Combining our time-tested abilities in developed and emerging international markets

The Causeway International Opportunities strategy is a blend of Causeway’s best skills, combining our international value (bottom-up, fundamental, developed international markets, excluding the US) and emerging markets (quantitatively managed with a targeted tracking error of 5%) equity strategies. Tracking error is a measurement of dispersion from a benchmark index. Our quantitative research team developed a proprietary multi-factor model that measures the relative attractiveness of emerging markets, and guides the portfolio managers in tactically allocating between the developed and emerging portfolio segments.

Benchmark
MSCI ACWI ex US
Inception
June 30, 2007

Strategy overview

The portfolio managers discuss our International Opportunities 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 years10 yearsSince inception
Strategy (gross)-2.1%10.2%-4.5%6.3%2.5%6.3%3.1%
Strategy (net)-2.2%9.9%-4.8%5.9%2.1%5.9%2.7%
MSCI ACWI ex US-1.7%12.1%-0.7%6.8%3.4%4.9%1.9%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)-2.1%10.2%-4.5%6.3%2.5%6.3%3.1%
Strategy (net)-2.2%9.9%-4.8%5.9%2.1%5.9%2.7%
MSCI ACWI ex US-1.7%12.1%-0.7%6.8%3.4%4.9%1.9%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)-2.1%10.2%-4.5%6.3%2.5%6.3%3.1%
Strategy (net)-2.2%9.9%-4.8%5.9%2.1%5.9%2.7%
MSCI ACWI ex US-1.7%12.1%-0.7%6.8%3.4%4.9%1.9%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)-2.1%10.2%-4.5%6.3%2.5%6.3%3.1%
Strategy (net)-2.2%9.9%-4.8%5.9%2.1%5.9%2.7%
MSCI ACWI ex US-1.7%12.1%-0.7%6.8%3.4%4.9%1.9%
Fund20182017201620152014201320122011
Strategy (gross)-18.0%31.8%2.2%-4.3%-4.1%21.7%25.9%-11.9%
Strategy (net)-18.7%30.8%1.4%-5.1%-4.8%20.8%24.9%-12.6%
MSCI ACWI ex US-13.8%27.8%5.0%-5.3%-3.4%15.8%17.4%-13.3%
Strategy (gross)
Strategy (net)
MSCI ACWI ex US
20182017201620152014201320122011
-18.0%31.8%2.2%-4.3%-4.1%21.7%25.9%-11.9%
-18.7%30.8%1.4%-5.1%-4.8%20.8%24.9%-12.6%
-13.8%27.8%5.0%-5.3%-3.4%15.8%17.4%-13.3%

Portfolio (as of September 30, 2019)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks97.3%
Cash2.7%
Strategy Characteristics
StrategyBenchmark
No. of holdings 196 2214
Weighted avg. market cap (US $MM)$53,401$51,816
FY2 price/earnings9.912.9
Price/book value1.21.6
Dividend yield (%)4.03.2
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AGGermany3.5%
Takeda Pharmaceutical Co., Ltd.Japan3.2%
BASF SEGermany3.1%
UniCredit S.p.A.Italy3.0%
ABB Ltd.Switzerland2.7%
Prudential PlcUnited Kingdom2.5%
British American Tobacco plcUnited Kingdom2.4%
Linde PlcGermany2.4%
Barclays PlcUnited Kingdom2.3%
Royal Dutch Shell PlcUnited Kingdom2.2%

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.

Holdings are subject to change.

SECTOR WEIGHTS
Sector Strategy Benchmark
Financials23.1%21.6%
Industrials16.4%11.9%
Materials9.8%7.3%
Health Care9.4%8.5%
Energy9.2%6.7%
Information Technology7.9%8.9%
Consumer Discretionary7.5%11.4%
Communication Services6.0%6.8%
Consumer Staples5.7%10.2%
Utilities1.6%3.5%
Real Estate0.7%3.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom24.2%11.0%
Germany14.7%5.7%
Japan11.9%16.5%
China8.0%8.3%
Switzerland5.7%6.3%
France5.6%7.6%
Canada3.6%7.0%
Taiwan3.6%3.0%
South Korea3.5%3.2%
Italy3.0%1.6%
Regional Allocation
  • Europe – other 57.8%
  • Emerging Asia 18.4%
  • Pacific 11.9%
  • North America 3.6%
  • Emerging Latin America 2.8%
  • Emerging Europe, Middle East, Africa 2.7%

Commentary (As of September 30, 2019)

Highlights

  • After contracting in July and August, equity markets rebounded in September, likely responding to a significant move upward in global bond yields. In September, momentum-driven “quality-growth” stocks ceded market leadership to stocks with strong value and cyclicality characteristics.
  • With low-to-no cost of financing, governments in Europe and elsewhere may decide to amplify fiscal spending. Without fiscal intervention, a vicious cycle of nil return in savings forces aging European and Japanese populations to save even more, adding to demand for fixed income, and pushing interest rates lower.
  • We believe our portfolios are well-positioned to benefit from a return to favor of value and cyclicality. If economically sensitive stocks outperform, we intend to use that opportunity to lower portfolio expected volatility with bargains from less cyclical sectors.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Holdings in the banks, insurance, food beverage & tobacco, materials, and transportation industry groups contributed to performance compared to the Index. Portfolio holdings in the consumer durables & apparel and food & staples retailing industry groups, along with an underweight position in the technology hardware & equipment, diversified financials, and semiconductors & semi equipment industry groups, detracted from relative performance. The top contributor to return was banking & financial services company, Barclays Plc (United Kingdom). Other notable contributors included life insurer, Prudential Plc (United Kingdom), automobile manufacturer, Volkswagen AG (Germany), banking & financial services company, UniCredit S.p.A. (Italy), and diversified chemicals manufacturer, BASF SE (Germany). The largest detractor was pharmaceutical & consumer healthcare products producer, Novartis AG (Switzerland). Additional notable detractors included internet commerce company, Alibaba Group Holding - ADR (China), pharmaceuticals & chemicals company, Bayer AG (Germany), apparel manufacturer, Gildan Activewear (Canada), and mortgage lender, Indiabulls Housing Finance Ltd. (India).

Investment outlook

We believe that fundamentals do prevail over the long-term…it is just very difficult to know when the market will turn. September witnessed a chain reaction of cheap stocks, often in cyclical industries, attracting bargain hunting – which, in turn, attracted more buying. Stock markets have a history of discounting future events long before they occur. We suggest that most developed market cyclical stocks priced in a recession by the end of August and are now moving upward on the hint of fiscal spending and recovery. We believe our portfolios are well-positioned to benefit from a return to favor of value and cyclicality. If economically sensitive stocks outperform, we intend to use that opportunity to lower portfolio expected volatility with bargains from less cyclical sectors. Our fundamental research team has intensified efforts to get managements to commit to specific plans to improve earnings and returns on capital. While we wait, many of these portfolio companies return capital to shareholders, often via generous dividend payouts. This dividend income is striking in a low-income world, reducing the duration of the investment. We are holding company managements’ collective “feet to the fire,” measuring their progress and holding them accountable to their operational restructuring plans. This makes our efforts in value investing “all weather,” though a tailwind for value risk would be welcome.

Compared to developed markets, September’s value rally in emerging markets (“EM”) was more modest. In many developed markets, inverted yield curves and negative interest rates have become the norm and any hint of normalizing monetary policy can lead to sharp value rallies. In contrast, EM central banks are pursuing relatively orthodox monetary policies and EM yield curves are still positively sloped. EM value stocks trade at significant discounts to EM growth stocks while offering attractive dividend yields. We continue to emphasize value factors in our investment process, which should benefit the portfolio if EM value stocks rebound, which we believe they ultimately will.

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.