Sarah Ketterer’s Causeway Capital is trouncing the competition using a mix of quantitative and fundamental analysis to find bargains among European stocks like Rolls-Royce and Ryanair.the 15 years since the Great Recession, American exceptionalism has carried the stock market. Since the beginning of 2009, the S&P 500 Index has soared nearly fivefold, while the Euronext 100 tracking the performance of Europe’s largest stock exchange is up a more modest 145%, or a mere 6.3% annually.
“The benefit of investing internationally is finding less well-trodden, less well-understood companies listed in markets that many people are neglecting,” says Ketterer. “What the non-U.S. environment has to offer investors who are willing to look carefully for signs of improvement is the delta, the change between where a company is today versus where it could be in two or three years as management is even more focused on the bottom line.
Ketterer has been investing in global stocks since starting the international equity arm at value shop Hotchkis & Wiley, cofounded by her father John Hotchkis, where she started working in 1990 after brief stints in investment banking and as an entrepreneur building databases of European company information. She split off from Hotchkis & Wiley to found Causeway with her business partner, Irish-born Harry Hartford, in 2001.
Causeway laid the foundation for much of its recent performance during the spring of 2020, buying up battered travel and leisure stocks during the early months of the pandemic. One was, a budget airline based in Dublin offering flights throughout Europe, which lost half of its value in the span of a month as travel shut down. Causeway’s analysts never doubted its balance sheet strength and after the stock more than doubled in the next year, they pared back their position.
Causeway responded by buying more, owning as much as 12% of the company. Jonathan Eng, a fundamental portfolio manager at Causeway overseeing industrials, energy, and consumer discretionary stocks, said the firm worked behind the scenes to install a new chairwoman in June 2021 and a new CEO in 2022. Rolls-Royce has improved its pricing and reliability and reduced its cost of repairs under new management, helping its first half revenue this year grow 31% to $8.