Portfolio attribution

The Causeway Emerging Markets Fund (“Fund”) underperformed the Index in July 2023. We use both bottom-up “stock-specific” and top-down factor categories to seek to forecast alpha for the stocks in the Fund’s investable universe. Our bottom-up competitive strength, valuation, and technical (price momentum) factors were negative indicators during the month. Our bottom-up growth factor was a positive indicator. Of our top-down factors, macroeconomic, country, sector, and currency were positive indicators in July.

Economic outlook

After pausing in June, the US Federal Reserve (“Fed”) continued its interest rate hiking trajectory in July, bringing the federal funds target rate to its highest level since 2007. While core and headline inflation in the US continue to moderate, they remain elevated relative to the Fed’s target. The Fed appears to be nearing the end of its rate hiking cycle, but further rate increases are possible. The US labor market remains strong as the private sector added nearly 500,000 jobs in June, according to ADP. In China, economic data continue to suggest the country’s emergence from the zero Covid policy remains lackluster. Inflation has been subdued, indicating a lack of demand, and China’s Manufacturing Purchasing Manager’s Index remains in contractionary territory. On the positive side, the manageable inflation data imply that Chinese authorities have ample room to stimulate growth in the economy. Despite a challenging macroeconomic environment, we remain overweight Chinese stocks in the portfolio due in part to, in our view, compelling valuations. The Fund is also overweight Taiwanese stocks, which we believe offer attractive valuations and top-down characteristics. The Fund’s investments in Taiwanese information technology stocks have benefited from the continued optimism around generative artificial intelligence. The Fund has exposure to companies from across the artificial intelligence supply chain, including chip foundry, chip design, and hardware and components manufacturing.

Investment outlook

Earnings growth upgrades for EM equities continue to lag those in ex-US developed markets. The EM countries with the weakest net upgrades include Taiwan, Saudi Arabia, and Brazil. Export-oriented Taiwan reflects slowing global growth while the outlook for Saudi Arabian stocks has been impacted by the fall in energy and fertilizer prices. On the positive side are Greece, Indonesia, and Turkey. Within EM, smaller cap companies have generally outperformed larger cap companies year-to-date and we continue to identify, in our view, attractive investment opportunities in small cap companies. Historically, our investment process has uncovered EM small cap stocks with alpha potential. The Fund’s allocation to small cap stocks was near the high end of the historical range at month-end.

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. The Fund may invest in derivatives, which are often more volatile than other investments and may magnify the Fund's gains or losses. Investing in ETFs is subject to the risks of the underlying funds. International and emerging markets investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from social, economic or political instability in other nations. Emerging markets and smaller companies involve additional risks and higher volatility.