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Feb. 10, 2018, 7:22 a.m. EST

Manager of $8.6 billion international fund makes bets that take guts

Harry W. Hartford of Causeway Capital Management looks for special opportunities in downtrodden stocks

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By Philip van Doorn, MarketWatch


Bloomberg
Volkswagen was the largest holding of the Causeway International Value Fund as of Dec. 31.

Harry W. Hartford doesn’t shy away from buying shares of companies that are in turmoil if he thinks they’ll come out the other end making money for his Causeway International Value Fund.

/zigman2/quotes/202137267/realtime CIVVX +2.29% The mutual fund /zigman2/quotes/202137267/realtime CIVVX +2.29%  which has $8.6 billion in assets, has as its top holding Volkswagen AG, the German car company still mired in the so-called dieselgate scandal. The No. 2 holding is London-based cigarette maker British American Tobacco PLC. And another company he favors, Japan’s Takeda Pharmaceutical Co., is “going through a significant restructuring” under a new management team, he said in an interview Feb. 7.

Hartford, unlike many average investors, is used to volatility. He says they better get used to the price swings that rocked global stocks in the past week.

After years of high returns supported by “generous” monetary policy among central banks around the world, the better-than-expected U.S. employment numbers on Feb. 2 were enough to spook investors afraid of rising interest rates.

“Markets don’t like surprises, [and] as we revert to more normal monetary policy, it is inevitable that you get some reversal” of low volatility, he said.

Hartford discussed his investment strategy for the Causeway International Value Fund, which has relatively low annual turnover of 35% as stocks are held for an average of three years.

Here’s a chart showing the geographic concentration of the fund as of Dec. 31, based on where the companies it invests in are headquartered:

“It would appear that we love the U.K.,” Hartford said, but he pointed out that this is because “many international businesses are listed there.”

He said U.K. values appear “to be depressed” because of the ongoing Brexit negotiations, yet the U.K. companies the fund invests in “tend to be well-managed.”

Three international value opportunities

A three-year chart of Volkswagen AG /zigman2/quotes/206736865/delayed DE:VOW +0.13%   tells the tale:


FactSet

The stock had been staging a “pretty decent recovery” from dieselgate until the recent market downturn, Hartford said. After Volkswagen in September 2015 admitted deceiving regulators with software in its diesel cars designed to indicate reduced emissions, Hartford said he and his management and research team “decided the business was financially strong enough to absorb significant penalties, which they were subjected to.”

He added that the stock is attractive because of Volkswagen’s “very good free cash flow,” and that the company’s focus on this and profitability “has improved the underlying returns on capital, and we as shareholders have benefited.”

/zigman2/quotes/202137267/realtime
US : U.S.: Nasdaq
$ 12.93
+0.29 +2.29%
Volume: 0.00
Sept. 28, 2020
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/zigman2/quotes/202137267/realtime
US : U.S.: Nasdaq
$ 12.93
+0.29 +2.29%
Volume: 0.00
Sept. 28, 2020
loading...
/zigman2/quotes/206736865/delayed
DE : Germany: Frankfurt
150.40
+0.20 +0.13%
Volume: 200.00
Sept. 29, 2020 3:22p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
N/A
Rev. per Employee
€354,929
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