The Cambiar International Small Cap Fund is constructed by Cambiar’s eight person international investment team and is designed to capitalize on investment insights previously limited in scope by the parameters of the Cambiar International Equity Fund.
The Fund employs an equal-weight portfolio construction approach. We believe this approach enables the strategy to maintain a more focused portfolio relative to peers, while also mitigating stock-specific risk via uniform position sizes.
Todd L. Edwards, PhD
The performance data quoted represents 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. Expense ratio is 8.20% (gross); 1.15% (net). Cambiar Investors, LLC has contractually agreed to reduce fees and reimburse expenses in order to keep net operating expenses from exceeding 1.15% of the average daily net assets of each of the Fund’s share classes until September 1, 2018. Absent these waivers, total return would be reduced. The MSCI EAFE Small Cap® Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. & Canada.
The Fund charges a 2.00% redemption fee on redemptions of shares held for less than 180 days.
|Top 10 Holdings||% Weight|
|Sohgo Security Services||2.5|
|% of Total||25.1|
|Holdings Subject to Change|
|Market Cap Wtd Avg||3.6 B|
|Market Cap Median||3.1 B|
|Top 10 Countries||Cambiar|
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 Small Cap Fund
The Cambiar International Small Cap Fund closed out 2017 on a high note – posting a 4Q gain that was strong on both an absolute and relative basis. The quarter culminated in a very strong year for the Cambiar portfolio, with an obvious assist from a rising tide market environment for the international small cap asset class. Small cap international stocks have been laggards (vs. their U.S. counterparts) in recent years, thus it was encouraging to see the asset class rebound in 2017.
Given Cambiar’s fundamental investment discipline and more focused portfolio construction approach, the strategy’s success is highly correlated to stock selection. On this metric, Cambiar had positive stock selection in 9 of the 11 sectors in which it was invested for the year.
There were no notable trends in sector leadership during the quarter, as technology, materials and consumer staples were the top performers on a sector basis. For the year, the breadth and strength of the rally was truly exceptional, with most sectors gaining in excess of 20%. The worst performing sector in the index was energy – which still gained 12% for the year.
The quarter was highlighted by above-benchmark returns in the consumer discretionary and energy sectors. Within consumer discretionary, Don Quijote Holdings and Ocado Group were up sharply in 4Q; positive stock selection resulted in consumer discretionary representing the top sector for Cambiar in 2017. Ocado Group has been an exceptionally strong performer since Cambiar’s attachment point in September. Considered by Cambiar to be the best-in-class online grocer in the United Kingdom, Ocado rallied on news of additional partnerships across Europe. Additional highlights in the sector (for the year) included Piaggio and CyberAgent. Cambiar has been active in trimming/selling a number of these positions in light of their stock moves, with the mindset we can always revisit should the opportunity present itself.
One sector where Cambiar was less effective from a stock selection standpoint was consumer staples; this comment is applicable to the quarter as well as the trailing one year. Individual laggards included fresh food retailer Distribuidora Internacional and Adecoagro, a South American agricultural company. While the price action in both positions has been disappointing in the short run, we anticipate progress on both fronts in 2018.
A higher cash allocation limited potentially additional upside in 2017. Broad-based strength across all areas of the market forced some sales and trims based on valuation, and Cambiar has been hesitant to chase stocks for the sole purpose of remaining fully invested. Given our value discipline, an appropriate attachment point remains a critical component of the buy decision.
On a country basis, Japan and the United Kingdom remain the largest allocations, comprising 26% and 19%, respectively. The portfolio has also been successful in sourcing investments within Emerging Markets; the portfolio had an EM allocation of approximately 13% as of quarter-end.
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 smaller companies typically exhibit higher volatility and 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. 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. CAMFX was rated against 72 Foreign Small/Mid Blend funds over a three year period. With respect to these Foreign Small/Mid Blend funds, CAMFX received a rating of 3 stars. 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. 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 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. The S&P 500 Growth index is market-capitalization-weighted index consisting of those stocks within the S&P 500 Index that exhibit strong growth characteristics. The S&P 500 Value index is market-capitalization-weighted index consisting of those stocks within the S&P 500 Index that exhibit strong value characteristics.
As of 12.31.17 the International Small Cap Fund had a 1.9% weighting in Adecoagro, 0.0% in CyberAgent, 1.7% in Distribuidora Internacional, 2.1% in Don Quijote, 2.2% in Ocado Group, and 2.3% in Piaggio.
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.
MSCI EAFE (Europe, Australia, Far East) Small Cap Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. & Canada. Benchmark returns are net of withholding taxes. Index returns assume reinvestment of dividends and capital gains, and assume no management, custody, transaction or other expenses. The MSCI EAFE Small Cap Value Index captures small cap securities exhibiting overall value style characteristics across Developed Markets countries around the world, excluding the US and Canada. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. Individuals cannot invest directly in an index.
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.