Bank positions in the Causeway fund include UniCredit S.p.A. (based in Italy), BNP Paribas (France) and Barclays (U.K.). Hartford also highlights several telecommunication services holdings that he says are inexpensive, offer dividend yields of 3.5% to 6.5% and have limited competition in their markets. They are China Mobile Ltd. (Hong Kong), KDDI Corp. (Japan) and SK Telecom Co. (South Korea).

A Value Shortage

A decade of falling interest rates and quantitative easing in the U.S., Europe and Japan has helped propel stock prices to very elevated levels from a valuation standpoint, says Charles de Vaulx, chief investment officer of International Value Advisers LLC in New York and portfolio manager of the IVA International Fund and IVA Worldwide Fund. Both funds reopened to new investors in September for the first time in seven years.

Although stock prices have fallen quite a bit, “we’re still struggling to find enough bargains to be fully invested,” says de Vaulx. Even the largest foreign stocks deserve to be a lot cheaper than U.S. stocks, he says, because their companies and industries don’t have the vigor of the tech sector giants propelling the U.S. market.

De Vaulx thinks stocks and bonds can be hurt by a rise in interest rates (in the U.S. and globally) that’s likely to exceed what the markets anticipate. The catalyst will be inflationary pressures (especially wages) that “will surprise on the way up,” he says. He expects other businesses to follow Amazon, which recently hiked its minimum hourly wage to $15 for U.S. employees. Stock buybacks, which have been a huge support for the market, he says, may disappear if interest rates continue to rise.

Growing political uncertainty around the globe also concerns de Vaulx. It’s unclear what reforms Brazil’s new president will be allowed to implement (particularly regarding pensions) and how his actions will ultimately impact Brazil’s stock market, de Vaulx says. Italy’s new populist government is creating much uncertainty, political trends are worrisome in China and Russia, and “Argentina is a mess,” he adds, saying only time will tell what will happen in the U.S. before the next presidential election.

The IVA International Fund lowered its cash allocation (which peaked at 35% a year and a half ago) by buying shares in Mexican companies after the peso took a beating following President Trump’s election, says de Vaulx. But the long-only fund remains defensive, he says, with about 18% in cash and 6.6% (its largest position) in gold bullion.

“It’s a useful tool to have something like gold which can zig when the rest of the portfolio zags,” he says, noting that gold is often inversely correlated to stocks and bonds.

The second largest position in the fund as of September 30 is France-based Bureau Veritas SA, a global leader in testing, inspection and certification for many industries, including ships and nuclear plants. It’s a slightly cyclical business, he says, but the company generates a lot of cash.

Another top-10 position in the IVA International Fund is Kangwon Land, Korea’s only casino operator. The company is partially owned by South Korea’s government (which largely restricts gambling), it has a lot of net cash and a dividend yield of 3.4%, and it’s priced very cheaply, says de Vaulx.