The Causeway International Value (Trades, Portfolio) Fund recently disclosed its portfolio updates for the second quarter of 2022, which ended on June 30.
Founded in 2001, the fund is part of Sarah Ketterer (Trades, Portfolio)’s Causeway Capital Management. The portfolio managers of the Los Angeles-based fund utilize a bottom-up, research-based investing strategy to identify value opportunities from among mid-cap and large-cap companies mainly in developed international markets, though it may invest up to 15% of total assets in emerging markets. The fund’s strategy also prefers companies that return cash to shareholders through dividends or repurchases.
During the quarter, the fund exited its investment in Volkswagen AG (XTER:VOW3, Financial) and made reductions to energy companies Shell PLC (XAMS:SHELL, Financial), BP PLC (LSE:BP., Financial) and TotalEnergies SE (XPAR:TTE, Financial). Its top new buy was Industria De Diseno Textil SA (XMAD:ITX, Financial) and it also notably added to its Air Liquide SA (XPAR:AI, Financial) position.
Investors should be aware that portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Volkswagen
The fund dumped its 606,207-share position in Volkswagen (XTER:VOW3, Financial), slimming the equity portfolio by 1.77%. During the quarter, shares changed hands for 148.85 euros ($149.20) apiece.
Volkswagen is a German vehicle manufacturer that produces automobiles and commercial vehicles for sale around the world. It is most popular in China and Western Europe, with North America and Central and Eastern Europe also making up significant portions of revenue.
The company is currently focused on expanding its electric vehicle production capacity and sales. In particular, it has identified the North American market as a prime area for growth, since this market currently has low levels of EV adoption despite being relatively wealthy.
With Western Europe reeling from the Russia-Ukraine crisis and resulting economic sanctions, Volkswagen’s sales could soon feel the pain as its home region is expected to face inflation over 20%, which is very likely to tip euro-area economies into a recession.
Selling energy stocks
The fund broadly reduced its exposure to the energy sector, selling 59.24% of its Shell (XAMS:SHELL, Financial) holding, 55.76% of its BP (LSE:BP) stake and 46.90% of its TotalEnergies (XPAR:TTE, Financial) investment. These trades reduced the size of the equity portfolio by 1.72%, 1.56% and 1.39%, respectively.
Energy stocks have enjoyed an incredible bull run so far this year due to the recovery in travel as well as Russia’s war on Ukraine, which have caused oil and gas prices to skyrocket. Fossil fuel producers haven taken full advantage of the situation to hike prices as much as they can, resulting in huge profits. Naturally, the share prices of these companies have followed suit.
This sector is known for being cyclical, though, and we may have already reached the peak on this particular upswing. Russia ended up handling Western sanctions on its fossil fuel exports better than expected, as countries such as Saudi Arabia and India, which have refused to take a side in the conflict, have snapped up cheap Russian oil and gas. Thus, the main factor pushing prices up now is just travel recovery.
Industria De Diseno Textil
The fund’s top new buy of the quarter was Industria De Diseno Textil (XMAD:ITX, Financial). It acquired 3,641,986 shares of the company, giving it a 1.53% weight in the equity portfolio at the quarter’s average share price of 21.07 euros.
Industria De Diseno Textil, or Inditex as it is more commonly known, is a Spanish clothing company that operates the largest fast-fashion group in the world, selling its products through 6,423 stores. Its brands include Zara, Bershka, Oysho and Massimo Dutti. Approximately a quarter of its sales are made through online channels.
Inditex is one of the few companies that gets a 10 out of 10 from GuruFocus for both financial strength and profitability. Nevertheless, its lack of meaningful bottom-line growth over the past decade has kept the valuation depressed.
The stock’s main appeal likely comes from its survivor characteristics. Investors can be certain that no matter how bad the economic situation gets, this company is among the best-positioned retailers in the world to come out the other side with its balance sheet intact, which could provide a key advantage to grow during the eventual recovery.
Air Liquide
The fund increased its stake in Air Liquide (XPAR:AI, Financial) by 180.14% for a total holding of 750,923 shares, adding 1.20% to the equity portfolio. During the quarter, shares averaged 143.59 euros apiece.
Based in France, Air Liquide is a major global producer of industrial gases and related technologies and services to several industries, including medical, chemical and electronics. It operates in more than 80 countries and is the largest company of its kind in terms of revenue.
In order to accelerate growth, Air Liquide focuses on serving “key markets of the future” such as energy, health care and semiconductors. Long-term contracts provide clarity on what investors can expect, while global and industrial diversity help protect the company from volatility.
Two promising areas of growth are Air Liquide’s low-carbon hydrogen projects, developed with support of the French government to provide large-scale hydrogen energy to Europe, and the rapid growth of the global semiconductor industry, which utilizes ultra-high purity industrial gases such as neon and helium.
See also
The fund’s other notable trades for the quarter included exiting GSK PLC (LSE:GSK, Financial) and Air Canada (TSX:AC, Financial) and buying Deutsche Telekom AG (XTER:DTE) and Canadian National Railway Co. (TSX:CNR, Financial). You can view the fund’s full trades here.
As of the quarter’s end, the Causeway International Value (Trades, Portfolio) Fund’s portfolio reportedly consisted of 60 holdings valued at a total of $5.38 billion. The top holdings were Rolls-Royce Holdings PLC (LSE:RR., Financial) with 3.82% of the equity portfolio, UniCredit SpA (MIL:UCG) with 3.36% and Prudential PLC (LSE:PRU) with 3.16%.
In terms of sector weighting, the fund was most invested in financial services, followed by industrials and health care.
