Seeking value primarily in the non-US developed markets

The international value portfolio is constructed from an equity universe composed of companies with market capitalizations typically greater than $1 billion located throughout the non-US developed and emerging market countries. Through rigorous, bottom-up company analysis, we seek to identify undervalued stocks with upside potential. The investment process comprises three stages: quantitative screening and initial analysis, fundamental research and portfolio construction.

Benchmark
MSCI EAFE
Inception
June 11, 2001

Strategy overview

The portfolio managers discuss our International Value 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

Performance

QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)7.2%17.5%9.9%8.4%3.5%6.9%7.5%
Strategy (net)7.1%17.1%9.5%7.9%3.1%6.5%7.0%
MSCI EAFE4.8%18.8%13.0%10.2%4.8%5.8%5.5%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)7.2%17.5%9.9%8.4%3.5%6.9%7.5%
Strategy (net)7.1%17.1%9.5%7.9%3.1%6.5%7.0%
MSCI EAFE4.8%18.8%13.0%10.2%4.8%5.8%5.5%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)-1.9%9.6%-6.5%5.3%1.9%6.2%7.1%
Strategy (net)-2.0%9.3%-6.9%4.9%1.5%5.7%6.7%
MSCI EAFE-1.0%13.3%-0.8%7.0%3.8%5.4%5.3%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)-1.9%9.6%-6.5%5.3%1.9%6.2%7.1%
Strategy (net)-2.0%9.3%-6.9%4.9%1.5%5.7%6.7%
MSCI EAFE-1.0%13.3%-0.8%7.0%3.8%5.4%5.3%
Fund20182017201620152014201320122011201020092008200720062005200420032002
Strategy (gross)-18.0%28.6%1.1%-1.9%-4.6%27.6%24.6%-10.2%13.9%37.7%-43.0%9.8%27.5%9.0%29.5%48.4%-8.9%
Strategy (net)-18.4%28.0%0.7%-2.3%-5.0%27.1%24.1%-10.5%13.4%37.1%-43.2%9.4%27.0%8.5%29.0%47.8%-9.2%
MSCI EAFE-13.4%25.6%1.5%-0.4%-4.5%23.3%17.9%-11.7%8.2%32.5%-43.1%11.6%26.9%14.0%20.7%39.2%-15.7%
Strategy (gross)
Strategy (net)
MSCI EAFE
20182017201620152014201320122011201020092008200720062005200420032002
-18.0%28.6%1.1%-1.9%-4.6%27.6%24.6%-10.2%13.9%37.7%-43.0%9.8%27.5%9.0%29.5%48.4%-8.9%
-18.4%28.0%0.7%-2.3%-5.0%27.1%24.1%-10.5%13.4%37.1%-43.2%9.4%27.0%8.5%29.0%47.8%-9.2%
-13.4%25.6%1.5%-0.4%-4.5%23.3%17.9%-11.7%8.2%32.5%-43.1%11.6%26.9%14.0%20.7%39.2%-15.7%

Portfolio (as of October 31, 2019)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks97.7%
Cash2.3%
Strategy Characteristics
StrategyBenchmark
No. of holdings 61 925
Weighted avg. market cap (US $MM)$58,714$53,334
FY2 price/earnings11.013.9
Price/book value1.21.6
Dividend yield (%)3.93.4
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AGGermany4.4%
BASF SEGermany3.9%
Takeda Pharmaceutical Co., Ltd.Japan3.8%
UniCredit S.p.A.Italy3.7%
FANUC Corp.Japan3.0%
China Mobile Ltd.China2.9%
Barclays PlcUnited Kingdom2.8%
ABB Ltd.Switzerland2.7%
Samsung Electronics Co., Ltd.South Korea2.6%
Prudential PlcUnited Kingdom2.6%

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
Financials21.4%18.5%
Industrials18.5%15.0%
Health Care11.0%11.8%
Communication Services11.0%5.3%
Materials8.9%7.0%
Energy8.5%5.0%
Information Technology6.9%6.8%
Consumer Discretionary5.2%11.7%
Consumer Staples4.5%11.6%
Utilities1.6%3.7%
Real Estate0.0%3.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom27.2%16.2%
Germany19.5%8.7%
Japan14.5%24.9%
France6.7%11.4%
Switzerland6.4%9.3%
China5.5%0.0%
South Korea5.0%0.0%
Italy3.7%2.4%
Canada3.6%0.0%
Netherlands2.9%3.9%
Regional Allocation
  • Europe – other 69.0%
  • Pacific 14.5%
  • Emerging Asia 10.6%
  • North America 3.6%

Commentary (As of October 31, 2019)

Highlights

  • Developed market equities rose during the month amid signs of easing geopolitical uncertainties and continued dovish stances from global central banks.
  • 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 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, and utilities industry groups, as well as an underweight position in the food beverage & tobacco industry group, contributed to performance compared to the Index. Portfolio holdings in the consumer durables & apparel, energy, capital goods, telecommunication services, 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 major passenger railway operator, East Japan Railway Co. (Japan).

Investment outlook

The resurgence of value and cyclicality over growth and momentum 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.

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.