Overview
The International All Cap Team shares insights on Q2 2025, covering the strategy’s recent performance, portfolio adjustments, and market influences.
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A turbulent second quarter
It’s not often that the market almost offers you too much to discuss over a short period, but the second quarter represents one of those rare occasions. It began with the tariff shock in early April, before spiralling to include concerns about the United States’ fiscal deficit and an escalation of conflict in the Middle East. The daily oscillations in the stock market between the various emerging narratives over the period show just how little insight investors have into political proceedings.
It's quite remarkable that International equity markets were up so much, in dollar terms, given the wall of worry that geopolitics and the macroeconomy are forcing investors to climb. Perhaps this paradox is in echo of the introduction to Charles Dickens’ A Tale of Two Cities, “it was the best of times, it was the worst of times”. Cynicism aside, the drivers of International’s performance are noteworthy. The immediate consequence of increasing complexity has been the re-emergence of “diversification” in asset allocation discussions. It appears there’s been a realisation that portfolios were overly exposed to US assets, prompting flows into International equities and fixed income, and Europe most specifically. This renewed enthusiasm - buoyed by burgeoning pro-growth policy stances in Asia and Europe - has helped International equities outperform US equities for a second consecutive quarter.
Performance
Despite producing a strong absolute return, the portfolio underperformed its benchmark. The underweight to European banks and defence continues to be a headwind, while there were also stock specific issues with some of the portfolio’s Japanese holdings.
Our approach in Japan has been to assemble a number of high quality, globally competitive businesses capable of compounding over a long period of time. In general, these sorts of companies have not been in favour in Japan over the past few years. We have not owned the big trading houses, nor have we owned the lower quality companies which are being forced into becoming better ones by new regulations. This has weighed on performance. In addition, some of the companies we have owned have faced specific challenges, which are reflected in the portfolio’s detractors in the second quarter. This has included spurious claims about contaminants in products leading to a downturn in demand from China for both Unicharm, in hygiene products, and Shiseido, in cosmetics, as well as management turnover and regulatory issues in the case of Olympus recently. We have consistently given these holdings and their management teams time to turn it around, but to be frank our patience has not been rewarded yet. In each case, we remain convinced of their abilities to recover. Shiseido’s new management team is delivering on what it promised investors when it came into place last year. Its compensation package is tied to shareholder returns, it has simplified product offerings, adjusted pricing and is fostering a more return-focused culture among managers and employees. Olympus has initiated capex to address compliance issues, while its Chinese and US businesses should begin to recover this year as hospitals re-order Olympus’ endoscopes which remain the best available on the market. Meanwhile, despite its recent woes in China, Unicharm is the market leader across several categories in Asia and benefits from the twin demographic trends of ageing populations and premiumisation. In other words, their equity stories are not broken, and valuations appear attractive given that growth is set to inflect.
Two cases where patience has paid off were among the portfolio’s top contributors this quarter, Spotify, the audio streaming platform, and Nemetschek, the construction software company. Both companies were in the portfolio’s top detractors in 2022, with Spotify falling 66 per cent and Nemetschek falling 60 per cent. At the time, investors were focused on Spotify’s lossmaking status and on whether Nemetschek could successfully transition customers onto a software-as-a-service model amidst macroeconomic uncertainty. Since their 2022 lows, Nemetschek’s share price has more than doubled, and now trades above previous highs, while Spotify’s has risen more than nine times. Nemetschek successfully moved its customers onto its subscription model, boosting profits, and it has made a significant, growth-enhancing acquisition in the form of GoCanvas. Spotify has confounded its doubters by rapidly improving profitability through a combination of pricing and cost reduction, all while continuing to grow revenues above 10 per cent per annum. Patience has paid off because we didn’t extrapolate based on the near-term and remained focused on their growth potential, their competitive advantages and the people who run the businesses. We are following the same exact approach with the Japanese holdings mentioned above.
Of course, patience is a luxury after several years of underperformance, but there are signs that the environment is on the precipice of being accommodative towards the growth style. Interest rates falling in Europe, Germany and China are stimulating and Japan has seen its first price-wage spiral in 30 years. Consumers appear in good health globally with inflation having abated, while European corporates’ cash balances are the highest they’ve been since the turn of the millennium, and China is rapidly embracing AI after DeepSeek’s entry on to the world stage. The long-term picture for International appears to be higher investment, more consumption and, we hope, improved productivity. Jean Monet, the French diplomat, famously said in 1976 that “Europe will be forged in crisis”, but it might be more relevant to broaden that comment and say that the case for International is being forged in crisis.
Portfolio
One company which could benefit from fiscal attention turning towards infrastructure is Sika, a construction chemicals company we took a new holding in for the portfolio over the quarter. Sika’s admixtures and chemical formulations improve the materials being used in the construction process, whether that’s concrete, roofing or flooring. It’s established a reputation as an innovator and holds over 5,000 patents, a reputation which has helped establish it as the number one player in most product categories and has led to consistently high growth over the past 30 years. However, like many industrial companies sitting in a niche part of supply chains, it has endured a downturn of late, largely due to construction market weakness, and the valuation has de-rated quite significantly. We think growth is poised to accelerate. Construction markets should recover from their lull, and this will mean the resumption of secular trends which play into Sika’s favour. Construction is increasingly using chemical solutions over traditional bolts and screws, while the trends of urbanisation and eco-friendly construction increase complexity in the building process and places more emphasis on the quality of the materials in use. Sika is also an active consolidator in a fragmented market, meaning it can boost growth through bolt-on acquisitions, of which it has done four already in 2025. Sika fits the profile of a hidden European champion; it is a leader in a structural niche and supplements growth through disciplined M&A, a cocktail which has been profitable for us in the past through the likes of Mettler-Toledo. What’s better is that the recent fall in the valuation has given us an opportunity to own it, having admired it for many years.
We also took a new holding in Alimentation Couche-Tard, a global leader in convenience retail. It’s best known for its eponymously branded stores Couche-Tard in Canada and Circle K in markets like Ireland and the US, with many stores attached to gas stations. Like Sika, it’s an accomplished consolidator, and it is currently in the process of trying to acquire Seven & I in Japan. Having spent time with the company in its locations, we believe that its founder-led, disciplined culture has created some degree of process power and has enabled it to generate superior unit economics versus its competition. This gives it the potential to continue compounding earnings and free cash flow growth over many years to come.
Funding these new positions were the sales of Murata, a Japanese electronic components business, LY Corp, the holding company behind Japanese digital platforms in payments and media, and Burberry. The investment cases for each have not worked and we do not have sufficient confidence that they will turn around in a meaningful timeframe, and with competition for capital particularly high at present, we decided it best to move on.
Overall, we are happy with the shape of the portfolio. Diversification and quality characteristics have improved over the past two years, characteristics which we think will serve performance well in a world where shocks are becoming less shocking, and a company’s cost of capital matters once again. To our detriment in the near-term, we have reduced the position sizes of several of the technology-enabled ‘rapid growth’ holdings, with many of them having performed exceptionally well over the past year, like Spotify, MercadoLibre and Wise. The capital has been reinvested in companies whose valuations look more attractive, such as CATL, LVMH and TotalEnergies. In doing so, we believe we are sowing the seeds of future outperformance.
Looking ahead
Despite our optimism, we are not ignorant of the uncertainty which abounds at present. It’s impossible to have any insight into trade discussions and we will only begin to see the effects of tariffs on companies’ earnings come through over the coming months. The best companies have the flexibility and know-how to navigate these periods and we have faith that the portfolio holdings have those qualities. Looking further ahead, the outlook for growth investing in International is improving after years in the doldrums. Stimulus in Europe and China can have a positive impact on demand, the consumer is benefiting from years of real wage growth, and interest rates are being cut in some markets. An improvement in cyclical growth would provide a boost alongside the continued secular growth which we have seen in holdings like Spotify and Nemetschek. We look ahead cautiously but with confidence that the portfolio can weather the current challenges and seize the long-term opportunities.
As ever, we thank our clients for their continued support and partnership.
International All Cap
Annual past performance to 30 June each year (%)
| 2021 | 2022 | 2023 | 2024 | 2025 | |
| ACWI ex US All Cap Composite (gross) | 42.1 | -36.0 | 14.7 | 3.4 | 12.7 |
| ACWI ex US All Cap Composite (net) | 41.3 | -36.4 | 14.0 | 2.8 | 12.1 |
| MSCI ACWI ex US Index | 36.3 | -19.0 | 13.3 | 12.2 | 18.4 |
| EAFE Plus All Cap Composite (gross) | 37.6 | -35.3 | 18.6 | 1.5 | 10.8 |
| EAFE Plus All Cap Composite (net) | 36.8 | -35.7 | 17.9 | 0.9 | 10.2 |
| Developed EAFE All Cap Composite (gross) | 37.5 | -35.3 | 18.7 | 1.1 | 10.3 |
| Developed EAFE All Cap Composite (net) | 36.7 | -35.7 | 18.0 | 0.5 | 9.6 |
| MSCI EAFE Index | 32.9 | -17.3 | 19.4 | 12.1 | 18.3 |
Annualised returns to 30 June 2025 (%)
| 1 year | 5 years | 10 years | |
| ACWI ex US All Cap Composite (gross) | 12.7 | 4.0 | 5.8 |
| ACWI ex US All Cap Composite (net) | 12.1 | 3.4 | 5.2 |
| MSCI ACWI ex US Index | 18.4 | 10.7 | 6.6 |
| EAFE Plus All Cap Composite (gross) | 10.8 | 3.5 | 5.2 |
| EAFE Plus All Cap Composite (net) | 10.2 | 2.9 | 4.6 |
| Developed EAFE All Cap Composite (gross) | 10.3 | 3.3 | 5.1 |
| Developed EAFE All Cap Composite (net) | 9.6 | 2.7 | 4.5 |
| MSCI EAFE Index | 18.3 | 11.7 | 7.0 |
The International All Cap Strategy comprises three distinct variants. Overall, the variants are broadly similar, with the key difference being the degree of exposure to emerging markets listed holdings.
Source: Revolution, MSCI. US dollars. Net returns have been calculated by reducing the gross return by the highest annual management fee for the composite. 1 year figures are not annualised.
Past performance is not a guide to future returns.
Legal notice: 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 as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
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