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Emerging Markets Equity

Strategy Profile

We believe the best way to exploit the investment opportunities in emerging markets equities is through a combination of value and growth, and bottom-up and top-down factors. Our quantitative stock selection process is focused on attractively valued companies with superior earnings prospects and positive market sentiment; these companies should produce consistent returns across investment cycles. We use the same approach to select sectors and countries, comparing valuation against earnings growth and market sentiment. At the country level, we also consider the health of the macro-economy. Our quantitative process seeks to combine these factors while attempting to avoid undue sources of risk, which for this strategy we define as tracking error (a measurement of dispersion from a benchmark index).

Inception Date29 Mar 2007
Benchmark MSCI Emerging Markets

Performance

Fund Quarter to Date Year to Date 1 Year3 Year5 Year10 Year Since Inception
Gross % 8.9%8.9%-11.4%10.6%4.2%12.1%4.9%
Net % 8.7%8.7%-12.2%9.5%3.2%11.0%3.9%
MSCI Emerging Markets 10.0%10.0%-7.1%11.1%4.1%9.3%3.5%

Portfolio

Asset Allocation as of 31 Mar 2019

Stocks 97.4%
Cash 2.6%

Characteristics as of 31 Mar 2019

Causeway MSCI Emerging Markets
No. of Holdings 145 1135
Wtd. Avg. Market Cap (Mn $US)$59,418$53,563
NTM Price/Earnings9.311.9
Price/Book Value1.31.6
Dividend Yield (%)3.32.6
NTM EPS Revision (Wtd. Avg)-12.9-14.1

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. “Earnings-per-Share” is the portion of a company’s profit allocated to each outstanding share of common stock. “Earnings-per-Share year-over-year estimate growth (Next 12 Months)” is the average next-twelve-month earnings-per-share estimate from one year ago for an individual company compared with that estimate today; note that this calculation is done on a company by company basis and is aggregated through a weighted average based on the individual company’s weight in the corresponding index. Also note that this characteristic is supplied directly by MSCI.

SECTOR WEIGHTS as of 31 Mar 2019

Financials24.57%
Information Technology15.03%
Communication Services13.30%
Energy10.11%
Consumer Discretionary8.16%
Materials7.35%
Industrials6.41%
Consumer Staples4.40%
Health Care2.47%
Real Estate2.31%
Equity Funds1.94%
Utilities1.36%

(VS. Benchmark)

Financials24.18%
Information Technology14.58%
Communication Services12.28%
Energy8.10%
Consumer Discretionary13.38%
Materials7.36%
Industrials5.38%
Consumer Staples6.41%
Health Care2.64%
Real Estate3.17%
Equity Funds0.00%
Utilities2.53%
Financials
Information Technology
Communication Services
Energy
Consumer Discretionary
Materials
Industrials
Consumer Staples
Health Care
Real Estate
Equity Funds
Utilities
Other

TOP 10 COUNTRIES as of 31 Mar 2019

China33.22%
South Korea15.20%
India10.81%
Brazil9.25%
Taiwan8.89%
Russia5.57%
Thailand3.07%
Mexico2.11%
South Africa1.80%
Indonesia1.18%
Malaysia1.14%
Turkey1.14%
Peru1.04%
Multi-National Emerging (ETF)0.91%
Poland0.91%
Saudi Arabia0.88%
Czech Republic0.28%
Multi-National Emerging (ETF)0.01%
United Arab Emirates0.00%
Pakistan0.00%
Philippines0.00%
Qatar0.00%
Hungary0.00%
Chile0.00%
Colombia0.00%
Egypt0.00%
Greece0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%

(VS. Benchmark)

China33.00%
South Korea13.02%
India9.16%
Brazil7.23%
Taiwan11.35%
Russia3.77%
Thailand2.34%
Mexico2.65%
South Africa5.89%
Indonesia2.18%
Malaysia2.19%
Turkey0.55%
Peru0.43%
Multi-National Emerging (ETF)0.00%
Poland1.13%
Saudi Arabia0.00%
Czech Republic0.16%
Multi-National Emerging (ETF)0.00%
United Arab Emirates0.72%
Pakistan0.03%
Philippines1.10%
Qatar0.93%
Hungary0.32%
Chile1.03%
Colombia0.46%
Egypt0.13%
Greece0.22%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
China
South Korea
India
Brazil
Taiwan
Russia
Thailand
Mexico
South Africa
Indonesia
Malaysia
Turkey
Peru
Multi-National Emerging (ETF)
Poland
Saudi Arabia
Czech Republic
Multi-National Emerging (ETF)
United Arab Emirates
Pakistan
Philippines
Qatar
Hungary
Chile
Colombia
Egypt
Greece
Other

TOP 10 ACTIVE HOLDINGS as of 31 Mar 2019

Security Country Industry Active Weight*
China Construction Bank Corp. China Banks 1.8
Tencent Holdings Ltd. China Media & Entertainment 1.5
Investimentos Itau Brazil Banks 1.5
Lukoil Russia Energy 1.3
Samsung Electronics Co., Ltd. South Korea Technology Hardware & Equipment 1.2
Banco do Brasil SA Brazil Banks 1.1
Anhui Conch Cement Co., Ltd. China Materials 1.1
Ping An Insurance (Group) Co. of China Ltd. China Insurance 1.0
China Petroleum & Chemical Corp. China Energy 1.0
Gazprom PJSC Russia Energy 0.9

*Active defined as Portfolio weight minus MSCI EM Index weight. Holdings are subject to change.

Approach

We believe the best way to exploit the investment opportunities in emerging markets equities is through a combination of value and growth, and bottom-up and top-down factors. Our quantitative stock selection process is focused on attractively valued companies with superior earnings prospects and positive market sentiment; these companies should produce consistent returns across investment cycles. We use the same approach to select sectors and countries, comparing valuation against earnings growth and market sentiment. At the country level, we also consider the health of the macro-economy. Our quantitative process seeks to combine these factors while attempting to avoid undue sources of risk, which for this strategy we define as tracking error (a measurement of dispersion from a benchmark index).

The investment process begins with a liquidity screen on emerging markets equities. Our multi-factor alpha-model creates a return forecast for every stock in the investable universe. We optimize the portfolio weights to maximize alpha(return in excess of benchmark), targeting a 5% tracking error relative to the benchmark MSCI Emerging Markets Index, and subject to additional relative constraints (sector, country, stock and currency). The Emerging Markets Portfolio is a fully invested portfolio of typically 110-150 stocks, with an average 85% annual turnover. Typically, the portfolio is undervalued relative to the benchmark on a number of metrics, with greater earnings growth expectations.

Commentary

PERFORMANCE REVIEW for the month ended 28 Feb 2019


Led by emerging Asian stocks, which generally benefitted from constructive US-China trade negotiations, EM equities posted positive returns in February. The MSCI Emerging Markets Index (“Index”) returned 1.11% in local currency terms during the month. Emerging Latin America was the poorest performing region as the group’s largest constituents, Brazil and Mexico, both underperformed. The emerging Europe, Middle East, and Africa (“EMEA”) region also delivered negative returns during the month. Consumer discretionary, information technology, and materials were the top performing sectors within the Index in local currency terms. Real estate, communication services, and consumer staples were the weakest performers.

The Portfolio underperformed the Index in February 2019. We use both bottom-up and top-down factor categories to seek to forecast alpha for the stocks in the Portfolio's investable universe. Our three bottom-up factor categories were negative performance indicators during the month while our four top-down factor categories were positive indicators. Of our bottom-up factors, the earnings growth category was the weakest performer during the month. Our macroeconomic factor was the strongest performing top-down category.

Over the month, Portfolio positioning in the emerging Asia region detracted from performance versus the Index, primarily driven by negative stock selection in China, India, and South Korea. Within the emerging Latin America region, holdings in Brazil and Mexico detracted from relative performance. An underweight position in South Africa contributed to relative performance in the EMEA region. From a sector perspective, the largest detractors from relative performance were financials, information technology, and materials. Positioning in the energy sector contributed to relative performance while holdings in the utilities and health care sectors were neutral. The largest stock-level detractors from relative performance included overweight positions in financial & industrial holdings company, Investimentos Itau (Brazil), multinational food processing company, JBS SA (Brazil), financial services firm, KB Financial Group, Inc. (South Korea), real estate developer, Shimao Property Holdings Ltd. (China), and miner, Vedanta Ltd. (India). The greatest stock-level contributors to relative performance included overweight positions in financial services firm, Ping An Insurance (Group) Company of China, Ltd., technology manufacturer, Lenovo Group Ltd. (China), and cement manufacturer, Anhui Conch Cement Co., Ltd. (China), as well as underweight positions in bank, Banco Bradesco SA (Brazil), and banking services provider, Itau Unibanco Holding SA (Brazil).*

*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 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. 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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