Seeking value primarily in the non-US developed markets

The International Value Select portfolio is constructed from an equity universe composed of companies with market capitalizations typically greater than $5 billion located in non-US developed and emerging market countries. The strategy uses our international value equity strategy with two distinctions: the select portfolio has greater liquidity (by way of investing in larger capitalization companies) and fewer holdings. We believe that concentrating the holdings can compensate for the loss of small/mid cap exposure. The investment process comprises three stages: quantitative screening and initial analysis, fundamental research, and portfolio construction.

Benchmark
MSCI EAFE
Inception
March 31, 2005

Strategy overview

The portfolio managers discuss our International Value Select 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

QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -5.1%5.0%-10.1%4.9%0.9%8.0%5.6%
Strategy (net) -5.1%4.9%-10.4%4.5%0.5%7.6%5.2%
MSCI EAFE -1.9%8.0%-5.3%6.3%1.8%6.7%4.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) -5.1%5.0%-10.1%4.9%0.9%8.0%5.6%
Strategy (net) -5.1%4.9%-10.4%4.5%0.5%7.6%5.2%
MSCI EAFE -1.9%8.0%-5.3%6.3%1.8%6.7%4.7%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 10.6%10.6%-4.9%8.0%2.5%11.0%6.1%
Strategy (net) 10.5%10.5%-5.2%7.6%2.1%10.6%5.6%
MSCI EAFE 10.1%10.1%-3.2%7.8%2.8%9.5%4.9%
QTD YTD 1 year3 years5 years10 years Since inception
Strategy (gross) 10.6%10.6%-4.9%8.0%2.5%11.0%6.1%
Strategy (net) 10.5%10.5%-5.2%7.6%2.1%10.6%5.6%
MSCI EAFE 10.1%10.1%-3.2%7.8%2.8%9.5%4.9%
Fund 2018201720162015201420132012201120102009
Strategy (gross) -17.5%29.7%1.6%-1.3%-4.3%27.2%24.7%-9.5%13.5%34.6%
Strategy (net) -17.8%29.2%1.3%-1.7%-4.7%26.8%24.3%-9.9%13.0%34.0%
MSCI EAFE -14.3%22.1%5.7%-5.2%-4.9%23.6%18.4%-11.6%3.8%35.1%
Strategy (gross)
Strategy (net)
MSCI EAFE
2018201720162015201420132012201120102009
-17.5%29.7%1.6%-1.3%-4.3%27.2%24.7%-9.5%13.5%34.6%
-17.8%29.2%1.3%-1.7%-4.7%26.8%24.3%-9.9%13.0%34.0%
-14.3%22.1%5.7%-5.2%-4.9%23.6%18.4%-11.6%3.8%35.1%

Portfolio (as of May 31, 2019)

Benchmark: MSCI EAFE
Asset Allocation
Strategy
Stocks 98.6%
Cash 1.4%
Strategy Characteristics
Strategy Benchmark
No. of holdings 54 924
Weighted avg. market cap (US $MM) $54,980 $49,969
FY2 price/earnings 9.8 12.3
Price/book value 1.2 1.5
Dividend yield (%) 4.1 3.6
TOP 10 HOLDINGS
Security Country Percent
Volkswagen AG Germany 4.7%
Takeda Pharmaceutical Co., Ltd. Japan 3.9%
Linde Plc Germany 3.7%
UniCredit S.p.A. Italy 3.1%
Prudential Plc United Kingdom 3.0%
KDDI Corp. Japan 3.0%
ABB Ltd. Switzerland 3.0%
British American Tobacco plc United Kingdom 3.0%
BASF SE Germany 2.9%
China Mobile Ltd. China 2.7%

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
Financials 21.2% 19.0%
Industrials 15.2% 14.7%
Communication Services 11.5% 5.6%
Health Care 10.9% 11.0%
Materials 9.9% 7.2%
Energy 9.6% 5.6%
Consumer Discretionary 7.9% 10.9%
Information Technology 5.8% 6.6%
Consumer Staples 4.4% 12.0%
Utilities 2.1% 3.7%
Real Estate 0.0% 3.7%
TOP 10 COUNTRIES
Country Strategy Benchmark
United Kingdom 31.6% 17.1%
Germany 14.4% 8.6%
Japan 13.9% 24.0%
Switzerland 8.5% 8.9%
Canada 6.7% 0.0%
China 6.0% 0.0%
France 4.5% 11.3%
South Korea 4.4% 0.0%
Netherlands 3.6% 3.6%
Italy 3.6% 2.4%
Regional Allocation
  • Europe – other 67.5%
  • Pacific 20.0%
  • North America 5.7%
  • Emerging Asia 5.1%
  • Emerging Europe, Middle East, Africa 0.3%

Commentary (As of April 30, 2019)

Highlights

  • Increasingly dovish commentary from the US Federal Reserve and the European Central Bank, along with progress on US-China trade negotiations, supported equity markets in March.

Portfolio attribution

The Portfolio underperformed the Index during the month, due primarily to stock selection. Portfolio holdings in the banks, telecommunication services, capital goods, materials, and automobiles & components industry groups detracted from relative performance. Holdings in the food, beverage & tobacco, software & services, and pharmaceuticals & biotechnology industry groups, as well as an underweight position in the diversified financials and food & staples retailing industry groups, offset some of the underperformance. The largest detractor was automobile manufacturer, Volkswagen AG (Germany). Additional notable detractors included banking & financial services company, Barclays PLC (United Kingdom), banking & financial services company, UniCredit S.p.A. (Italy), telecommunication services provider, KDDI Corp. (Japan), and jet engine manufacturer, Rolls-Royce Holdings plc (United Kingdom). The top contributor to return was British American Tobacco plc (United Kingdom). Other notable contributors included pharmaceutical & consumer healthcare products producer, Novartis AG (Switzerland), business software & services provider, SAP SE (Germany), Takeda Pharmaceutical Co., Ltd. (Japan), and mail, express & logistics services provider, Deutsche Post AG (Germany).

Investment outlook

With abundant liquidity underpinning the demand for investable assets, long duration equities responded favorably to the dovish policy indications from the Fed. Investors appear indifferent to valuation, focusing instead on growth and the promise of earnings and cash flow further into the future. Money remains cheap, facilitating more public and private sector financial leverage. As investors are willing to pay sizable valuation multiples for growth, companies that must restructure operationally to expand earnings are having a tough time attracting investor interest. We are most interested in undervalued stocks, often in cyclical industries, with managements committed to streamlining operations. We prefer companies that reward shareholders with generous dividend payments and/or share buybacks. We believe these efforts to boost profitability through cost savings and revenue enhancements should position these companies well in times of leaner global growth. We recognize style investing is cyclical and believe the value characteristics currently embedded in client portfolios should prove effective if growth does not meet lofty market expectations.

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.