Quick Take: The Causeway International Value/Inv (CIVVX) is relatively young, but its managers are not new to foreign investing.
The three-member team is part of a group of people who launched Causeway Capital Management LLC, International Value’s investment adviser, and the fund three years ago. Before that, they had been picking international stocks for the Hotchkis & Wiley division of Merrill Lynch Investment Managers since the early 1990s. These days, Causeway oversees more than $8 billion in assets.
Portfolio manager James Doyle and his colleagues look for undervalued shares of financially sound mid-sized and large companies located almost exclusively in developed countries.
The $760-million fund (the institutional version of the fund had $987.8 million in assets at the end of September), which started operations in October 2001, was up 10.3% this year through September, versus a gain of 3.3% for the average international equity fund, according to data from Standard & Poor’s. Causeway International returned 45.5% last year, versus 37.4% for its peers.
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The team overseeing the Causeway International Value Fund looks for stocks that are cheap based on a variety of measurements, like share price relative to a company’s earnings or cash flow.
“We aren’t married to any single way of valuing a company,” says James Doyle, one of the portfolio’s three managers. “We use whatever approach we feel is the most economically justifiable.”
Multiples aside, Doyle and his colleagues, Harry Hartford and Sarah Ketterer, look for companies with healthy balance sheets, little debt, and good prospects for fattening their bottom lines. They will buy companies that aren’t profitable, however, if they think that condition is only temporary.
“We like companies to grow their earnings as much as anyone else,” Doyle says. “We just don’t want to be caught in the position of paying a whole lot for growth that more often than not doesn’t end up coming through.”
A company needn’t pay dividends or buy back its shares to gain entry to the portfolio, but the managers like those that do, because they’ve found that these types of “cash returns” to shareholders can be a “very significant part” of total returns in the international investing arena, Doyle says.
The 60-80 stocks that go into the fund have market caps of $1 billion or more. Lately, the managers been leaning more towards big companies than they did five or six years ago, because this group’s shares have gotten beaten down to the point where they appear attractive, Doyle says. Although they will invest in Korea, the managers generally avoid developing markets because of economic and political risks there.