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)6.9%17.8%11.2%9.4%3.9%6.8%3.6%
Strategy (net)6.8%17.4%10.7%9.0%3.5%6.5%3.2%
MSCI ACWI ex US4.4%17.0%11.8%9.8%4.3%5.2%2.3%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)6.9%17.8%11.2%9.4%3.9%6.8%3.6%
Strategy (net)6.8%17.4%10.7%9.0%3.5%6.5%3.2%
MSCI ACWI ex US4.4%17.0%11.8%9.8%4.3%5.2%2.3%
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)-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
Strategy (net)-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
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
-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
-13.8%27.8%5.0%-5.3%-3.4%15.8%17.4%-13.3%

Portfolio (as of October 31, 2019)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks99.7%
Cash0.3%
Strategy Characteristics
StrategyBenchmark
No. of holdings 202 2216
Weighted avg. market cap (US $MM)$55,903$52,871
FY2 price/earnings10.313.2
Price/book value1.21.6
Dividend yield (%)3.93.2
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AGGermany3.8%
BASF SEGermany3.3%
Takeda Pharmaceutical Co., Ltd.Japan3.3%
UniCredit S.p.A.Italy3.2%
FANUC Corp.Japan2.6%
Barclays PlcUnited Kingdom2.4%
ABB Ltd.Switzerland2.3%
British American Tobacco plcUnited Kingdom2.3%
Prudential PlcUnited Kingdom2.2%
Siemens AGGermany2.2%

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
Financials23.6%21.6%
Industrials17.0%12.1%
Health Care9.8%8.7%
Materials9.4%7.3%
Information Technology9.2%9.0%
Energy8.8%6.6%
Consumer Discretionary7.8%11.6%
Consumer Staples5.8%9.8%
Communication Services5.8%6.7%
Utilities1.8%3.5%
Real Estate0.7%3.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom23.3%10.9%
Germany16.7%5.9%
Japan12.5%16.7%
China8.5%8.3%
France5.7%7.6%
Switzerland5.4%6.2%
Taiwan3.9%3.1%
South Korea3.4%3.2%
Italy3.2%1.6%
Canada2.8%6.7%
Regional Allocation
  • Europe – other 59.0%
  • Emerging Asia 19.3%
  • Pacific 12.5%
  • North America 2.8%
  • Emerging Latin America 3.1%
  • Emerging Europe, Middle East, Africa 2.9%

Commentary (As of October 31, 2019)

Highlights

  • Equities rose during the month amid signs of easing geopolitical uncertainties and continued dovish stances from global central banks, with emerging markets (“EM”) stocks outperforming developed market peers.
  • With the European Central Bank apparently intending to continue negative interest rates and asset purchases until reaching a 2% inflation target, European governments will likely need to increase fiscal stimulus to thwart further deterioration in economic conditions.
  • The resurgence of value and cyclicality over growth and momentum in developed markets continued for a second consecutive month in October. This value upturn does not surprise us given the historically wide discount of cyclical stock valuations compared to more defensive stocks that occurred this year through the end of August.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Holdings in the banks, automobiles & components, materials, software & services, and insurance industry groups contributed to performance compared to the Index. Portfolio holdings in the consumer durables & apparel, energy, capital goods, pharmaceuticals & biotechnology, and food & staples retailing industry groups detracted from relative performance. The top contributor to return was automobile manufacturer, Volkswagen AG (Germany). Other notable contributors included banking & financial services company, Barclays Plc (United Kingdom), life insurer, Prudential Plc (United Kingdom), diversified chemicals manufacturer, BASF SE (Germany), and banking & financial services company, UniCredit S.p.A. (Italy). The largest detractor was apparel manufacturer, Gildan Activewear (Canada). Additional notable detractors included oil & natural gas producer, Encana (Canada), jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), British American Tobacco plc (United Kingdom), and property & casualty insurer, Sompo Holdings, Inc. (Japan).

Investment outlook

The resurgence of value and cyclicality over growth and momentum in developed markets continued for a second consecutive month in October. As global bond yields have risen from their August 2019 lows, economically sensitive stocks generally recovered in price and valuation multiples. This value upturn does not surprise us given the historically wide discount of cyclical stock valuations compared to more defensive stocks that occurred this year through the end of August. However, to lessen our dependence on a sustained upturn in the value cycle, we continue to make portfolio company managements accountable to achieve their operational restructuring goals. We expect managements to boost profitability and free cash flow, ideally with the intent to return generous amounts of that surplus cash to shareholders. Dividends remain an important component of total return and pay shareholders to wait for valuations to improve. We consider dividend income particularly attractive in the current ultra-low interest rate environment.

EM value stocks resumed their decline in October after a brief rally in September. Factor performance has diverged recently between EM, where value has lagged, and developed markets, where value stocks have outperformed since the beginning of September. In developed markets, inverted yield curves and negative interest rates have been the norm recently. Therefore, any yield curve steepening or rise in interest rates can lead to value rallies. In EM, central banks are still pursuing relatively orthodox monetary policy and yield curves are generally positively sloped. Therefore, interest rate reversals are less likely to boost value stocks in EM. Furthermore, positive trade deal developments disproportionately help growth stocks by reducing China’s impetus for infrastructure stimulus, which typically benefits old economy value stocks. We believe the outlook for EM value stocks remains compelling as they offer attractive valuations relative to growth stocks and high dividend yields.

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.