Diversified exposure to emerging markets, capturing value and growth

The Fund normally invests at least 80% of its total assets in equity securities of companies located in emerging markets and investments that are tied economically to emerging markets, such as common stock, preferred and preference stock, depositary receipts, including American Depositary Receipts, Global Depositary Receipts, European Depositary Receipts, Swedish Depositary Receipts and other types of depositary receipts, real estate investment trusts (“REITs”) and exchange-traded funds (“ETFs”) that invest in emerging markets securities. The Investment Manager primarily invests in common stock, but will use those other security types referred to above if, for example, they provide greater liquidity, the Fund cannot access common stock through a local market, or the yield rate of preferred or preference stock is deemed favourable. Typically, less than 10% of the Fund’s Net Asset Value will be invested in ETFs, and investment in ETFs will be limited to 15% of the Fund’s Net Asset Value.

The Fund generally invests in companies with market capitalisations of US$500 million or greater at the time of investment. However, the Fund may invest in smaller market capitalisation companies if, based on the quantitative investment approach described below, it finds an attractive investment with a lower market capitalisation and sufficient liquidity. The Fund may invest in any industry or sector, but generally will not invest more than 25% of its total assets in the equity securities of companies in a single industry. Typically, the Fund will hold a diversified portfolio of over 80 equity securities.

The Investment Manager uses a quantitative investment approach to purchase and sell equity securities and those other investments as detailed above for the Fund. The Investment Manager’s quantitative investment approach uses a proprietary computer model that analyses historical financial data, or “factors,” to assist in selecting investments as detailed above. The model currently analyses factors relating to valuation, earnings growth, technical indicators (such as stock price momentum), macroeconomics, currency, countries and economic sectors, ranking companies within each factor and combining these rankings to select investments. As the Investment Manager is continually seeking to improve model performance, the factors and their weightings in the model may change over time. By ranking companies based on a combination of these factors, the Investment Manager seeks to identify a portfolio of investments that will outperform the MSCI Emerging Markets Index. In addition to its quantitative research, the Investment Manager’s fundamental research analysts review the quantitative outputs to attempt to identify and address special issues, such as significant corporate actions or management changes, which are difficult to detect quantitatively.

Please see the Prospectus and Supplement for more information. Please contact Marketing@causewaycap.com for a Fund Application.

Nav*
€ 15.00
Inception
February 10, 2016
ISIN
IE00BWT3P209
Benchmark
MSCI Emerging Markets in EUR
Minimum investment
€1,000,000
Total expense ratio
1.25%
*As of November 12, 2019

Strategy overview

The portfolio managers discuss our Emerging Markets strategy.

Portfolio managers

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

Performance

QTDYTD1 year3 yearsSince inception
Fund1.5%10.6%9.2%4.6%10.8%
MSCI Emerging Markets in EUR1.1%8.4%8.2%5.4%13.2%
QTDYTD1 year3 yearsSince inception
Fund1.5%10.6%9.2%4.6%10.8%
MSCI Emerging Markets in EUR1.1%8.4%8.2%5.4%13.2%
20182017
Fund-14.4%21.1%
MSCI Emerging Markets in EUR-9.9%21.0%
20182017
Fund-14.4%21.1%
MSCI Emerging Markets in EUR-9.9%21.0%

Portfolio (as of October 31, 2019)

Benchmark:
Asset Allocation
Fund
Stocks97.4%
Cash2.6%
Fund Characteristics
FundBenchmark
Holdings 131
Weighted avg. market cap (US $MM)$65,581$0
NTM price/earnings9.40.0
Price/book value1.40.0
NTM EPS revision (wtd. avg.)
Net assets$1,548,335.18-
TOP 10 ACTIVE HOLDINGS
Security Country Active weight*
China Construction Bank Corp.China2.0%
Samsung Electronics Co., Ltd.South Korea1.7%
Tencent Holdings Ltd.China1.6%
Investimentos ItauBrazil1.5%
LukoilRussia1.5%
JBS SABrazil1.4%
Gazprom PJSCRussia1.4%
Anhui Conch Cement Co., Ltd.China1.1%
Banco do Brasil SABrazil1.1%
SberbankRussia1.0%

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. “Earnings-per-share” is the portion of a company’s profit allocated to each outstanding share of common stock. “Earnings-per-share year-over-year estimate growth (next 12 months)” is the average next-12-months earnings-per-share estimate from one year ago for an individual company compared with that estimate today; note that this calculation is done on a company-by-company basis and is aggregated through a weighted average based on the individual company’s weight in the corresponding index. Also note that this characteristic is supplied directly by MSCI.

*Active defined as Fund weight minus MSCI EM Index weight. Holdings are subject to change.

SECTOR WEIGHTS
Sector Fund Benchmark
Financials24.3%24.7%
Information Technology19.4%15.5%
Consumer Discretionary11.6%13.3%
Communication Services10.8%11.1%
Energy9.3%7.9%
Consumer Staples7.4%6.7%
Materials5.0%7.1%
Industrials4.5%5.3%
Real Estate2.4%2.9%
Health Care1.8%2.8%
Utilities1.0%2.8%
TOP 10 COUNTRIES
Country Strategy Benchmark
China32.6%31.9%
South Korea13.2%12.2%
Taiwan12.5%11.9%
Brazil9.7%7.7%
India9.5%9.0%
Russia7.7%4.1%
Thailand2.8%2.7%
Mexico2.2%2.5%
South Africa1.8%4.7%
Peru1.1%0.4%
Regional Allocation
  • Emerging Asia 71.9%
  • Emerging Latin America 13.0%
  • Emerging Europe, Middle East, Africa 12.6%
  • Multi Region Emerging (ETF) 0.0%

Commentary (As of September 30, 2019)

Highlights

  • While slowing growth and US-China trade tensions weighed on emerging market (“EM”) equities in July and August, the asset class rebounded in September.
  • While challenges remain, the macroeconomic backdrop for EM assets is improving. In addition to supportive monetary policies, fiscal stimulus is increasing in select EM countries.
  • Compared to developed markets, September’s value rally in EM was more modest. In many developed markets, inverted yield curves and negative interest rates have become the norm and any hint of normalizing monetary policy can lead to sharp value rallies. In contrast, EM central banks are pursuing relatively orthodox monetary policies and EM yield curves are still positively sloped.

Portfolio Attribution

Causeway Emerging Markets UCITS Fund - EUR share class (“Fund”) outperformed the Index in September 2019. We use both bottom-up and top-down factor categories to seek to forecast alpha for the stocks in the Fund’s investable universe. Despite rebounding in September, our value factor was the weakest bottom-up indicator during the quarter and the year-to-date (“YTD”) period. While positive for the quarter and YTD periods, our earnings growth and price momentum factors were both negative indicators in September. Of our top-down factors, country and sector factors were positive indicators during the month. The macroeconomic and currency factors were negative in September.

Investment Outlook

Despite rebounding in September, EM value stocks have underperformed YTD. Compared to developed markets, September’s value rally in EM was more modest. In many developed markets, inverted yield curves and negative interest rates have become the norm and any hint of normalizing monetary policy can lead to sharp value rallies. In contrast, EM central banks are pursuing relatively orthodox monetary policies and EM yield curves are still positively sloped. EM value stocks trade at significant discounts to EM growth stocks while offering attractive dividend yields. We continue to emphasize value factors in our investment process, which should benefit the portfolio if EM value stocks rebound, which we believe they ultimately will.

We are also overweight EM small cap stocks within the Fund. This has been a headwind for performance as the MSCI Emerging Markets Small Cap Index has lagged the MSCI Emerging Markets Large Cap Index each year since 2016. In addition to our small cap overweight, our contextual weighting approach has contributed to underperformance YTD. When calculating a stock’s expected alpha, we first classify it as value, growth, or momentum and then assign weights that we believe are appropriate for that classification. Despite recent underperformance, we remain confident in this methodology, which we believe has benefitted the strategy compared to an equal-weighted approach since the strategy's inception in 2007.

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. Current and future holdings are subject to risk.

Documents

Fund information: