Brandes Investment Partners International Equity Strategy Notes Second Quarter 2021 (April 1 – June 30, 2021)

The Brandes International Equity Strategy rose 6.25% (gross of fees), outperforming its benchmark, the MSCI EAFE Index, which rose 5.17% in the second quarter, and the MSCI EAFE Value Index, which rose 3.01%.

Positive Contributors Leading contributors included a variety of our emerging markets positions. Select holdings in , most notably manufacturer , integrated oil company and global beverage company Ambev, saw their shares appreciate significantly. Additionally, Mexican cement company performed well.

Embraer continued to see normalization in its legacy business segments. The company also managed to enhance its margins after unwinding some administrative redundancies that had been put in place in anticipation of the joint venture with . Furthermore, in June, Embraer announced that it was in talks to merge its Eve Urban Air Mobility subsidiary, which develops electric vertical take-off and land (eVTOL) , with Zanite Acquisition, a special purpose acquisition company. The tentative merger indicates a significant value for Embraer relative to its current market cap of less than $3bn as the eVTOL venture is estimated at approximately $2bn; however, the definitive agreement and the terms of the deal have not been confirmed.

Beyond holdings in emerging markets, U.K.-based grocer Wm Morrison rose strongly toward the end of the quarter after news emerged that a private equity firm had made an offer to purchase the company at a significant premium to its share price. The company’s board members reviewed the offer but rejected this initial offer stating that they believed it significantly undervalued the company. Since the end of the quarter, Wm Morrison has received additional private equity interest and accepted a higher bid in early July, with the share price continuing to rise on speculation of further bids.

Performance Detractors Several of our health care holdings, including Japan-based Takeda Pharmaceutical and Taisho Pharmaceutical, hurt performance.

While Takeda has underperformed the market (MSCI EAFE) recently, we continue to believe it is one of the most attractive companies in the portfolio and it remains one of the strategy’s largest holdings. As one of the largest diversified pharmaceutical firms globally, Takeda generates the majority of its revenue outside of Japan. Since the firm’s acquisition of Shire in 2019, Takeda is, in our opinion, well positioned to bring its operating margins closer toward those of its global pharmaceutical peers. Additionally, we believe that Takeda’s balance sheet will continue to improve given its strong free cash flow generation, and that its research and development pipeline offers a long-term upside potential at its appealing valuation level.

A few of our financial holdings, led by U.K.-based Barclays and Japan’s Sumitomo Mitsui Trust, also weighed on returns, as did Mexico-based real estate investment trust Fibra Uno.

Select Activity in the Quarter The investment committee initiated a position in China-based internet company Alibaba.

Alibaba, China’s leading e-commerce company and one of the world’s largest internet companies, has seen its share price decline over the last year amid the Chinese government investigation into its alleged monopolistic practices, which resulted in a fine for the company. The government also ordered the firm to scale back its Ant Group operations and to stop its intended IPO (initial public offering) of Ant shares. Alibaba has a one-third stake in Ant, the leading online financial services company in China.

We have long been concerned about government involvement risk in several of the dominant Chinese internet companies. We believe that Alibaba’s valuation now properly reflects this risk following the share-price decline and that the company offers an appealing risk/reward tradeoff for long-term investors. Considering its growth prospects and competitive position, Alibaba appears quite attractive to us as the shares trade at less than 20x earnings excluding net cash as of June 30. Alibaba’s core domestic business, which provides most of its profits, consists of the C2C (consumer-to-consumer) marketplace Taobao (similar to eBay) and the B2C (business-to-consumer) marketplace Tmall (similar to Amazon). Beyond its lucrative core e-commerce business, Alibaba owns a number of other growing but unprofitable units that cover logistics, local delivery services, streaming video, cloud computing and international e-commerce. The tremendous profits of Alibaba’s core business serve to fund its growth ventures, which may or may not eventually have important standalone value. Additionally, despite recent government curbs and controls imposed on the company, Alibaba’s 33% stake in Ant Group still likely offers value that we do not believe is properly reflected in Alibaba’s valuation.

We have been aware of Alibaba’s business prospects and growth potential for some time but did not deem the valuation attractive enough to initiate a position. However, over the past couple of years Alibaba has seen meaningful growth in its revenue and profitability that did not translate into what we see as a matching increase in its stock price. When we bought Alibaba’s shares, its price-to-earnings multiple was close to the lowest point in the company’s trading history, so we believe the upside potential is high at current valuation levels.

Other activity included the divestment of Taiwan-based Asustek.

We initially purchased Asustek over three years ago after its share price declined due to concerns that the company had lost its way as an engineering and design-based firm. Shipments for personal computers (PC) were declining and the company had unsuccessfully entered the smartphone business. In our opinion, at its then share price, the company did not have to improve its operations to provide upside potential. Given its strength in gaming and premium devices, we believed the company offered an attractive value opportunity just by staying relevant in the PC space, which is driven largely by replacement demand. In addition to its “undemanding” valuation, we also liked the appeal of Asustek’s gaming PC brand, its strong cash-flow generation and its solid balance sheet. The majority of the company’s market cap was composed of cash and investments in two attractive subsidiaries which seemed to be undervalued by the market, and the company’s high working capital gave further upside optionality, in our opinion.

While the shares did decline in early 2020 along with the market (MSCI EAFE), they have appreciated significantly in 2021 as investors have become more optimistic about the company’s prospects given a variety of factors: Asustek’s strong product portfolio, increased PC demand and the current component shortage. The company also improved its commercial PC business and reduced its losses in the smartphone segment, while also enjoying gaming PC growth. While these tailwinds have driven up our estimate of the company’s intrinsic value, we believe Asustek’s current earnings level is likely not sustainable once supply chain bottlenecks are resolved. As the shares continued to appreciate beyond our adjusted intrinsic value estimates, we exited our position in the quarter.

Year-to-Date Briefing The Brandes International Equity Strategy rose 15.80% (gross of fees), outperforming its benchmark, the MSCI EAFE Index, which rose 8.83%, and the MSCI EAFE Value Index, which rose 10.68% for the six months ended June 30, 2021.

The strategy benefited from the recent favorable environment for value stocks in general. Our outperformance relative to the benchmark was driven by holdings in cyclical sectors, such as industrials and energy, as well as several positions in emerging markets. Brazilian Embraer was up over 100%, while Mexican Cemex and Taiwanese Asustek rose over 50% each. Additionally, a number of our European holdings aided returns, including U.K.-based Kingfisher, WPP, BP and Wm Morrison, as well as France-based Publicis and Compagnie de Saint-Gobain.

While defensive sectors have not performed as well as cyclical sectors this year, we saw significant positive contributions from our holdings in consumer staples, particularly our positions in the food and staples retailing industry. In addition to the aforementioned Wm Morrison, J Sainsbury and saw their shares appreciate significantly.

In a relatively strong period for the strategy, only a few holdings declined. These included Japanese pharmaceutical companies Takeda Pharmaceutical and Taisho Pharmaceutical, as well as Switzerland-based Credit Suisse.

Current Positioning The Brandes International Equity Strategy continues to exhibit more attractive valuations, in our view, than the MSCI EAFE Index, with lower price-to-earnings, price-to-book and price-to-cash flow, as well as a higher dividend yield as of June 30. Many of our holdings also share what we consider appealing attributes, namely solid balance sheets, compelling growth prospects and strong free cash flow.

From a sector perspective, we held our key exposures to communication services, health care, energy and consumer staples, while maintaining significantly lower allocations to technology and industrials than the benchmark. Geographically, we continued to have overweight positions in the United Kingdom, France and emerging markets, and underweight positions in Australia and Japan. While our investment decisions are based on company-by-company analysis and not dependent on any index’s compositions, we believe the differences between our portfolio and the benchmark continue to make our portfolio an intelligent complement to index-tracking or growth-oriented alternatives.

While value stocks (MSCI EAFE Value) underperformed the broader market (MSCI EAFE) this quarter, our strategy fared better than the broader market and we believe it is well positioned in the current environment given a variety of potential tailwinds, including: • a possible increase in inflation and interest rates, which has historically benefitted value stocks and our strategy • a likely pickup in economic growth, which should benefit the earnings growth of our holdings. Based on 2021 consensus estimates, the MSCI ACWI ex USA Value Index is expected to have higher earnings growth than the MSCI EAFE Index. Our strategy is expected to have higher earnings growth than both indices, while being priced at a discount (based on forward price/earnings) to them.*

Additionally, we believe the valuation discounts at which value stocks trade relative to the general market and growth stocks (MSCI EAFE Value vs. MSCI EAFE and MSCI EAFE Growth) continue to bode well for value stocks. Following their strong relative performance over the past nine months (9/30/20 to 6/30/21), value stocks continue to trade within the least expensive decile relative to growth stocks (based on price-to-earnings, price-to-book, EV/EBITDA, EV/Sales). This indicates to us that there is still plenty of room for improvement when it comes to value’s return potential.

Given our historical tendency to do better than the value index whenever it outperformed the benchmark, combined with the prospects of earnings recoveries for value-oriented companies, we believe the Brandes International Equity Strategy is well positioned for long-term return potential.

Thank you for the trust you have placed in us.

*Source: Brandes, FactSet, Capital IQ as of 3/31/21. Cash Flow: The amount of cash generated minus the amount of cash used by a company in a given period. Dividend Yield: Dividends per share divided by price per share. EBITDA: Earnings before interest, taxes, depreciation and amortization. Enterprise Value (EV): Market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents. Enterprise Value/EBITDA: Enterprise value divided by earnings before interest, taxes, depreciation and amortization. Enterprise Value/Sales (EV/S): Enterprise value divided by total company sales. Forward/Price Earnings (F/PE): Price per share divided by expected earnings per share. Net Cash: Total cash minus total debt. Free Cash Flow: Total cash flow from operations less capital expenditures. Price/Book (P/B): Price per share divided by book value per share. Price/Cash Flow (P/CF): Price per share divided by cash flow per share. Price/Earnings (P/E): Price per share divided by earnings per share. The MSCI EAFE Index with net dividends captures large and mid cap representation of developed market countries excluding the U.S. and Canada. The MSCI ACWI ex USA Value Index with gross dividends captures large and mid cap securities across developed and emerging markets excluding the . Attributes for value index construction are book value to price, 12-month forward earnings to price, and dividend yield. The MSCI EAFE Index with net dividends captures large and mid cap representation of developed market countries excluding the U.S. and Canada. The MSCI EAFE Value Index with gross dividends captures large and mid cap securities across developed market countries, excluding the United States and Canada, exhibiting value style characteristics, defined using book value to price, 12-month forward earnings to price, and dividend yield. The MSCI EAFE Growth Index with gross dividends captures large and mid cap securities across developed market countries, excluding the United States and Canada, exhibiting growth style characteristics, defined using long-term forward earnings per share (EPS) growth rate, short-term forward EPS growth rate, current internal growth rate, long-term historical EPS growth trend, and long-term historical sales per share growth trend. MSCI has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI data or use it as a basis for other indices or investment products. The foregoing Quarterly Commentary reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice. The information provided in the commentary should not be considered a recommendation to purchase or sell any particular security. 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