio (as of December 31, 2019)

Benchmark: MSCI ACWI ex USA Small Cap
Asset Allocation
Fund
Stocks98.7%
Cash1.3%
Fund Characteristics
FundBenchmark
No. of holdings 148 4210
Weighted avg. market cap (US $MM)$1,621$1,863
FY2 price/earnings9.414.6
Price/book value1.21.5
Net assets$1,991,545-
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
ASR Nederland NVNetherlands1.8%
HASEKO Corp.Japan1.8%
Radiant Opto-Electronics Corp.Taiwan1.8%
Huaxin Cement CoChina1.7%
Qualicorp Consultoria e Corretora de Seguros SABrazil1.6%
King Yuan Electronics Co., Ltd.Taiwan1.6%
Hammerson PlcUnited Kingdom1.6%
JB Hi-Fi Ltd.Australia1.5%
Unipol Gruppo SpAItaly1.5%
DIP Corp.Japan1.4%

A “weighted average” measures a characteristic by the market capitalization of each stock. Price/book ratio is the weighted average of the price/book ratios of all the stocks in a portfolio. The P/B ratio of a company is calculated by dividing the market price of its stock by the company’s per-share book value. The price/earnings ratio is the weighted average of the price/earnings ratios of the stocks in a portfolio. The FY2 P/E ratio is a forward P/E ratio using a next-twenty-four months EPS estimate in the denominator.

*Active defined as Fund weight minus MSCI ACWI ex USA Small Cap Index weight. Holdings are subject to change.

SECTOR WEIGHTS
Sector Fund Benchmark
Industrials15.9%19.7%
Information Technology15.0%11.1%
Financials13.5%10.4%
Real Estate13.5%12.3%
Consumer Discretionary10.6%12.5%
Health Care9.2%7.3%
Materials6.3%9.9%
Consumer Staples5.3%5.9%
Communication Services3.4%4.3%
Utilities3.1%3.2%
Energy2.6%3.3%
Equity Funds0.4%0.0%
TOP 10 COUNTRIES
Country Fund Benchmark
Japan21.6%21.9%
United Kingdom10.1%13.5%
Taiwan8.2%4.2%
Australia6.8%5.4%
Sweden6.0%4.4%
China5.8%2.2%
Netherlands5.0%1.9%
Brazil4.8%2.2%
South Korea4.8%3.2%
Germany4.0%4.5%
Regional Allocation
  • Europe – other 34.5%
  • Pacific 30.4%
  • Emerging Asia 21.7%
  • Emerging Latin America 6.0%
  • North America 3.7%
  • Emerging Europe, Middle East, Africa 2.3%

Commentary (As of December 31, 2019)

Highlights

  • December's rising equity markets capped a calendar year of surging stock prices, as central banks, attempting to prolong economic expansion, implemented increasingly accommodative monetary policies.
  • We believe European countries may join the US and China and increase fiscal spending. To fund this spending, European governments will need to sell more bonds, which may put upward pressure on interest rates as supply meets, and potentially outpaces, demand.
  • Despite value’s relatively strong performance late in the year, value stocks still significantly underperformed growth stocks in 2019, both in developed and emerging markets. Given the valuations of growth stocks, which we believe are stretched, we feel comfortable with our meaningful active exposure to value factors.

Portfolio attribution

Causeway International Small Cap Fund (“Fund”) outperformed the Index during the month. To evaluate stocks in our investable universe, our multi-factor quantitative model employs four bottom-up factor categories – valuation, earnings growth, technical indicators, and quality – and two top-down factor categories assessing macroeconomic and country aggregate characteristics.

und holdings in the real estate, utilities and materials sectors contributed most to performance relative to the Index. Holdings in the information technology, financials, and health care sectors offset a portion of the performance. Relative performance for the month can be mostly attributed to stock selection. The largest contributor to performance was electric utility, Companhia Paranaense de Energia (Brazil). Additional top contributors included precious metal miner, Centamin Plc (United Kingdom), healthcare insurance company, Qualicorp Consultoria e Corretora de Seguros SA (Brazil), real estate developer, China Overseas Grand Oceans Group Ltd. (China), and energy exploration and production company, Parex Resources (Canada). The largest detractor from performance was airline operator, SAS (Sweden). Additional top detractors included, information technology services provider, Net One Systems Co., Ltd. (Japan), food distributor, Metcash Ltd. (Australia), insurance & banking services company, Unipol Gruppo SpA (Italy), and electronics components manufacturer, Compeq Manufacturing Co., Ltd. (Taiwan).

Investment outlook

Though we analyze many different stock selection factors in our alpha model, value factors receive the largest weight on average. Despite value’s relatively strong performance late in the year, value stocks still significantly underperformed growth stocks in 2019, both in developed and emerging markets. As of December 31, the MSCI ACWI ex USA Small Cap Growth Index traded at a 19.2x forward price-to-earnings multiple compared to 12.6x for the MSCI ACWI ex USA Small Cap Value Index. This 52% premium is well above the 27% average premium over the last 15 years. Given the valuations of growth stocks, which we believe are stretched, we feel comfortable with our meaningful active exposure to value factors.

The overall outlook for smaller cap equities remains favorable in our view. Improving market sentiment (due to potential progress on US-China trade negotiations and a steepening yield curve) could lead to stronger demand for risk assets including smaller market-cap stocks. Smaller cap equities are also currently exhibiting a higher long-term earnings-per-share growth trend than larger cap equities. Additionally, international smaller cap equities have exhibited greater valuation dispersion than larger cap equities on both a forward-earnings-yield basis and a price-to-book value basis, indicating more information content in valuation ratios for these equities. This characteristic has allowed us to construct a portfolio with lower valuation ratios relative to the Index without, in our view, compromising quality.

We continue to observe a number of intriguing features in the smaller cap landscape. We believe the intersection of international equities and smaller cap companies creates a recipe for inefficiency. Additionally, international smaller cap stocks are an underappreciated asset class that we believe can offer meaningful diversification benefits with the potential to reduce portfolio volatility. Finally, smaller cap stocks are typically less exposed to the potential risk of rising barriers to trade, given their home country revenue exposure. In spite of the potential benefits, we believe many investors may be under allocated to the asset class. Causeway’s international small cap strategy combines the flexibility and breadth of quantitative analysis with our global industry knowledge, which we believe will benefit long-term investors in the Fund.

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 fund holdings and characteristics are subject to change. There is no guarantee that any forecasts made will come to pass. Any securities identified and described in this report 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. Diversification does not protect against market loss. Current and future holdings will be subject to risk. International and emerging markets investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets and smaller companies involve additional risks and higher volatility.

Distributions

DividendsShort-term capital gainsLong-term capital gains
2019$0.4079$0.0000$0.0000
2018$0.2903$0.0000$0.0000
2017$0.3588$0.2375$0.4794
2016$0.2619$0.0000$0.0000
2015$0.2095$0.0000$0.0000

Distributions are per share. Distribution amounts are based on gains and losses realized and income earned by the Fund through October 31 (or earlier under certain circumstances).

Documents

Fund information:

Forms: