Spotlight on Joe Gubler, Quantitative Portfolio Manager, Causeway Capital Management
Global Thought Leader Spotlight
Joe Gubler, Quantitative Portfolio Manager, Causeway Capital Management
In my role as a Quantitative Portfolio Manager at Causeway Capital Management, I share responsibility for portfolio management and research relating to our quantitative strategies, including Emerging Markets, Global Small Cap, and Global Systematic Equity. I am one of four quantitative portfolio managers responsible for portfolio construction and overseeing our team of quantitative analysts.
The team conducts research to find alpha factors across a broad range of categories including Value, Growth, Technical, and Quality as well as top-down Macro factors. Our team is actively researching quantitative signals that utilise Machine Learning and AI and several of these have already been incorporated into our models.
I am also responsible for maintaining Causeway’s proprietary risk models, which are used across all of our quantitative and fundamental strategies to monitor risk and build portfolios with superior risk-adjusted returns.
As far as key themes are concerned which we are closely monitoring, both in the near-term and longer-term, they include:
Implications of a higher normalised interest rate environment;
Opportunities and risks associated with the rise of AI both in terms of our investable universe and our investment process; and,
Small cap and EM stocks represent attractive areas for active management.
Longer-term, even after the completion of this current macroeconomic cycle, interest rates may settle at higher levels than the prior decade, which we believe should increase the attractiveness of value as a component of the stock-selection process. Higher interest rates magnify the value of stocks generating meaningful near-term cash flows relative to stocks that may have good growth prospects but longer-duration cash flows.
When investing in global equities, it will be increasingly important to understand the implications of AI adoption on a) the growth prospects of AI supply-chain providers and b) the costs and changes to operating efficiency of AI consumers. When competing as a manager in the global equity space, it will be increasingly important to identify those areas where AI can improve stock selection and risk management processes.
Small cap stocks and emerging markets stocks continue to demonstrate that they are among the most fruitful places to deploy active equity strategies. Nearly half of EM mutual funds beat their benchmark net of fees and over 60% of US Small Cap funds did so. For comparison, only 12% of mutual funds benchmarked to MSCI World beat the index.
Capitalising on developments in AI
Developments in the AI sphere currently tend to have a big impact on market movements. Every NVDA earnings announcement sends ripples through the market that lasts for weeks. Investors should give careful consideration to the demand for AI solutions and understand how companies in this supply chain stand to benefit. If the demand for AI is to continue, these solutions will need to quickly start translating into increased revenue, increased efficiency, or both for the consumers of this technology. Most purchasers of AI solutions are currently seeing large cost increases with very little attendant benefits. This situation will not last. Either benefits to AI consumers will increase or demand will decrease.
Aside from understanding how AI will influence winners and losers in equity markets, investment managers should also view AI as an opportunity to enhance their investment processes. Potential enhancements fall into two broad categories: automation and unearthing new insights. Quantitative investors, with their focus on breadth of coverage, stand to gain substantially from deploying AI components to their investment processes.
Money moving into passive, but alpha opportunities in active persist
Asset owners have moved massive quantities of money into passive equity strategies over the past decade. But analysis of mutual fund performance data shows that there are segments of the market where active management has performed quite well.
For example, 60% of US Small Cap mutual funds have outperformed the Russell 2000 benchmark, net of fees, over the last five years. As always, manager selection is important and the 10% of best-performing US Small Cap mutual funds outperformed the benchmark by a minimum of 4.4% annualised, net of fees, over the last five years.
In Emerging Markets, 45% of mutual funds beat the MSCI EM Index net of fees over the last five years and the best 10% of managers did so by at least 3.7% annualised. Compare this to the much more challenging MSCI World universe, where only 12% of managers beat the index net of fees over the last five years and the fund at the top 10% boundary only outperformed by just +0.3% annualised.
The rewards to successfully selecting active managers are alive and well, particularly in EM and Small Cap stocks. [Source: Causeway Risk Lens, Bloomberg, MSCI]
A multi-factor approach to quant investing
Our quantitative strategies use a multi-factor approach, with categories including Value, Sentiment, Long-term Growth, Technical, and Quality. We prefer stocks that look attractive on a mosaic of these inputs. Higher equilibrium interest rates will likely increase the power of the Value input to help us differentiate attractive and unattractive stocks, particularly compared to the “Value Winter” period of the late 2010s. Since Value has a meaningful weight in all of our models, we are optimistic that this will provide a boost to overall stock selection efficacy in our models.
Joe will be presenting at Global Investment Institute’s upcoming Equities Investment Forum, taking place on Wednesday, 11 September 2024 at the Grand Hyatt Melbourne, Victoria.
To register your interest in attending, click here or for more information email zlatan@globalii.com.au.
Joe Gubler, Quantitative Portfolio Manager, Causeway Capital Management
Joe is a quantitative portfolio manager at Causeway. He joined the firm in 2005 and has been a portfolio manager since January 2014. In addition to managing quantitative portfolios and conducting alpha research, Joe also leads the efforts to maintain and enhance Causeway’s proprietary risk models. He is also a member of the operating committee.
From 1999 to 2005, Joe worked as a software engineer, with employers ranging from startups to established businesses such as Monster.com. From 1998 to 1999, Joe worked as a staff scientist for News Corporation, conducting studies on the RF propagation of broadcast signals. While studying astrophysics at UC San Diego, Joe worked as a graduate research assistant in the Jet Propulsion Laboratory’s stellar interferometry group.
Joe earned a BS, cum laude, in physics from UC Irvine, an MS in physics from UC San Diego, and an MBA from the UCLA Anderson Graduate School of Management and he is a CFA charterholder.
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