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)12.0%23.4%23.4%10.1%5.5%7.0%3.9%
Strategy (net)11.9%23.0%23.0%9.7%5.1%6.6%3.6%
MSCI ACWI ex US9.0%22.1%22.1%10.4%6.0%5.4%2.6%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)12.0%23.4%23.4%10.1%5.5%7.0%3.9%
Strategy (net)11.9%23.0%23.0%9.7%5.1%6.6%3.6%
MSCI ACWI ex US9.0%22.1%22.1%10.4%6.0%5.4%2.6%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)12.0%23.4%23.4%10.1%5.5%7.0%3.9%
Strategy (net)11.9%23.0%23.0%9.7%5.1%6.6%3.6%
MSCI ACWI ex US9.0%22.1%22.1%10.4%6.0%5.4%2.6%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)12.0%23.4%23.4%10.1%5.5%7.0%3.9%
Strategy (net)11.9%23.0%23.0%9.7%5.1%6.6%3.6%
MSCI ACWI ex US9.0%22.1%22.1%10.4%6.0%5.4%2.6%
Fund201920182017201620152014201320122011
Strategy (gross)23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
Strategy (net)23.0%-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
MSCI ACWI ex US22.1%-13.8%27.8%5.0%-5.3%-3.4%15.8%17.4%-13.3%
Strategy (gross)
Strategy (net)
MSCI ACWI ex US
201920182017201620152014201320122011
23.4%-17.9%31.8%1.9%-4.0%-3.9%22.2%26.0%-11.7%
23.0%-18.2%31.3%1.5%-4.4%-4.2%21.7%25.5%-12.0%
22.1%-13.8%27.8%5.0%-5.3%-3.4%15.8%17.4%-13.3%

Portfolio (as of December 31, 2019)

Benchmark: MSCI ACWI ex US
Asset Allocation
Strategy
Stocks98.8%
Cash1.2%
Strategy Characteristics
StrategyBenchmark
No. of holdings 198 2411
Weighted avg. market cap (US $MM)$67,807$61,374
FY2 price/earnings11.113.9
Price/book value1.31.7
Dividend yield (%)3.73.0
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AGGermany3.7%
BASF SEGermany3.0%
UniCredit S.p.A.Italy3.0%
Takeda Pharmaceutical Co., Ltd.Japan2.9%
British American Tobacco plcUnited Kingdom2.6%
FANUC Corp.Japan2.5%
ABB Ltd.Switzerland2.4%
Siemens AGGermany2.4%
Barclays PlcUnited Kingdom2.2%
Linde PlcGermany2.1%

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. 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
Financials22.2%21.4%
Industrials17.1%11.9%
Health Care9.7%8.9%
Information Technology9.3%9.4%
Materials9.1%7.4%
Energy8.8%6.5%
Consumer Discretionary8.1%11.8%
Consumer Staples6.9%9.4%
Communication Services4.9%6.7%
Utilities1.7%3.4%
Real Estate0.8%3.2%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom22.3%10.8%
Germany16.5%5.7%
Japan10.2%16.1%
China9.7%9.4%
Switzerland6.2%6.1%
France6.1%7.5%
Taiwan4.2%3.2%
South Korea3.7%3.2%
Brazil3.0%2.1%
Italy3.0%1.5%
Regional Allocation
  • Europe – other 58.7%
  • Emerging Asia 20.9%
  • Pacific 10.2%
  • North America 2.5%
  • Emerging Latin America 3.5%
  • Emerging Europe, Middle East, Africa 3.0%

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. We seek talented senior management teams steering financially strong companies through profitability setbacks by focusing on reaccelerating earnings and cash flow.

Portfolio attribution

The Portfolio outperformed the Index during the month, due primarily to stock selection. Holdings in the banks, food beverage & tobacco, utilities, energy, and real estate industry groups contributed to performance compared to the Index. Portfolio holdings in the pharmaceuticals & biotechnology, software & services, materials, and semiconductors & semi equipment industry groups, along with an overweight position in the transportation industry group, detracted from relative performance. The top contributor to return was power & automation technology company, ABB Ltd.(Switzerland). Other notable contributors included British American Tobacco plc (United Kingdom), oil & natural gas producer, Encana (Canada), online services company, Tencent Holdings Ltd. (Hong Kong), and electronic equipment manufacturer, Samsung Electronics Co., Ltd. (South Korea). The largest detractor was Takeda Pharmaceutical Co., Ltd.(Japan). Additional notable detractors included robotics manufacturer, FANUC Corp. (Japan), telecommunication services provider, Vodafone Group (United Kingdom), jet engine manufacturer, Rolls-Royce Holdings Plc (United Kingdom), and enterprise infrastructure software company, Micro Focus International Plc (United Kingdom).

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 developed market 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 developed market 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 buybacks) and place a greater hurdle rate of return on speculative, unprofitable companies. 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.

While our value factor in our quantitative emerging markets model lagged in 2019, it has outperformed in recent months. Interestingly, the MSCI Emerging Markets Value Index underperformed the MSCI Emerging Markets Growth Index during the fourth quarter. The return differential between our value factor and the MSCI indices can be attributed in part to the strong performance of a few large cap growth stocks. While the Index is capitalization-weighted, we use equally-weighted returns for our factor in order to avoid assigning a handful of stocks a disproportionate weight. Secondly, our value factor has a sector-relative component while MSCI’s style classification schemes do not include sector adjustments. We continue to emphasize value factors in our quantitative investment process.

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.