CAMBIAR INTERNATIONAL EQUITY COMMENTARY 2Q 2021
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CAMBIAR INTERNATIONAL EQUITY COMMENTARY 2Q 2021
MARKET REVIEW
International equities posted their fourth consecutive on both an absolute basis as well as relative to the
quarter of positive returns, with the MSCI EAFE Index U.S. markets. Given the asynchronized nature of
gaining 5.1% in the second quarter. International global vaccination rates (and corresponding economic
stocks have returned 32% over the past year, and an recovery), international markets that are earlier in the
annualized return of 10.3% over the past five years. normalization process (relative to the U.S.) should
While these return figures trail the S&P 500 Index, an be poised to outperform. Additional catalysts for
investment allocation to non-U.S. stocks has been a international stocks include attractive valuations, a skew
positive compounding endeavor – despite investors’ low to value industries (which are poised to deliver strong
enthusiasm for the asset class. earnings as the recovery takes hold) and accommodative
monetary/fiscal stimulus policies around the world.
Using a forward 1-2 year time horizon, Cambiar views
the outlook for international equities to be attractive,
INTERNATIONAL EQUITY
CONTRIBUTORS DETRACTORS
Top Five Avg. Weights Contribution Bottom Five Avg. Weights Contribution
Entain 3.83 0.54 Koninklijke Philips 1.85 -0.21
Deutsche Post 2.28 0.52 Prosus 2.66 -0.33
Pernod Ricard 3.06 0.52 Sands China 2.40 -0.47
Hitachi,Ltd. 1.96 0.47 Komatsu 2.50 -0.54
Itau Unibanco 2.15 0.44 Vipshop 1.63 -0.66
A complete description of Cambiar’s performance calculation methodology, including a complete list of each security that contributed to the performance
of the Cambiar portfolio mentioned above is available upon request. Please contact Cambiar at 1.888.673.9950 for additional information. Past
performance is no guarantee of future results.
2Q 2021 YTD 1 Year 3 Year 5 Year 10 Year Since Inception
Int’l Equity (gross) 5.2% 10.6% 31.7% 4.9% 7.7% 5.9% 8.9%
Int’l Equity (net) 4.9% 10.0% 30.5% 3.9% 6.7% 5.0% 7.5%
MSCI EAFE 5.2% 8.8% 32.4% 8.3% 10.3% 5.9% 5.3%
International Equity Composite Inception Date: 10.31.1997 / See Disclosure – Performance
The Cambiar International Equity portfolio posted an basis, growth stocks led the market advance, although
in-line return for the second quarter and remains ahead value remains ahead on a year-to-date basis. While
of the benchmark on a year to data basis. Gains within sentiment towards value is clearly improving, the market
the portfolio’s bank and consumer staples positions still appears skeptical – not unexpected, given the
were offset by weakness in some of our leisure and dramatic underperformance of value stocks vs. growth
related consumer discretionary holdings. over the past decade. Follow through in the form of
demonstrated revenue/earning acceleration should help
In contrast to reopening/reflation names that paced to provide further evidence of the attractive return-
the market for the past two quarters, outperforming to-risk profile that exists in areas such as industrials,
sectors in 2Q were Healthcare, Consumer Staples, financials, and consumer companies.
and Technology. Lagging sectors included Utilities,
Energy, and Communication Services. On a style
2 Cambiar International Equity Commentary | 2Q 2021There were no material changes to the Cambiar portfolio in key end markets such as China. With dining trends
by way of regional or sector exposures. Our team limited due to COVID restrictions, many consumers
remains focused on identifying resilient, high quality chose to ‘trade up’ into specialty brands, providing a
businesses that we believe can deliver durable returns. tailwind to Pernod. Looking ahead, forward earnings
We are less focused on whether such businesses fall in boosts will be a function of improving sales trends in
the value or growth camp. In our view, value and growth restaurants, bars and related social venues as reopening
are not mutually exclusive considerations. Rather, a activities increase across Europe.
company’s growth potential is a relevant input (along
with other factors) as part of our research process. The Further upside in the quarter was hampered by uneven
key is determining an appropriate valuation to attach to performance within the Consumer Discretionary sector.
these businesses – as well as remembering to sell when On a stock basis, Prosus, Sands China, and newer
the risk/reward is no longer attractive. holding Vipshop Holdings all posted negative returns in
2Q. While disappointed in the near-term price action,
Trade activity in the quarter included three new we remain constructive on the intermediate-term
purchases and two sales. One of the initiated positions outlook for each of these positions. Prosus has
in 2Q was Aena, which is a Spanish-domiciled airport continued to perform well, but continues to trade at a
operator. The company has a history of operating deep discount on a sum-of-the-parts basis due to the
excellence, as defined by industry-leading returns. The company’s somewhat unusual organizational structure.
investment case is predicated on a combination of the The management team is taking steps to close this
company’s skew to leisure travel as well as significant discount, and we are confident that their actions (share
exposure to low-cost carriers within Europe. The most swap with parent Naspers, share buybacks) will help on
notable risk is the potential for new COVID variants this front. The 2Q setback for Sands China is correlated
to limit/defer travel volumes, but this concern should to news of increasing case counts of COVID, which
decline as vaccination rates continue to climb in has resulted in tighter travel restrictions to Macau. We
Europe. remain patient on this name, anticipating that business
should pick up in the coming quarters as conditions
On an attribution basis, Cambiar’s positions in the normalize.
Financials sector comprised the top value-add to
performance in the quarter, with bank holdings Itau Vipshop Holdings is a Chinese e-commerce company,
Unibanco and Banco Santander notable outperformers. with a primary focus on branded discounted products.
Both stocks moved higher in response to strong earnings The business model is very much like TJ Maxx, except
reports, where a combination of strong loan growth and that Vipshop’s business is online. Unlike in the U.S.,
declining loss provisions led to above-consensus results. brick-and-mortar retail infrastructure is much more
Return on Equity (ROE) is a key metric we monitor as challenged, and Vipshop has built strong brand
to the strength of our banks; on this measure, Itau and awareness (and market share) in building its value
Santander delivered double-digit ROE. Both stocks offer proposition. This is an asset-light platform business
attractive upside as economic growth in their respective with no inventory risk; the result is a high margin
markets continues to normalize. Another positive business that generates strong cashflow. Vipshop
catalyst for European financials is the pending removal sold off earlier in the year when the company was
of dividend/share buyback restrictions that were put one of the holdings of a leveraged hedge fund that
into place last year. The restrictions were implemented hit a liquidity crisis and was forced to sell. The price
to ensure that banks had sufficient reserves to weakness subsequently provided the attachment point
digest any rise in losses that may have resulted from for Cambiar. More recent weakness in the stock is
the pandemic. As these higher credit risks never based on concerns surrounding increased competition
materialized, it is expected that these limitations will be and general regulatory pressure in China (which has
lifted in the coming months. A return to pre-pandemic also been a headwind for our Alibaba position). We
payout policies would be another incremental return anticipate that these headwinds will subside in the
component for financial holdings. coming quarters. Given the company’s sub-10x P/E,
net cash balance sheet, and expected 20% growth
Cambiar’s beverage and spirits companies (Carlsberg in earnings, we believe Vipshop offers a compelling
and Pernod - Consumer Staples) comprised another investment opportunity for our clients.
positive contribution to performance in the quarter, as
both companies benefitted from positive volume growth
3 Cambiar International Equity Commentary | 2Q 2021LOOKING AHEAD As we reach the halfway mark of 2021, the global equity market has posted a double-digit return amid widespread optimism regarding economic growth and the corresponding positive impact on corporate earnings. The upswing in stocks for much of this cycle has been led by the U.S. markets (and continuing to a lesser extent in 2021); that said, the rally is broadening in scope – most notably via the solid gains coming out of Europe. Could this be the beginning of a change in market leadership? While we continue to view the path of least resistance remains to the upside for U.S. stocks, the combination of elevated valuations and the potential tapering of monetary policy results in a more muted return outlook in the second half of the year. In contrast, Cambiar has a more constructive outlook for the international equity markets – with many non-U.S. companies possessing a potent combination of earnings growth and multiple expansion. A quickening of economic activity and fiscal stimulus efforts such as the NextGenerationEU program could provide additional upside potential for European equities. Although inflation trends in Europe/UK are not at levels seen in the U.S., input prices and related cost pressures have begun to rise. A continuation of this trend could provide the needed push to get EU bond yields out of negative territory, which would be another positive catalyst for investors. For the first time in a long time, international markets may be poised to take the baton from their U.S. counterparts. As bottom-up equity investors, we are optimistic about the earnings trajectory for our holdings in the Cambiar International Equity portfolio. Our team remains focused on identifying leading businesses with long runways to grow, clear competitive advantages, and strong pricing power that can translate to higher earnings as the global economic normalization process continues to unfold. While thinking about what needs to go right for our companies, we spend equal time considering what could go wrong. On this latter note, the threat of new virus variants derailing momentum is the most pressing concern at present, yet we take comfort in the strength of our businesses to withstand this potential setback on the path to recovery. We appreciate your continued confidence in Cambiar Investors. 4 Cambiar International Equity Commentary | 2Q 2021
DISCLOSURE Performance: The performance information represents the respective Cambiar strategy composite and may be preliminary. Returns are presented gross (g) and net (n) of management fees and include the reinvestment of all income. Gross and net returns have been reduced by transaction costs. Net returns are also reduced by actual investment advisory fees and other expenses that may be incurred in the management of the account. SMAs often incur bundled fees, charged by the wrap sponsor or affiliated broker, that may include transaction costs, investment management, portfolio monitoring, consulting services, and custody fees. Net returns for SMAs are calculated by deducting the investment advisory fees from the client’s account as reported by the wrap sponsor or affiliated broker, or as received by Cambiar. Cambiar negotiates advisory fees with each individual client or relationship. Please refer to our Form ADV Part 2A for additional disclosures regarding our investment management fees. Net of fees performance reflects a blended fee schedule of all accounts within the relevant composite. Cambiar clients and mutual fund investors may incur actual fee rates that are greater or less than the rate reflected in this performance summary. Returns are reported in U.S. dollars. Index returns include the reinvestment of all income, and assume no management, custody, transaction or other expenses. Each index is a broadly based index that reflects overall market performance and Cambiar’s returns may not be correlated to the index against which it is compared for a number of reasons including investment approach and number and types of holdings. Each index is unmanaged, and one cannot invest directly in an index. Cambiar’s past results do not necessarily indicate Cambiar’s future performance and, as is the case with all investment advisors who concentrate on equity investments, Cambiar’s future performance may result in a loss. The top/bottom contributors is for a representative portfolio in the strategy. A complete description of Cambiar’s performance calculation methodology, including a complete list of each security that contributed to the performance of the portfolios, is available upon request. Please contact Cambiar at 1-888-673-9950 for additional information International Equity Benchmark: The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted, market capitalization weighted index that is designed to measure developed market equity performance, excluding the U.S. & Canada. Benchmark returns are net of withholding taxes. Cambiar typically records dividends net of withholding taxes although it may depend on various factors such as the issue country and custodian’s treatment. Prior to July 2019, Cambiar typically followed each custodian’s treatment of tax withholding and therefore dividends may have been presented as gross or net of dividend tax withholding depending on the custodian’s treatment. Withholding taxes may vary according to the investor’s domicile, and other reasons. Certain information contained in this communication constitutes “forward-looking statements”, which are based on Cambiar’s beliefs, as well as certain assumptions concerning future events, using information currently available to Cambiar. Due to market risk and uncertainties, actual events, results, or performance may differ materially from that reflected or contemplated in such forward-looking statements. All information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Nothing contained herein should be construed as a recommendation or endorsement to buy or sell any security, investment or portfolio allocation. Securities highlighted or discussed have been selected to illustrate Cambiar’s investment approach and/or market outlook. The portfolios are actively managed and securities discussed may or may not be held in client portfolios at any given time, do not represent all of the securities purchased, sold, or recommended by Cambiar, and the reader should not assume that investments in the securities identified and discussed were or will be profitable. As with any investments, there are risks to be considered. All material is provided for informational purposes only and there is no guarantee that the opinions expressed herein will be valid beyond the date of this presentation. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI. 5 Cambiar International Equity Commentary | 2Q 2021
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