Diversified exposure to emerging markets, capturing value and growth

The Emerging Markets strategy invests primarily in common stocks of emerging markets companies. The strategy combines 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).

Benchmark
MSCI Emerging Markets
Inception
March 29, 2007

Strategy overview

The portfolio managers discuss our Emerging Markets Equity strategy.

Portfolio managers

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

Performance

QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -5.3%3.1%-11.5%9.7%1.9%7.8%4.4%
Strategy (net) -5.5%2.7%-12.3%8.7%0.9%6.7%3.4%
MSCI Emerging Markets -5.3%4.2%-8.3%10.3%2.2%5.4%3.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -5.3%3.1%-11.5%9.7%1.9%7.8%4.4%
Strategy (net) -5.5%2.7%-12.3%8.7%0.9%6.7%3.4%
MSCI Emerging Markets -5.3%4.2%-8.3%10.3%2.2%5.4%3.0%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 8.9%8.9%-11.4%10.6%4.2%12.1%4.9%
Strategy (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%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 8.9%8.9%-11.4%10.6%4.2%12.1%4.9%
Strategy (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%
Fund 20182017201620152014201320122011201020092008
Strategy (gross) -16.9%41.4%10.5%-15.0%3.4%-1.2%27.5%-17.0%28.0%90.5%-57.8%
Strategy (net) -16.9%41.4%10.5%-15.0%3.4%-1.3%6.6%-14.6%34.5%119.0%-54.3%
MSCI Emerging Markets -17.9%39.8%9.2%-16.0%2.1%-2.6%25.8%-18.1%26.3%88.1%-58.4%
Strategy (gross)
Strategy (net)
MSCI Emerging Markets
20182017201620152014201320122011201020092008
-16.9%41.4%10.5%-15.0%3.4%-1.2%27.5%-17.0%28.0%90.5%-57.8%
-16.9%41.4%10.5%-15.0%3.4%-1.3%6.6%-14.6%34.5%119.0%-54.3%
-17.9%39.8%9.2%-16.0%2.1%-2.6%25.8%-18.1%26.3%88.1%-58.4%

Portfolio (as of May 31, 2019)

Benchmark: MSCI Emerging Markets
Asset Allocation
Strategy
Stocks 97.8%
Cash 2.2%
Strategy Characteristics
Strategy Benchmark
No. of holdings 139 1197
Weighted avg. market cap (US $MM) $53,493 $46,668
NTM price/earnings 9.2 11.5
Price/book value 1.3 1.6
Dividend yield (%) 3.5 2.8
NTM EPS revision (wtd. avg) -2.4 -5.1
Net assets $5,852,196,851 -
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
Tencent Holdings Ltd. China 6.6%
China Construction Bank Corp. China 3.3%
Investimentos Itau Brazil 2.0%
Lukoil Russia 2.0%
Banco do Brasil SA Brazil 1.5%
Gazprom PJSC Russia 1.9%
Samsung Electronics Co., Ltd. South Korea 4.4%
Anhui Conch Cement Co., Ltd. China 1.3%
Ping An Insurance (Group) Co. of China Ltd. China 2.3%
JBS SA Brazil 1.1%

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.

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

SECTOR WEIGHTS
Sector Strategy Benchmark
Financials 25.4% 25.5%
Information Technology 14.9% 13.7%
Communication Services 13.1% 11.6%
Energy 10.4% 8.1%
Consumer Discretionary 8.4% 13.0%
Materials 7.0% 7.6%
Industrials 6.6% 5.4%
Consumer Staples 5.4% 6.7%
Health Care 2.3% 2.7%
Real Estate 2.0% 3.0%
Utilities 1.2% 2.7%
Equity Funds 1.1% 0.0%
TOP 10 COUNTRIES
Country Strategy Benchmark
China 33.2% 33.0%
South Korea 15.2% 13.0%
India 10.8% 9.2%
Brazil 9.2% 7.2%
Taiwan 8.9% 11.3%
Russia 5.6% 3.8%
Thailand 3.1% 2.3%
Mexico 2.1% 2.7%
South Africa 1.8% 5.9%
Indonesia 1.2% 2.2%
Regional Allocation
  • Emerging Asia 74.3%
  • Emerging Latin America 11.9%
  • Emerging Europe, Middle East, Africa 11.2%

Commentary (As of May 31, 2019)

Highlights

  • Escalating trade tensions between the US and China weighed on emerging market (“EM”) equities in May.

Portfolio attribution

The Portfolio outperformed the Index in May 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 price momentum factor was the top performing bottom-up category in May,continuing its outperformance from April. Our value factor category was a negative indicator during the month while our earnings growth category was modestly positive. Of our top-down factors, country and currency were negative indicators while the macroeconomic and sector factors were positive in May.

Investment outlook

After underperforming in recent quarters, our price momentum factor has rebounded in April and May. Momentum’s strong performance in May was primarily attributable to defensive positioning as lower volatility stocks outperformed amid global equity market turbulence. Our momentum factor has tended to underperform during periods of heightened uncertainty in financial markets. A lack of clarity surrounding trade tensions, US Federal Reserve policy, and global growth have contributed to momentum’s underperformance over the past 12 months. While we are researching the factor’s efficacy, we are encouraged that momentum continues to provide a hedge against value, our largest factor exposure.

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.