Sarah Ketterer (Trades, Portfolio), the CEO and fundamental portfolio manager of Causeway Capital Management, recently released the firm’s 13F portfolio updates for the fourth quarter of 2022, which ended on Dec. 31.
Causeway Capital Management was founded in 2001 by Ketterer and Harry Hartford. The Los Angeles-based firm chooses stocks from among large and mid-cap companies in developed markets around the world. Their screens use quantitative, value-oriented metrics and a “risk score” to find potential investment opportunities. After screening, the investment team chooses the stocks that have the most favorable risk-adjusted returns, price-earnings ratios and dividend yields.
Based on its latest 13F report, the firm’s top trades of the quarter were the sale of its iShares MSCI EAFE Value ETF (EFV, Financial) stake and the near elimination of its iShares MSCI EAFE ETF (EFA, Financial) position. It also initiated a new stake in FinVolution Group (FINV, Financial) and added more Alibaba Group Holding Ltd. (BABA, Financial).
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Slashing ETF exposure
The firm dumped its entire 4,197,000-share stake in the iShares MSCI EAFE Value ETF (EFV, Financial), which previously took up 4.53% of the equity portfolio based on the quarter’s average share price of $43.02. It also slashed its iShares MSCI EAFE ETF (EFA, Financial) investment by 99.54%, leaving a remaining holding of 19,596 shares and shaving 6.67% off the equity portfolio at the quarter’s average share price of $62.45.
The EFA ETF tracks an index composed of large- and mid-cap equities in developed markets excluding the U.S. and Canada, granting broad exposure to Europe, Australia, Asia and the Far East. The EFV ETF is similar, except it has a narrower focus on stocks that exhibit value characteristics.
The firm just initiated the stakes in these ETFs in the third quarter of 2022, and at the third quarter’s end, they collectively represented over 10% of Causeway’s equity portfolio before being abruptly cut the very next quarter. Interestingly, according to Causeway’s fund letters, these ETFs are the benchmarks for some of its funds.
Between these two ETFs, the EFA ETF is larger and more diversified, with more than 900 stocks. Its top five holdings are Swiss consumer staples giant Nestle SA (XSWX:NESN), Dutch semiconductor company ASML Holding NV (XAMS:ASML), Swiss pharmaceutical companies Roche Holding AG (XSWX:ROG), Novartis AG (XSWX:NOVN) and fashion company LVMH Moet Hennessy Louis Vuitton SE (XPAR:MC).
With its focus on undervalued stocks, the EFV ETF is smaller with over 400 holdings as of the latest reports. Its top five holdings are Novartis, Japanese automotive manufacturer Toyota Motor Corp. (TSE:7203), Australian bank major Commonwealth Bank of Australia (ASX:CBA), German industrial conglomerate Siemens AG (FRA:SIE) and French pharmaceutical company Sanofi SA (XPAR:SAN).
FinVolution Group
The firm initiated a new stake in FinVolution Group (FINV, Financial) worth 8,270,022 shares in the recent quarter after selling out of its previous holding in the stock in the second quarter of 2022. The stock takes up 1.19% of the equity portfolio at the quarter’s average share price of $4.70.
Founded in 2007, FinVolution is a leading Chinese fintech that provides a platform to connect underserved individual borrowers with financial institutions in China. It relies on its proprietary technologies to assess credit risk, detect fraud and automate the loan transaction process.
As of its most recent financial results for the third quarter of 2022, the company was seeing double-digit growth in domestic transaction volume and outstanding loan balance, with particularly strong growth among small business and international borrowings. However, the 90-day-plus delinquency ratio did rise to 1.44% from 1.04% a year ago, and the average loan tenor rose to 8.6% from 8.2%.
While the company’s top-line growth has been steady in recent years, its bottom line has been mostly flat, as shown in the chart below. Analysts from Morningstar (MORN, Financial) are estimating a three-to-five-year revenue growth rate of 9.14%, though this could be further boosted by China’s economic reopening.
Alibaba Group Holding
Causeway also upped its stake in Alibaba Group Holding (BABA, Financial) by 37.09% for a total holding of 1,384,838 shares, adding 0.96% to the equity portfolio. During the quarter, shares traded for an average price of $78.85 apiece.
Alibaba is a Chinese multinational conglomerate primarily operating in the e-commerce, retail and cloud computing industries, among many others. By volume, Alibaba is the largest e-commerce company in the world, with millions of merchants and hundreds of millions of users.
The stock has been under pressure for the past few years due to the big tech crackdown in China as well as the introduction of legislation in the U.S. to potentially de-list the stocks of foreign companies from U.S. exchanges if they do not submit their books to U.S. auditors.
Both of these issues seem to be in the process of being resolved, though Alibaba is not completely out of hot water yet, which is why it is still significantly undervalued based on the GF Value chart despite a three-year revenue per share growth rate of 32.1%.
See also
As of the quarter’s end, Causeway Capital Management held positions in 84 stocks in a 13F portfolio valued at $3.44 billion. The turnover for the period was 9%.
The firm’s top holding was Ryanair Holdings PLC (RYAAY, Financial) with 16.71% of the equity portfolio, followed by Canadian National Railway (CNI, Financial) with 14.60% and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial) with 6.61%.
In terms of sector weighting, the firm was most invested in industrials, technology and consumer cyclical stocks.
