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)-2.0%9.6%-7.7%6.1%1.6%7.3%7.2%
Strategy (net)-2.0%9.3%-8.0%5.7%1.2%6.8%6.8%
MSCI EAFE-1.3%13.1%-2.1%7.4%2.9%6.3%5.3%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)-2.0%9.6%-7.7%6.1%1.6%7.3%7.2%
Strategy (net)-2.0%9.3%-8.0%5.7%1.2%6.8%6.8%
MSCI EAFE-1.3%13.1%-2.1%7.4%2.9%6.3%5.3%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)0.9%11.8%-3.1%8.3%1.7%8.6%7.4%
Strategy (net)0.8%11.6%-3.5%7.9%1.2%8.2%6.9%
MSCI EAFE4.0%14.5%1.6%9.6%2.7%7.4%5.4%
QTDYTD1 year3 years5 years10 yearsSince inception
Strategy (gross)0.9%11.8%-3.1%8.3%1.7%8.6%7.4%
Strategy (net)0.8%11.6%-3.5%7.9%1.2%8.2%6.9%
MSCI EAFE4.0%14.5%1.6%9.6%2.7%7.4%5.4%
Fund20182017201620152014201320122011201020092008200720062005200420032002
Strategy (gross)-17.9%28.3%1.3%-2.1%-5.3%25.4%25.7%-9.7%13.4%33.5%-41.4%8.8%27.2%9.2%27.8%47.3%-9.9%
Strategy (net)-17.9%28.5%1.3%-2.0%-5.4%25.4%25.7%-9.7%13.4%33.5%-41.4%8.9%27.2%9.2%27.8%47.3%-10.0%
MSCI EAFE-18.6%27.2%0.4%-3.0%-6.2%24.2%24.5%-10.6%12.3%32.3%-41.9%7.9%26.1%8.1%26.6%45.9%-10.9%
Strategy (gross)
Strategy (net)
MSCI EAFE
20182017201620152014201320122011201020092008200720062005200420032002
-17.9%28.3%1.3%-2.1%-5.3%25.4%25.7%-9.7%13.4%33.5%-41.4%8.8%27.2%9.2%27.8%47.3%-9.9%
-17.9%28.5%1.3%-2.0%-5.4%25.4%25.7%-9.7%13.4%33.5%-41.4%8.9%27.2%9.2%27.8%47.3%-10.0%
-18.6%27.2%0.4%-3.0%-6.2%24.2%24.5%-10.6%12.3%32.3%-41.9%7.9%26.1%8.1%26.6%45.9%-10.9%

Portfolio (as of July 31, 2019)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks97.7%
Cash2.3%
Strategy Characteristics
StrategyBenchmark
No. of holdings 57 923
Weighted avg. market cap (US $MM)$55,678$52,965
FY2 price/earnings10.613.1
Price/book value1.21.6
Dividend yield (%)3.93.4
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AGGermany4.3%
Takeda Pharmaceutical Co., Ltd.Japan3.5%
BASF SEGermany3.4%
UniCredit S.p.A.Italy3.1%
KDDI Corp.Japan3.0%
ABB Ltd.Switzerland3.0%
British American Tobacco plcUnited Kingdom3.0%
Prudential PlcUnited Kingdom3.0%
Linde PlcGermany2.9%
AstraZeneca PlcUnited Kingdom2.9%

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
Financials19.8%18.7%
Industrials17.1%14.7%
Communication Services11.6%5.5%
Health Care10.7%11.3%
Materials9.5%7.2%
Energy9.2%5.4%
Consumer Discretionary6.8%11.2%
Information Technology6.0%6.8%
Consumer Staples5.1%11.9%
Utilities2.0%3.7%
Real Estate0.0%3.6%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom31.0%16.7%
Germany16.0%8.6%
Japan14.1%24.0%
Switzerland6.8%9.3%
France6.2%11.3%
China5.2%0.0%
Canada5.1%0.0%
South Korea4.9%0.0%
Netherlands3.1%3.7%
Italy3.1%2.3%
Regional Allocation
  • Europe – other 68.0%
  • Pacific 14.1%
  • Emerging Asia 10.1%
  • North America 5.1%
  • Emerging Europe, Middle East, Africa 0.3%

Commentary (As of July 31, 2019)

Highlights

  • Following strong performance in the first half of the year, equity markets delivered more muted returns in July. On the back of central banks signaling stimulus, value stock valuations continued to contract while growth stock valuations rose.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the software & services, energy, and materials industry groups, along with an underweight position in the food beverage & tobacco and semiconductors & semi equipment industry groups, detracted from relative performance. Holdings in the capital goods, automobiles & components, and insurance industry groups, as well as an underweight position in the household & personal products and real estate industry groups, contributed to relative performance. The largest detractor was enterprise infrastructure software company, Micro Focus International Plc (United Kingdom). Additional notable detractors included diversified chemicals manufacturer, BASF SE (Germany), Takeda Pharmaceutical Co., Ltd.(Japan), business software & services provider, SAP SE (Germany), and mobile telecommunications operator, China Mobile Ltd. (China). The top contributor to return was aerospace & defense manufacturer, Cobham Plc (United Kingdom). Other notable contributors included telecommunication services provider, Vodafone Group (United Kingdom), pharmaceutical company, AstraZeneca Plc (United Kingdom), property & casualty insurer, Sompo Holdings, Inc. (Japan), and telecommunication services provider, KDDI Corp. (Japan).


Investment outlook

On the back of central banks signaling stimulus, value stock valuations continued to contract in July while growth stock valuations rose. Central bank liquidity and momentum-driven investing trends continue to support long duration equities. We believe that additional accommodative central bank policies may already be priced into growth stocks. The de-rating of value has resulted in current market multiples for MSCI Value indices implying negative perpetuity earnings growth rates across geographies, even as the world economy is forecast to grow. We find such pessimism towards value stocks to be unwarranted, especially considering that the earnings of value stocks have outpaced those of growth stocks since the Global Financial Crisis. We believe that value stocks that have improved their earnings growth should re-rate as investors consider fundamentals rather than price momentum. In such a long period of falling interest rates, some companies with longer duration cash flows have become highly levered. If policy action cannot drive a meaningful improvement in economic data and downside risks materialize even marginally, companies exhibiting balance sheet strength should fare better than those with excess debt levels. Rather than trying to time monetary policy, we are remaining disciplined in our bottom-up valuation process. We seek to identify companies committed to improving free cash flow generation and rewarding shareholders via dividends and buybacks.

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.