Andrew Daniels: Hello, I'm Andrew Daniels for Morningstar. Today I'm joined by Sarah Ketterer and Harry Hartford, co-founders of Causeway Capital Management. They are both lead managers of Gold-rated Causeway International Value, which won the 2017 International-Stock Fund Manager of the Year.
Sarah and Harry, thank you for being here today and congratulations on the award.
Ketterer: Thank you.
Hartford: Thank you, we're delighted to be here.
Daniels: As you look ahead to 2018 and beyond that, how are you positioning the portfolio currently, to take advantage of those opportunities?
Ketterer: Andrew, as you well know, markets are at very high levels and undervaluation is scarce. When, given our long history of managing money, our team reacts to this type of environment by lowering portfolio risk, and one of the major ways we do that is through diversification, ensuring that we have stocks that tend not to correlate closely with each other. Furthermore, keep trying to find the low-beta stocks that still have upside potential. Several of those are in Japan, there are a few located in Europe, but keep pushing risk down ensuring that if we can outperform on the way up, we'd like that to outperform on the way down, too. I've yet to meet a market that didn't go both ways.
Hartford: What I would say is that some of the characteristics we're anxious to own from a portfolio perspective are securities with strong capital positions, and--to the degree that the valuation is supportive--also have defensive characteristics. The portfolio's single largest industry exposure today is in pharmaceuticals, and that's very deliberate given the recurring cash stream that pharmaceuticals generate and the low risk characteristics that they historically exhibit.
Daniels: Are there any stocks in particular that you are really excited about now?
Ketterer: Some of the recent additions would include companies like Sompo in Japan, known for their non-life business, half of their non-life revenues come from automotive insurance, which sounds very sleepy, but they've also got a life insurance business, they bought Endurance in the U.S. They're growing their international business. What we like about them is that their valuation is attractive, they're well managed, they're well-positioned in their area of expertise, they've got good dividend yield versus the Japanese market, and we get that low risk characteristic. Right now, in the context of battening down the hatches, they fit the bill.
Hartford: We also have stocks that we would characterize as self-help, going through a process of restructuring. As long as they've got strong balance sheets to support that restructuring, whether it be a consequence of new management in a company like Cobham or whether it be a consequence of acquisitions and ability to integrate those acquisitions and generate higher margins for the overall business. I like Micro Focus. They would be two examples of companies that we would feel will do well regardless of the overall market conditions.
Daniels: Sarah and Harry, thank you for being here today, and congratulations on the award.
Hartford: Thank you very much.
Ketterer: Thank you.
Daniels: For Morningstar, I'm Andrew Daniels. Thank you for watching.