|Minimum Investment||$2,500||$5 million|
The Cambiar International Equity Fund is designed to identify compelling international investment opportunities that possess the desired combination of attractive valuations and potential for multiple expansion. The starting universe for the International Equity Fund includes any international company with a market cap above $5 billion.
Cambiar’s quality and value bias will result in portfolio overweight to developed markets, subsequent underweight in emerging markets.
Jennifer M. Dunne, CFA
|Top 10 Holdings||% Weight|
|British American Tobacco||3.2|
|Sumitomo Mitsui Financial||3.0|
|% of Total||28.1|
|Holdings Subject to Change|
|Attributes||Cambiar||MSCI EAFE||MSCI ACWI ex U.S.|
|Market Cap Wtd Avg||60.5 B||64.1 B||71.5 B|
|Market Cap Median||38.7 B||11.7 B||9.3 B|
|Sector Weights||Cambiar||MSCI EAFE||MSCI ACWI ex U.S.|
|Top 5 Countries||Cambiar||MSCI EAFE||MSCI ACWI ex U.S.|
|Risk Statistics*||Cambiar||MSCI EAFE||MSCI ACWI ex U.S.|
Market Review (12.31.2017)
Global equities extended their year-long upward trajectory into the fourth quarter, closing out 2017 at or near their high water marks for the year. The positive sentiment towards stocks was primarily in response to an accelerating global economy, which bodes well for corporate profits. U.S. stocks received a boost from the U.S. tax reform bill, which should be an additional tailwind to earnings and provides corporates with more firepower that can be deployed via share buybacks, increased dividends or strategic merger/acquisition activity.
Posting a full-year return of 25%, the MSCI EAFE Index bested the S&P 500 Index return of 21.8% - marking the first year since 2012 where international developed stocks outpaced their U.S. counterparts. Emerging markets was the standout performer in 2017, with the MSCI Emerging Markets Index gaining 37%. While valuation levels have moved higher regardless of geography, international markets may continue to offer a more attractive risk/reward vs. U.S. stocks, based on one-year forward multiples:
|Market Index||One-Year Forward P/E|
|MSCI Emerging Markets||12.6x|
Given current valuation levels for U.S. stocks, further upside should primarily be a function of earnings growth, as we believe multiple expansion beyond current levels will be difficult. In contrast, international markets offer the potential for multiple expansion as well as a continued recovery in earnings.
International Equity Fund
The Cambiar International Equity Fund posted a 3.74% return for the fourth quarter of 2017, lagging the return for the primary benchmark, MSCI EAFE Index. The strategy was unable to keep pace with the index on a full-year basis, primarily a function of the portfolio’s first quarter performance deficit. Cambiar’s value bias was an additional headwind during the year, as growth stocks outpaced their value counterparts by a margin of almost 700 bps during the year.
This is not to suggest that we could not have had better execution in a few areas of the portfolio; stock selection in healthcare and technology were below expectations in 2017. That said, attunements made in the portfolio have translated into improved second-half performance that we believe can continue in 2018. While always looking ahead in our pursuit of exceeding client expectations, it is worth noting the strategy’s strong longer-term record.
Portfolio buy/sell activity was slightly elevated in the quarter, with five liquidations and four new purchases. One effect of the quarter’s trade activity was a modest uptick in the portfolio’s allocation to Japan, which comprised approximately 20% of the Cambiar portfolio as of quarter-end. Cambiar’s constructive outlook for Japan is no longer the non-consensus view that it was a few years ago, yet a combination of attractive fundamentals, reasonable valuations and improving macro data results in a favorable investment backdrop within the country.
Bright spots in the quarter (as well as on a full-year basis) included positive stock selection within the basic materials and financial sectors. Royal DSM was a standout performer in 2017, as the company re-rated on its continuing transition from a chemicals producer to a higher-margin nutrition company. Other outperformers within basic materials were BHP Billiton and Arcelor Mittal – both of whom are benefiting from a combination of strengthening commodity prices and productivity gains via cost controls and improved volume production.
Financials represented a source of positive stock selection for the portfolio in 2017, as Cambiar attained strong contributions from a number of the portfolio’s traditional bank holdings as well as private banking and insurance positions. All banks are not created equal, and Cambiar’s focus has been on high quality operators that have a history of consistent profitability (as measured by return on equity) and possess excess capital that can be returned to shareholders. We have trimmed positions where prudent, but believe the sector continues to offer an attractive risk/reward in the portfolio.
Cambiar received positive contributions from holdings in the consumer staples and healthcare sectors in the quarter, offsetting underperformance sustained in industrials and consumer discretionary. Cambiar is hopeful that the improved 4Q performance in healthcare is a precursor of things to come in 2018 – after a relatively challenging 2017. The sector’s defensive attributes hampered upside given more of a risk-on rally in 2017; nonetheless, there were gains to be had and Cambiar’s stock selection fell short of the mark. On an individual stock basis, Astellas and Otsuka were individual detractors for the year. Astellas was sold earlier this year as part of a portfolio review, while we continue to hold Otsuka. Otsuka is a show-me story, as the company needs to demonstrate that they can move beyond their key drug (Abilify), which went off patent in June 2016. The company trades at a discount to peers, yet we believe is poised to deliver above-peer profit growth in 2018. If they can execute, the stock should re-rate accordingly.
Energy stocks led the market in the fourth quarter, as the continued recovery in oil prices was a positive catalyst for gains in the sector. Energy was truly a tale of two halves in 2017 – significantly lagging the market in the first half of the year before outperforming in the third and fourth quarters. Despite positive returns in the aggregate, Cambiar’s energy positions were unable to keep pace with the index – in the quarter as well as on a full year basis. Although the portfolio benefited from its ownership of Royal Dutch Shell, Schlumberger was an outlier to the downside, as the stock was impacted by the slower-than-expected recovery in drilling/well activity outside the U.S. Increased cost discipline within the sector is a positive (and supportive for oil prices); however, the reduced activity has been a near-term headwind for Schlumberger. With that said, we do not believe that now is the time to part ways with this high quality market leader. All indications point to a robust pipeline of new business in 2018, which should translate into a strong earnings recovery in the coming years. Schlumberger, we feel, has also done an excellent job of restructuring their business during the industry downturn - which should add significant operating leverage as revenues improve.
The technology sector took a respite in the fourth quarter, after a torrid 2017. With the sale of Murata Manufacturing in the quarter, the Cambiar portfolio has only one tech position at present (Baidu). With many tech companies trading near the upper end of their long-term valuations, we are exercising patience in waiting for more attractive attachment points.
Global equities delivered a dream year for investors – strong returns with very low volatility. As we contemplate the outlook for equities in 2018, two key considerations are global growth and valuations. The acceleration in economic growth across most geographies is unlikely to sharply decelerate in 2018, providing a tailwind to corporate profits and stock prices. That said, it is improbable that 2018 will be without some degree of increased volatility along the way. Volatility is not necessary a bad thing – the corresponding increase in dispersion across sectors is beneficial to active managers such as Cambiar.
Regarding valuation, it is hard to argue that equities in the aggregate are inexpensive. With that said, it is worth noting that the expansion in multiples has not been uniform – by geography nor by sector. For example, although U.S. stock averages are at all-time highs, market levels in Japan, the United Kingdom and Europe are still below their 2007 levels (in dollar terms). Such variances provide an additional opportunity for active managers to outperform.
What unforeseen shocks could derail the upward trajectory for equities? Geopolitical risk is always front of mind; changes in central bank monetary policy will be another variable worth watching. Although the three rate increases by the Federal Reserve did little to impede stocks from advancing in 2017, the ongoing normalization in policy should eventually be felt by market participants (particularly those with higher leverage ratios). And while generally accommodative monetary policy continues in Japan, the European Central Bank is likely to articulate their plan to end quantitative easing at some point in 2018. The mood at Cambiar is best described as constructive paranoia; while optimistic in the outlook for our companies, we spend equal time thinking about what could go wrong.
Mutual fund investing involves risk, including the possible loss of principal. In addition to the normal risks associated with investing, investments in international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involved heightened risks related to the same factors as well as increased volatility and lower trading volume. The Cambiar International Equity Fund may invest in derivatives, which are often more volatile than other investments and may magnify the Fund's gains or losses. There can be no assurance that the Fund will achieve its stated objectives.
To determine if a Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Fund’s prospectus which can be obtained by clicking here or calling 1-866-777-8227. Please read it carefully before investing. There is no guarantee that the Funds will meet their stated objectives.
Performance data quotes are past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month-end, please call 1-866-777-8227.
The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. CAMIX was rated against 597 Foreign Large Blend funds over a three year period, 535 over a five year period and 347 over a ten year period. With respect to these Foreign Large Blend funds, CAMIX received a rating of 4 stars, 4 stars, and 4 stars respectively. Past performance is no guarantee of future results.
Price/Earnings F1Y is a calculation that divides the current share price by the estimates of earnings in the next four quarters. Debt/Equity - Long Term is a calculation that takes interest bearing, long-term debt divided by shareholder equity. EPS Growth - Long Term is a calculation that takes the company’s estimated profits for five years divided by the outstanding shares. Active share is a holdings-based measure of active management representing the percentage of securities in a portfolio that differ from those in the benchmark index. Alpha is a measure of risk-adjusted performance. Beta is a measure of risk in relation to the market or benchmark. The Sharpe Ratio is a direct measure of reward-to-risk and is calculated by subtracting the risk free rate from the rate of return for a portfolio and dividing the result by the standard deviation. Standard Deviation is a statistical measure of historical volatility; a measure of the extent to which numbers are spread around their average. R-Squared measures how closely a portfolio’s performance correlates with the performance of a benchmark index.These calculations are not a forecast of the Fund’s future performance.
The MSCI EAFE® Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. & Canada. The MSCI EAFE Small Cap index represents the 85th to 99th percentile of stocks found in the MSCI EAFE. The MSCI All-Country World and World Indices are unmanaged indices compiled by Morgan Stanley Capital International. The MSCI EAFE Value Index captures large and mid cap securities exhibiting overall value style characteristics across Developed Markets countries around the world, excluding the US and Canada. The MSCI EAFE Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across Developed Markets countries around the world, excluding the US and Canada. The MSCI indices returns do not reflect any management fees, transaction costs or expenses. Individuals cannot invest directly in an index. The MSCI indices returns do not reflect any management fees, transaction costs or expenses. Individuals cannot invest directly in an Index. The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index, with each stock's weight in the Index proportionate to its market value. The S&P 500 returns do not reflect any management fees, transaction costs or expenses.
As of 12.31.17 the Cambiar International Equity Fund had a 2.4% weighting in Arcelor Mittal, 0.0% in Astellas, 3.3% in Baidu, 2.8% in BHP Billiton, 0.0% in Murata, 2.0% in Otsuka, 2.4% in Royal DSM, 2.1% in Royal Dutch Shell, and 2.6% in Schlumberger.
This material represents the portfolio manager’s opinion and is an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice or a specific recommendation of securities.
Cambiar Funds are distributed by SEI Investments Distribution Co., 1 Freedom Valley Dr Oaks, PA 19456, which is not affiliated with the Advisor. Cambiar Funds are available to US investors only. Strategies included within the Institutional Investor offer are not mutual funds and are not affiliated with SEI Investments Distribution Co.