Our full alpha-generating capabilities, seeking lower volatility and low or no equity market correlation

Causeway's Global Absolute Return (GAR) strategy is designed for clients who want returns while seeking lower volatility than the MSCI World Index and low equity market correlation with the MSCI World Index. 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.

Benchmark
ICE BoAML 3-Month US TBill
Inception
February 28, 2011

Strategy overview

The portfolio managers discuss our Global Absolute Return strategy.

Portfolio managers

Chief Executive Officer
Fundamental Portfolio Manager
President
Head of Fundamental Research
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Fundamental Portfolio Manager
Head of Quantitative Research
Quantitative Portfolio Manager
Quantitative Portfolio Manager
Quantitative Portfolio Manager

Performance

QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)0.2%-14.7%-14.7%-4.1%-0.8%2.4%
Strategy (net)0.0%-15.6%-15.6%-5.2%-2.0%1.0%
ICE BoAML 3-Month US TBill0.5%2.3%2.3%1.7%1.1%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)0.2%-14.7%-14.7%-4.1%-0.8%2.4%
Strategy (net)0.0%-15.6%-15.6%-5.2%-2.0%1.0%
ICE BoAML 3-Month US TBill0.5%2.3%2.3%1.7%1.1%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)0.2%-14.7%-14.7%-4.1%-0.8%2.4%
Strategy (net)0.0%-15.6%-15.6%-5.2%-2.0%1.0%
ICE BoAML 3-Month US TBill0.5%2.3%2.3%1.7%1.1%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)0.2%-14.7%-14.7%-4.1%-0.8%2.4%
Strategy (net)0.0%-15.6%-15.6%-5.2%-2.0%1.0%
ICE BoAML 3-Month US TBill0.5%2.3%2.3%1.7%1.1%0.6%
Fund20192018201720162015201420132012
Strategy (gross)-14.7%10.8%-6.5%13.1%-3.6%1.9%14.5%-1.9%
Strategy (net)-15.6%9.6%-7.8%11.4%-5.0%0.3%12.8%-3.5%
ICE BoAML 3-Month US TBill2.3%1.9%0.9%0.3%0.0%0.0%0.1%0.1%
Strategy (gross)
Strategy (net)
ICE BoAML 3-Month US TBill
20192018201720162015201420132012
-14.7%10.8%-6.5%13.1%-3.6%1.9%14.5%-1.9%
-15.6%9.6%-7.8%11.4%-5.0%0.3%12.8%-3.5%
2.3%1.9%0.9%0.3%0.0%0.0%0.1%0.1%

Portfolio (as of December 31, 2019)

Benchmark: MSCI World
Position Details
Strategy
Cash14,254,013
Market value (long)23,695,629
Market value (short)-23,390,667
Net positional value304,962
NAV14,558,975
Strategy
Net exposure2.09%
Leverage3.23
Long positions 93
Short positions 120
Total213
Strategy Charcterisics
Long portfolioShort portfolioBenchmark
No. of exposures 93 120 1646
Weighted avg. market cap (US $MM)$58,461$9,872$178,043
FY2 price/earnings10.117.316.7
Price/book value1.31.42.6
Return on equity (%)18.45.119.6

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. Return on equity is calculated by taking a year's worth of earnings and dividing them by the average shareholder equity for that year.

Holdings are subject to change.

Top 10 Long Exposures
CompanyEnding weight
Hemfosa Fastigheter AB3.72%
Yangzijiang Shipbuilding (Holdings) Ltd.3.22%
Genworth Mi Canada3.17%
Manulife Financial3.17%
British American Tobacco plc3.16%
Spirit Realty Capital, Inc.3.15%
Microsoft Corp.3.14%
Showa Denko K.K.3.13%
WestRock Co.3.13%
Roche Holding AG3.13%
Top 10 Short Exposures
CompanyEnding weight
Électricité de France SA-3.13%
Umicore-3.13%
Singapore Telecommunications Ltd.-3.13%
Deutsche Wohnen SE-3.11%
Houlihan Lokey, Inc.-3.08%
Daimler AG-3.08%
Argo Group International Holdi-3.02%
CoreSite Realty Corp.-2.98%
Bâloise Holding AG-2.91%
Hokuriku Electric Power Co.-2.91%
Sector Exposure
SectorLong exposureShort exposureNet exposure
Information Technology23.4%-18.3%5.09%
Industrials29.4%-25.4%4.02%
Energy9.8%-5.8%3.99%
Health Care10.0%-6.5%3.49%
Materials14.9%-12.2%2.71%
Communication Services7.7%-6.6%1.07%
Consumer Discretionary13.8%-14.7%-0.87%
Real Estate14.0%-15.9%-1.91%
Utilities10.5%-15.5%-5.00%
Financials26.2%-31.2%-5.02%
Consumer Staples3.2%-8.3%-5.16%
Country Exposure
CountryLong exposureShort exposureNet exposure
Switzerland8.8%-3.6%5.22%
China10.7%-6.6%4.10%
Sweden3.7%0.0%3.72%
Canada10.8%-7.4%3.42%
United Kingdom12.7%-9.4%3.35%
New Zealand3.0%-0.4%2.60%
Italy2.4%-0.8%1.67%
Japan17.0%-15.7%1.29%
Austria0.6%0.0%0.55%
Netherlands0.4%0.0%0.36%
South Korea12.9%-12.7%0.20%
Singapore3.2%-3.1%0.09%
Belgium3.0%-3.1%-0.10%
Finland0.0%-0.5%-0.54%
Israel0.0%-0.6%-0.62%
Denmark0.0%-0.9%-0.92%
Portugal0.0%-1.3%-1.31%
United States61.2%-62.6%-1.34%
Germany5.9%-8.2%-2.29%
Norway0.0%-2.6%-2.63%
Hong Kong0.0%-2.8%-2.77%
Spain0.3%-3.6%-3.36%
France3.1%-6.9%-3.80%
Australia3.1%-7.5%-4.48%
Regional Allocation
Long exposureShort exposureNet exposure
Europe - Other25.3%-16.5%8.7%
North America72.0%-70.0%2.1%
Pacific49.9%-48.9%1.0%
Developed Middle East0.0%-0.6%-0.6%
Euro15.6%-24.5%-8.8%

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.
  • In the absence of a recession, earnings of economically sensitive stocks should attract enough attention to garner a re-rating of valuation multiples. From a fundamental research perspective, we seek talented senior management teams steering financially strong companies through profitability setbacks by focusing on reaccelerating earnings and cash flow.

Portfolio attribution

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. For the month, the top performing markets in our investable universe were South Korea, China, Norway, New Zealand, and the United Kingdom. The worst performing markets were Israel, Australia, Germany, Japan, and Belgium. The best performing sectors in the World Index were energy, information technology, and materials. The worst performing sectors were industrials, real estate, and communication services.

The Portfolio takes long and short notional exposures to securities under swap agreements. We use a combination of fundamental and quantitative inputs to select exposures for the long portfolio of the Portfolio, while we use primarily quantitative inputs to select exposures for the short portfolio. Our fundamental inputs reflect the risk-adjusted total return potential of stocks favored by our fundamental research team. Our quantitative inputs include signals that seek long (short) positions in stocks which we believe are undervalued (overvalued) and have improving (deteriorating) earnings growth dynamics, positive (negative) technical price movements, and superior (inferior) quality of earnings. During the month of December, all quantitative alpha factor categories demonstrated predictive power with the exception of our technical indicators. Stocks with cheap valuations outperformed those with expensive valuations, stocks with improving earnings growth dynamics outperformed those with worsening dynamics, and stocks demonstrating higher earnings quality outperformed those with lower earnings quality. However, stocks with positive technical indicators underperformed those with negative technical indicators, contrary to expectations.

Investment outlook

We believe that much of the global central bank monetary expansion is in the rear-view mirror. Massive liquidity creation has suppressed market volatility and favored momentum relative to value-oriented trading. With central banks curtailing accommodative policies, value stocks should eventually rebound. In the absence of a recession, earnings of economically sensitive stocks should attract enough attention to garner a re-rating of valuation multiples. This process began last year, as cyclical stocks outperformed broad indices in the last four months of 2019. In 2020, we expect investors to look to diversifying systematic risks, and risk aversion could rise with an escalation of US-Iranian conflict. Therefore, transparency of investment risks and full financial disclosure will become increasingly important. These preferences may favor well-established companies with a history of rewarding shareholders (via dividends and share research perspective, we seek talented senior management teams steering financially strong companies through profitability setbacks by focusing on reaccelerating earnings and cash flow. To complement these “self-help” stocks, we seek consistent cash generating companies with generous dividend payouts. In years of more traditional equity market returns, rather than runaway bull markets, stability of cash flows and income should attract investor attention.

On an aggregate long/short portfolio basis, we are maintaining a near market-neutral posture, with 2.41% net exposure overall (long exposures minus absolute value of short exposures). Consistent with our goal of delivering low equity market sensitivity, we target a zero expected beta to the World Index. On an aggregate basis, our largest net biases by sector are toward information technology and energy, where we have significant positive net exposure, and against consumer staples and financials, where we have meaningful negative net exposure. By geography, we are net biased toward Switzerland and China, and biased against Australia and France. Gross exposure (leverage) for the Portfolio is 323% (3.23x) as of December 31, 2019.

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.