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)-1.9%-13.4%-5.9%-0.7%0.2%2.7%
Strategy (net)-2.0%-14.0%-7.0%-2.0%-1.2%1.3%
ICE BoAML 3-Month US TBill0.2%1.4%2.3%1.4%0.9%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-1.9%-13.4%-5.9%-0.7%0.2%2.7%
Strategy (net)-2.0%-14.0%-7.0%-2.0%-1.2%1.3%
ICE BoAML 3-Month US TBill0.2%1.4%2.3%1.4%0.9%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-5.7%-11.8%-1.0%-0.2%0.4%3.0%
Strategy (net)-6.0%-12.2%-2.1%-1.4%-0.9%1.5%
ICE BoAML 3-Month US TBill0.6%1.2%2.3%1.4%0.9%0.6%
QTDYTD1 year3 years5 yearsSince inception
Strategy (gross)-5.7%-11.8%-1.0%-0.2%0.4%3.0%
Strategy (net)-6.0%-12.2%-2.1%-1.4%-0.9%1.5%
ICE BoAML 3-Month US TBill0.6%1.2%2.3%1.4%0.9%0.6%
Fund2018201720162015201420132012
Strategy (gross)10.8%-6.5%13.1%-3.6%1.9%14.5%-1.9%
Strategy (net)10.8%-6.5%13.2%-3.6%1.7%14.3%-1.8%
ICE BoAML 3-Month US TBill9.0%-8.2%11.2%-5.2%0.1%12.5%-3.7%
Strategy (gross)
Strategy (net)
ICE BoAML 3-Month US TBill
2018201720162015201420132012
10.8%-6.5%13.1%-3.6%1.9%14.5%-1.9%
10.8%-6.5%13.2%-3.6%1.7%14.3%-1.8%
9.0%-8.2%11.2%-5.2%0.1%12.5%-3.7%

Portfolio (as of July 31, 2019)

Benchmark: MSCI World
Position Details
Strategy
Cash42,890,486
Market value (long)64,557,933
Market value (short)-66,048,983
Net positional value-1,491,050
NAV41,399,436
Strategy
Net exposure-3.60%
Leverage3.15
Long positions 91
Short positions 125
Total216
Strategy Charcterisics
Long portfolioShort portfolioBenchmark
No. of exposures 91 125 1651
Weighted avg. market cap (US $MM)$54,536$11,101$152,962
FY2 price/earnings9.916.415.1
Price/book value1.41.72.5
Return on equity (%)17.67.119.4

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. 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
Genworth Mi Canada3.33%
Zimmer Biomet Holdings, Inc.3.29%
Brixmor Property Group, Inc.3.21%
Novartis AG3.15%
Sabre Corp.3.11%
FirstEnergy Corp.3.07%
Alaska Air Group, Inc.3.07%
Gildan Activewear3.04%
H&R Block, Inc.3.04%
Citigroup, Inc.3.03%
Top 10 Short Exposures
CompanyEnding weight
SiteOne Landscape Supply, Inc.-3.29%
Kansai Paint Co., Ltd.-3.19%
Aqua America, Inc.-3.10%
Premium Brands Holdings-3.10%
Cellnex Telecom SA-3.10%
Beazley Plc-3.07%
Markel Corp.-3.06%
Électricité de France SA-3.06%
Daimler AG-3.05%
Bayerische Motoren Werke AG-3.04%
Sector Exposure
SectorLong exposureShort exposureNet exposure
Health Care12.1%-7.1%5.00%
Energy9.5%-5.7%3.80%
Consumer Discretionary16.9%-13.3%3.60%
Communication Services12.5%-9.1%3.40%
Information Technology16.6%-13.5%3.10%
Industrials22.6%-22.8%-0.20%
Materials12.0%-12.2%-0.20%
Real Estate7.4%-12.3%-4.90%
Utilities10.3%-15.4%-5.10%
Consumer Staples4.6%-9.8%-5.20%
Financials31.7%-38.2%-6.50%
Country Exposure
CountryLong exposureShort exposureNet exposure
China8.3%-2.7%5.60%
Canada13.6%-8.2%5.40%
Switzerland7.9%-2.8%5.10%
United Kingdom14.6%-9.7%4.90%
Netherlands3.0%0.0%3.00%
Sweden2.6%0.0%2.60%
New Zealand1.5%-0.3%1.20%
Austria1.0%0.0%1.00%
Italy0.6%0.0%0.60%
South Korea9.9%-9.6%0.30%
Japan19.1%-19.6%-0.50%
Germany5.4%-6.5%-1.10%
United States61.4%-63.7%-2.30%
Portugal0.0%-2.5%-2.50%
Norway0.0%-2.5%-2.50%
Belgium0.0%-2.5%-2.50%
France2.9%-5.9%-3.00%
Spain0.0%-3.8%-3.80%
Singapore1.5%-5.8%-4.30%
Hong Kong0.0%-5.2%-5.20%
Australia2.8%-8.1%-5.30%
Regional Allocation
Long exposureShort exposureNet exposure
Europe - Other25.1%-15.1%11.5%
North America75.0%-71.9%2.5%
Pacific43.1%-51.3%-5.1%
Euro12.9%-21.2%-9.5%

Commentary (As of July 31, 2019)

Highlights

  • Following strong performance in the first half of the year, equity markets delivered more muted returns in July. On the back of central banks signaling stimulus, value stock valuations continued to contract while growth stock valuations rose.

Portfolio attribution

The Portfolio underperformed the ICE BofAML US 3-Month Treasury Bill Index in the month of July. The Portfolio's underperformance was driven by the long portfolio: the Portfolio's global long portfolio underperformed the MSCI World Index (“World Index”). The Portfolio's global short portfolio contributed positively to overall performance by underperforming the World Index, though by a smaller margin than the long portfolio.

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 July, our growth and technical factor categories demonstrated predictive power. Stocks with improving earnings growth dynamics outperformed those with worsening dynamics, and stocks with positive technical indicators outperformed those with negative technical indicators. However, stocks with cheap valuations underperformed those with expensive valuations, contrary to expectations. Stocks demonstrating higher earnings quality performed in-line with those having lower earnings quality.

Investment outlook

On the back of central banks signaling stimulus, value stock valuations continued to contract in July while growth stock valuations rose. Central bank liquidity and momentum-driven investing trends continue to support long duration equities. We believe that additional accommodative central bank policies may already be priced into growth stocks. The de-rating of value has resulted in current market multiples for MSCI Value indices implying negative perpetuity earnings growth rates across geographies, even as the world economy is forecast to grow. We find such pessimism towards value stocks to be unwarranted, especially considering that the earnings of value stocks have outpaced those of growth stocks since the Global Financial Crisis. We believe that value stocks that have improved their earnings growth should re-rate as investors consider fundamentals rather than price momentum. In such a long period of falling interest rates, some companies with longer duration cash flows have become highly levered. If policy action cannot drive a meaningful improvement in economic data and downside risks materialize even marginally, companies exhibiting balance sheet strength should fare better than those with excess debt levels.

On an aggregate long/short portfolio basis, we are maintaining a near market-neutral posture, with -3.37% 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 health care and consumer discretionary, where we have significant positive net exposure, and against financials and consumer staples, where we have meaningful negative net exposure. By geography, we are net biased toward Canada and China, and biased against Australia and Hong Kong. Gross exposure (leverage) for the Portfolio is 315% (3.15x) as of July 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.