When many equity markets around the world are at or near their all-time highs, hunting for value stocks is like shopping for bargains at Tiffany’s. “In this environment, stocks that exhibit value characteristics were left behind and missed the rising market tide for a variety of reasons,” observes Harry Hartford, co-manager of the $7.5 billion Causeway International Value Fund (his co-manager is Sarah Ketterer) and president of Los Angeles-based Causeway Capital. “So it’s inevitable,” he says, “that we will find a shrinking number of mispriced securities we feel comfortable owning.”

Still, as long as companies or countries run into problems and investors react by selling them in droves, Hartford and his team will find hidden gems in the stock market’s bargain rack. That happened in 2016 when the stocks of many U.K.-based companies took a tumble following the Brexit vote, a surprising development that raised concerns about the potentially negative impact that leaving the European Union would have on the country’s economy.

Hartford, 58, who has been in the investment management business for over 30 years—mining the international value space for most of that time—reasoned that because multinationals based in the U.K. earned most of their revenues overseas, any domestic economic fallout would have a minimal impact on their operations. As an added bonus, a pound weakened against the U.S. dollar and other currencies would provide a revenue tailwind for companies selling products or services outside the U.K. Instead of heading for the exit doors, the fund sold some holdings from EU countries, which had already seen decent upside, and put the money into more modestly valued U.K. stocks that had a strong shot at recovery.

One of Causeway’s top fund holdings is Volkswagen, which displays the managers’ tenacity when it comes to hanging on to their contrarian bets through thick and thin. They added the stock to the portfolio in late 2014, when an economic slowdown in China raised concerns about the company’s ability to capitalize on this important market. At the time, Hartford and his team believed new management and a strong stable of brands such as Porsche and Audi would help bring the stock back up.

Instead, the stock dived again in 2015 after a scandal erupted over the company’s supposed rigging of diesel emission tests. After assessing the company’s downside risk and costs to rectify the situation, the Causeway managers added to the Volkswagen position. Hartford believes that despite all the controversy, the market has overpenalized the automaker and he points to its strong cash position, global brands, and recent reorganization as evidence that the stock is worth hanging on to.

The key to Causeway’s strategy—buy them when they’re down—is finding stocks that will bounce back within two to three years rather than remain mired in uncertainty for much longer. Some hidden gems may simply be stuck in out-of-favor industries even though they have high rates of earnings growth and solid balance sheets. Other companies may be experiencing unique difficulties, such as a management change or acquisition, that scare off investors.

Regardless of the cause of the stock distress, the Causeway managers must see it as a temporary or fixable problem with a path toward recovery. A company’s history of paying dividends is preferable, but not required. Unlike many investment managers, Hartford is not a huge fan of stock buybacks as a measure of value. “In my experience,” he says, “a lot of companies engage in buybacks at the wrong time. They tend to be value destructive.”

To find the stocks they like with value chops, Hartford and his team first sift through a universe of about 1,500 international names, mainly from developed markets, with capitalizations of at least $1 billion. The stocks must be cheaper than others that trade in their countries, industries and sectors, when observed by metrics such as price-to-earnings ratios, price-to-book ratios, yields and overall financial strength. Stocks that pass those screens are more closely scrutinized during company visits and interviews with suppliers, customers, competitors and industry analysts.

The fund uses fundamental analysis, as well as a quantitative model that ranks each stock by risk-adjusted returns and calibrates how it will influence the overall volatility of the portfolio. “We’re looking to identify whether a company is cheap, and if it is, to determine to what degree the market has mispriced an investment opportunity,” says Hartford. “But we also need to understand whether our return expectations justify taking more or less risk.”

Whenever there is an abundance of cheap stocks, such as in 2009, the fund might invest in more volatile shares in exchange for potentially greater reward. More recently, however, even those stock prices in the value space have crept up, so the managers have been investing in somewhat more conservative fare and keeping the portfolio’s volatility more in line with its benchmark MSCI EAFE Index.

Hartford and Ketterer have been honing the fund’s value style since its launch in October 2001. A few months before that, they had left their positions as co-managers of Hotchkis & Wiley’s international value fund to found Causeway with their own seed capital and help from a few investors. When they left Hotchkis & Wiley, some 22 people, including the core international investment team, followed them out the door.

Today, Causeway Capital has carved out a solid niche in the international value space and has $56 billion in assets under management.

Both the firm and the fund have been known to follow their own paths by making significant geographic and sector breaks from their benchmarks. This independent streak means the fund’s performance can diverge from broad international developed market indexes, sometimes over fairly long periods. That has worked to Causeway’s advantage from the fund’s inception through October 31, 2017, when its annualized total return of 8.1% beat the MSCI EAFE Index return of 6.8%. But the fund underperformed about three-quarters of its Morningstar foreign large-cap value peers in 2016.

Hartford attributes at least some of the relative underperformance that year to an overweight position in U.K. stocks, which suffered after the Brexit vote. At the end of 2017’s third quarter, the fund had nearly 30% of its assets in the stocks of companies domiciled there, some 12 percentage points more than the MSCI EAFE Index had. He believes these stocks are a better value than those in many other parts of Europe, and remains confident that the benefit of these companies’ overseas sales will overcome domestic economic weakness in the U.K.

He cites Barclays as one example of a British holding that’s struggling through tough times but has the potential to eventually power through. Unlike other European financials, the bank hasn’t participated in the rally this year because of investors’ concerns about the Brexit and the increasing competition in investment banking. Yet Barclays trades at just 65% of book value and could increase its return on equity from 5% now to 10%. “If current management can’t accomplish that, new management will be brought in,” says Hartford.

By contrast, the fund’s 14% weighting in Japanese stocks falls well below the benchmark’s 24% allocation. With the exception of 2009, when the financial crisis drove stocks in that country to extraordinarily low levels, the fund has been underweight there.

“Japan is a bifurcated market, with some very good companies that know how to allocate capital but also some very bad ones that don’t,” he says. “The problem is the good ones often have inflated values. We will only invest in Japanese stocks when valuations are attractive, and those opportunities are few and far between.”

On a sector level, the fund was underweight relative to the benchmark in financials (16.2% versus 21%), and overweight energy (9.7% versus 5.2%) and telecommunications (8.8% versus 4.03%). Hartford says the overweight positions in the latter two sectors reflect the firm’s view that they represent good values on an absolute and relative basis and offer attractive dividend yields that are well supported by strong cash flow. On the other hand, many banking stocks in Europe have risen on expectations of higher interest rates. Those higher rates haven’t materialized, yet stock prices still have those expectations built in.

Royal Dutch Shell, the fund’s second-largest holding, was added to the portfolio in early 2016 after the energy sector’s long drought pushed the stock’s price down. At the time, the company’s dividend yield was nearly 10%. The stock has recovered since then, and while the energy sector remains a laggard, the oil and gas giant has a strong balance sheet; an attractive 6% dividend yield; and a long, unbroken history of paying dividends that dates back to the 1940s. The company is also beginning to reap cost-cutting synergies from its acquisition of BG Group in 2016.

Another holding in the energy space, Canada’s Encana, specializes in oil and gas production in North America. Like Royal Dutch Shell, it has a strong balance sheet and an attractive dividend, but it continues to lag the market with the rest of the energy sector.