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International Small Cap

Strategy Profile

The international small cap strategy invests primarily in common stocks of companies with smaller market capitalizations located in developed and emerging markets outside the U.S. 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 U.S. standards, might be large companies in their local markets. The Fund may continue to hold securities of a portfolio 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.

Inception Date30 Nov 2014
Benchmark MSCI AC World ex USA Small Cap

Performance

Fund Quarter to Date Year to Date 1 Year3 Year Since Inception
Gross % 12.1%12.1%-12.2%8.7%7.3%
Net % 11.9%11.9%-12.9%7.6%6.2%
MSCI AC World ex USA Small Cap 10.4%10.4%-9.1%7.4%5.7%

Portfolio

Asset Allocation as of 31 Mar 2019

Stocks 98%
Cash 2%

Characteristics as of 31 Mar 2019

Causeway MSCI AC World ex USA Small Cap
No. of Holdings 145 4116
Wtd. Avg. Market Cap (Mn $US)$1,425$1,732
FY2 Price/Earnings8.713.0
Price/Book Value1.21.4
Dividend Yield (%)4.42.6

SECTOR WEIGHTS as of 31 Mar 2019

Industrials14.83%
Financials12.45%
Real Estate11.51%
Consumer Discretionary11.45%
Information Technology10.82%
Materials8.54%
Consumer Staples8.14%
Energy6.65%
Health Care5.90%
Equity Funds3.26%
Communication Services2.98%
Utilities1.47%

(VS. Benchmark)

Industrials19.27%
Financials10.93%
Real Estate11.45%
Consumer Discretionary12.76%
Information Technology10.48%
Materials10.10%
Consumer Staples6.38%
Energy3.32%
Health Care7.49%
Equity Funds0.00%
Communication Services4.59%
Utilities3.22%
Industrials
Financials
Real Estate
Consumer Discretionary
Information Technology
Materials
Consumer Staples
Energy
Health Care
Equity Funds
Communication Services
Utilities
Other

TOP 10 COUNTRIES as of 31 Mar 2019

Japan17.48%
United Kingdom12.95%
Taiwan9.06%
Australia6.88%
Sweden6.20%
Norway5.68%
Canada4.83%
China4.73%
South Korea4.61%
India2.90%
Netherlands2.45%
Italy2.31%
Mexico2.25%
Denmark2.10%
Brazil2.09%
Singapore1.66%
Germany1.57%
South Africa1.18%
Turkey1.12%
Thailand0.96%
France0.96%
Indonesia0.91%
Switzerland0.88%
Greece0.63%
Malaysia0.28%
Belgium0.27%
Hong Kong0.27%
Portugal0.26%
Chile0.24%
Spain0.20%
Multi-National Developed0.10%
Colombia0.00%
Peru0.00%
United Arab Emirates0.00%
Ireland0.00%
Finland0.00%
Israel0.30%
Austria0.00%
New Zealand0.00%
Pakistan0.00%
Philippines0.00%
Hungary0.00%
Poland0.00%
Qatar0.00%
Russia0.00%
Czech Republic0.00%
Egypt0.00%
0.00%
0.00%

(VS. Benchmark)

Japan22.07%
United Kingdom13.74%
Taiwan4.02%
Australia5.35%
Sweden3.90%
Norway1.61%
Canada6.74%
China2.57%
South Korea3.61%
India3.32%
Netherlands1.97%
Italy2.67%
Mexico0.62%
Denmark1.26%
Brazil1.33%
Singapore1.28%
Germany4.27%
South Africa1.09%
Turkey0.24%
Thailand0.79%
France2.42%
Indonesia0.49%
Switzerland3.14%
Greece0.22%
Malaysia0.67%
Belgium1.46%
Hong Kong1.48%
Portugal0.28%
Chile0.34%
Spain1.80%
Multi-National Developed0.00%
Colombia0.06%
Peru0.01%
United Arab Emirates0.10%
Ireland0.38%
Finland0.95%
Israel1.23%
Austria0.64%
New Zealand0.76%
Pakistan0.15%
Philippines0.21%
Hungary0.03%
Poland0.23%
Qatar0.21%
Russia0.18%
Czech Republic0.01%
Egypt0.13%
0.00%
0.00%
Japan
United Kingdom
Taiwan
Australia
Sweden
Norway
Canada
China
South Korea
India
Netherlands
Italy
Mexico
Denmark
Brazil
Singapore
Germany
South Africa
Turkey
Thailand
France
Indonesia
Switzerland
Greece
Malaysia
Belgium
Hong Kong
Portugal
Chile
Spain
Multi-National Developed
Colombia
Peru
United Arab Emirates
Ireland
Finland
Israel
Austria
New Zealand
Pakistan
Philippines
Hungary
Poland
Qatar
Russia
Czech Republic
Egypt
Other

TOP 10 ACTIVE HOLDINGS as of 31 Mar 2019

Security Country Industry Active Weight*
EVRAZ Plc United Kingdom Materials 2.1
HASEKO Corp. Japan Consumer Durables & Apparel 1.9
Makalot Industrial Co., Ltd. Taiwan Consumer Durables & Apparel 1.8
Radiant Opto-Electronics Corp. Taiwan Semiconductors & Semi Equipment 1.8
Yuexiu Property Co., Ltd. China Real Estate 1.7
Yanlord Land Group Ltd. Singapore Real Estate 1.6
Coretronic Corp. Taiwan Technology Hardware & Equipment 1.6
ASR Nederland NV Netherlands Insurance 1.6
Huaxin Cement Co., Ltd. China Materials 1.6
Royal Unibrew A/S Denmark Food Beverage & Tobacco 1.6

Approach

For Causeway International Small Cap strategy, our quantitative process examines a multitude of factors within four main categories to gauge the return potential of a stock. First, we seek relatively inexpensive valuations. Second, we want to see accelerating earnings growth prospects and upward earnings estimate revisions from the sell-side analysts who cover the stock. Third, we look for positive recent momentum, since recent trends tend to persist. And fourth, we want to find quality by seeking stocks with a focus on strong free cash flow generation rather than simply sales growth. We then rank the stocks on these factors to identify candidates that we believe should produce the most attractive risk-adjusted returns. Before we establish new positions, our fundamental portfolio managers and analysts review stocks in their sector of coverage and report any “red flags” that may be outside the scope of quantitative analysis.

We take many steps to monitor and manage risk within the portfolio. We start by including in our tradable universe only the roughly 2,800 stocks that trade at least $1 million per day on average, to seek sufficient liquidity and to minimize market impact when we enter and exit positions. We intend for the portfolio to also typically contain between 120 and 200 stocks at any one time, and this breadth is intended to limit idiosyncratic risk.

Commentary

PERFORMANCE REVIEW for the month ended 28 Feb 2019


Equity markets continued to ascend in February – likely buoyed by anticipated accommodative monetary policy globally as well as constructive US-China trade negotiations. International smaller capitalization (“cap”) equities, as measured by the MSCI ACWI ex USA Small Cap Index (“Index”), slightly outperformed international large caps in February. Within international smaller cap equities, developed markets stocks outperformed emerging markets stocks for the month. From a sector perspective, the strongest performers in the Index were the information technology, financials, and healthcare sectors. Real estate, utilities, and consumer staples were among the weakest performing sectors.

The Portfolio performed in-line with 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.

In February, value factors generated slightly negative performance, but they remain the best bottom-up factor group over the last twelve months. Earnings growth factors also delivered slightly negative returns in the month of February. Technical factors delivered the most negative returns in February and for the last twelve months due to the numerous and sharp market reversals that we witnessed particularly in the 4th quarter of 2018 and the year-to-date period. The quality factor group posted negative returns in February but returns over the last twelve months are still solidly positive. All bottom-up factor group returns are positive from the inception of the Portfolio to the end of February. Within our top -down factor groups, our macroeconomic factors posted positive returns in February as countries with superior macroeconomic characteristics outperformed those exhibiting relatively weaker metrics. However, returns to our country aggregate factors were slightly negative. Portfolio holdings in the energy, consumer staples, and industrials sectors detracted the most from relative outperformance. Holdings in the real estate, materials, and health care sectors offset a portion of the underperformance. Relative performance for the month can be mostly attributed to stock selection.

The largest detractor from performance was energy service company, Petrofac Ltd. (United Kingdom). Additional top detractors included paper products manufacturer, Canfor Pulp Products (Canada), beverage company, C&C Group Plc (United Kingdom), real estate developer,TAG Immobilien AG (Germany), and coal mining company, Whitehaven Coal Ltd.(Australia). The largest contributor to performance was steel & iron distribution company, EVRAZ Plc (United Kingdom). Additional top contributors included property developer, Yuexiu Property Co., Ltd. (China), information technology company, Appen Ltd. (Australia), engineering and construction company, HASEKO Corp. (Japan), and materials & electronics company, Taiyo Yuden Co., Ltd. (Japan).*

*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 fund holdings and characteristics are subject to change. There is no guarantee that any forecasts made will come to pass. Any securities identified and described in this report 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. Diversification does not protect against market loss.

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