Seeking diversified exposure to international small cap companies

The international small cap strategy invests primarily in common stocks of companies with smaller market capitalizations located in developed and emerging markets outside the US. The portfolio normally invests at least 80% of its total assets in equity securities of companies with smaller market capitalizations. Smaller market capitalization companies are companies with market capitalizations that do not exceed the highest market capitalization of a company within the portfolio’s benchmark, the MSCI ACWI ex USA Small Cap Index (Gross), at the time of purchase. Some of these companies, although small by US standards, might be large companies in their local markets. The portfolio may continue to hold securities of a company that appreciate above the smaller market capitalization threshold and thus may from time to time hold less than 80% of its total assets in equity securities of companies with smaller market capitalizations. The portfolio may invest in a wide range of industries.

MSCI AC World ex USA Small Cap
November 30, 2014

Strategy overview

The portfolio managers discuss our International Small Cap strategy.

Portfolio managers

Head of Quantitative Research
Quantitative Portfolio Manager
Quantitative Portfolio Manager
Quantitative Portfolio Manager


QTDYTD1 year3 yearsSince inception
Strategy (gross)-1.8%10.2%-10.0%5.8%6.3%
Strategy (net)-1.9%9.7%-10.6%4.8%5.3%
MSCI ACWI ex USA Small Cap-0.6%11.2%-6.8%6.0%5.4%
QTDYTD1 year3 yearsSince inception
Strategy (gross)-1.8%10.2%-10.0%5.8%6.3%
Strategy (net)-1.9%9.7%-10.6%4.8%5.3%
MSCI ACWI ex USA Small Cap-0.6%11.2%-6.8%6.0%5.4%
QTDYTD1 year3 yearsSince inception
Strategy (gross)0.1%12.2%-6.2%8.7%6.9%
Strategy (net)-0.1%11.8%-6.9%7.7%5.9%
MSCI ACWI ex USA Small Cap1.4%11.9%-5.6%8.2%5.7%
QTDYTD1 year3 yearsSince inception
Strategy (gross)0.1%12.2%-6.2%8.7%6.9%
Strategy (net)-0.1%11.8%-6.9%7.7%5.9%
MSCI ACWI ex USA Small Cap1.4%11.9%-5.6%8.2%5.7%
Strategy (gross)-20.1%36.4%4.6%6.1%
Strategy (net)-20.1%36.5%4.7%6.0%
MSCI ACWI ex USA Small Cap-21.1%34.7%3.3%4.7%
Strategy (gross)
Strategy (net)
MSCI ACWI ex USA Small Cap

Portfolio (as of July 31, 2019)

Benchmark: MSCI ACWI ex USA Small Cap
Asset Allocation
Strategy Characteristics
No. of holdings 159 4198
Weighted avg. market cap (US $MM)$1,465$1,688
FY2 price/earnings8.813.0
Price/book value1.11.4
Dividend yield (%)4.52.7
Security Country Active weight*
Radiant Opto-Electronics Corp.Taiwan2.0%
EVRAZ PlcUnited Kingdom1.8%
C&C Group PlcUnited Kingdom1.7%
Huaxin Cement Co., Ltd.China1.7%
HASEKO Corp.Japan1.6%
Yanlord Land Group Ltd.Singapore1.5%
FIBRA Macquarie MéxicoMexico1.5%
Unipol Gruppo SpAItaly1.4%
Yuexiu Property Co., Ltd.China1.4%
ASR Nederland NVNetherlands1.4%

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.

*Active defined as Portfolio weight minus MSCI ACWI ex USA Small Cap Index weight. Holdings are subject to change.

Sector Strategy Benchmark
Real Estate16.4%12.2%
Consumer Discretionary11.4%12.4%
Information Technology10.9%10.4%
Health Care8.1%7.5%
Consumer Staples6.8%6.2%
Communication Services4.4%4.7%
Equity Funds2.5%0.0%
Country Strategy Benchmark
United Kingdom11.3%12.5%
South Korea5.8%3.1%
Regional Allocation
  • Europe – other 35.4%
  • Pacific 27.8%
  • Emerging Asia 23.4%
  • Emerging Latin America 4.9%
  • North America 4.2%
  • Emerging Europe, Middle East, Africa 2.8%
  • Multi Region All Country 0.1%

Commentary (As of June 30, 2019)


  • Bolstered by central bank dovishness, developed equity markets rallied in June and furthered year-to-date gains.

Portfolio attribution

The Portfolio outperformed the Index during the month. To evaluate stocks in our investable universe, our multi-factor quantitative model employs four bottom-up factor categories – valuation, earnings growth, technical indicators, and quality – and two top-down factor categories assessing macroeconomic and country aggregate characteristics.

The largest contributor to performance was cement & concrete manufacturer, Huaxin Cement Co., Ltd. (China). Additional top contributors included steel & iron distribution company, EVRAZ Plc (United Kingdom), insurance and healthcare services provider, Qualicorp Consultoria e Corretora de Seguros SA (Brazil), alcoholic beverage company, C&C Group Plc (United Kingdom), and financial services company, FIBRA Macquarie México (Mexico). The largest detractor to performance was footwear and apparel company, Adastria Co., Ltd. (Japan). Additional top detractors included online gaming company, GungHo Online Entertainment, Inc. (Japan), food distributor, Metcash Ltd. (Australia), engineering and construction company, Keller Group Plc (United Kingdom), and materials & electronics company, Taiyo Yuden Co., Ltd.(Japan).

Investment outlook

Though we analyze many different stock selection factors in our alpha model, value factors receive the largest weight on average. As of June 30, the MSCI ACWI ex USA Small Cap Growth Index traded at a 17.7x forward price-to-earnings multiple compared to 11.6x for the MSCI ACWI ex USA Small Cap Value Index. This 52% premium is well above the 27%average premium over the last 15 years. Given the valuations of growth stocks, which we believe are stretched, we feel comfortable with our meaningful active exposure to value factors.

The overall outlook for smaller cap equities remains favorable in our view. Smaller cap equities are currently exhibiting a higher long-term earnings-per-share growth trend than larger cap equities. Additionally, international smaller cap equities have exhibited greater valuation dispersion than larger cap equities on both a forward earnings yield basis and a price-to-book value basis, indicating more information content in valuation ratios for these equities. This characteristic has allowed us to construct a portfolio with lower valuation ratios relative to the Index without, in our view, compromising quality.

We continue to observe a number of intriguing features in the smaller cap landscape. We believe the intersection of international equities and smaller cap companies creates a recipe for inefficiency. Additionally, international smaller cap stocks are an underappreciated asset class that we believe can offer meaningful diversification benefits with the potential to reduce portfolio volatility. Finally, smaller cap stocks are typically less exposed to the potential risk of rising barriers to trade, given their home country revenue exposure. In spite of the potential benefits, we believe many investors may be underallocated to the asset class despite its meaningful growth and diversification prospects. Causeway’s international small cap strategy combines the flexibility and breadth of quantitative analysis with our global industry knowledge, which we believe will benefit long-term investors.

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