Overview
The International Alpha Team shares insights on Q4 2025, covering the strategy's recent performance, portfolio adjustments, and market influences.
As with any investment, your capital is at risk
Six months ago, performance for the portfolio appeared to have turned a corner. One- and three-year relative returns were ahead of the benchmark, and with portfolio fundamentals looking strong across a range of metrics, we were confident that this would continue. A very different picture emerged during the second half of the year. Although absolute returns were strong, the portfolio failed to keep up with the benchmark index, and ended the year well behind, in turn unwinding the positive momentum we had seen over longer time periods.
The portfolio’s characteristics have continued to improve; however, this has not been reflected in a market driven by sentiment rather than fundamentals. Both the quality and growth indices within international markets underperformed the core ACWI ex-US index by a significant margin. The portfolio’s bias to quality companies has been particularly painful as the quality index suffered its largest drawdown compared to the core index since the late 1990s.
The market has turned on quality companies with sharp, and in our view often unjustified, deratings. There are numerous examples of holdings across various sectors and countries that have reported strong results yet seen their share prices fall. These include UK-listed credit bureau, Experian, which reported first-half results at the top end of guidance, Dutch payment-processing firm, Adyen, that recently reported 23 per cent top-line growth year-on-year through wallet share gains from existing customers and new business wins and Japanese online distributor of machine parts, MonotaRO, which reported 24 per cent net income growth in the nine months to end-September. We could offer up many more.
On the other side of the ledger, value companies, most notably those listed in Europe and developed Asia, have enjoyed a significant multiple expansion. Although only a couple of companies not held in the portfolio appear as major detractors, the aggregate impact of the value rally in these markets is palpable.
A second factor that was unhelpful to relative performance in 2025 is the hype surrounding Artificial Intelligence (AI) and its impact on sentiment. The market has been quick to sort companies into ‘winners’ and ‘losers’ from AI – too quick in our view: we expect the impacts of AI to be more nuanced. To be clear, we believe in the potential for this technology to revolutionise entire sectors and economic systems, and we have taken steps to ensure the portfolio is well-positioned to benefit from the ensuing change. We have also embraced AI within our investment process, using it to automate some important but repetitive tasks, allowing us to focus our time more on where we can add insight.
There are several stocks in the portfolio that are well-positioned to benefit from or capitalise on the continued development of this technology – and in most cases, these are being rewarded as ‘winners’. On the enablers’ side, we count the leading semiconductor names, from TSMC, to Samsung Electronics. On the exploiters’ side, companies like Spotify, Shopify and Tencent (for clients who can invest in China) are successfully monetising AI applications. A long tail of low-quality semiconductor and power utility companies we don’t own have also rallied, however, as the market speculates on continued strong investment in AI capex, which may or may not materialise. Our overriding position is to invest our clients’ money in those companies that are either critical enablers of AI or those proactively investing in its capabilities to stay ahead of the curve.
The portfolio also includes companies that the market has dubbed as AI ‘losers’, often with little evidence that they are being disrupted. Japanese provider of cloud-based solutions, Money Forward; Israeli-domiciled provider of workflow management tools, monday.com; and the Canadian media and communications deal roll-up specialist, Lumine, are sustaining strong operational performance but have seen their share prices pull back. The team is carefully considering how AI may impact these businesses. Although there are undoubtedly risks of disruption, these companies are also helping to drive change; they benefit from a resilient business model, and we see opportunities as well as threats. For example, Lumine operates in a highly technical area, primarily serving conservative enterprises that are slow to adopt new technologies. This combined with its healthy deal pipeline and expectations from management for larger, more attractive, deals to materialise make us more sanguine than the market.
There are of course always some holdings in a diverse international portfolio that experience setbacks or unexpected challenges. The Canadian trucking business, TFI, is suffering from the knock-on impacts of subdued freight prices on levels of demand. There has been limited order visibility for Dutch specialist chemicals distribution business, IMCD, which has fed through to weaker pricing and margins. Leading French meal voucher provider, Edenred, was unexpectedly hit by merchant price caps in Brazil and a new requirement for all restaurants to implement interoperability across different providers. In each of these examples, valuations have fallen to multi-year lows, and importantly, we believe that the long-term growth prospects remain attractive and the competitive edge is unchanged.
Our overriding goal is to deliver attractive returns after fees over the long term for our clients, but like any successful team, we know that if we get the inputs right, the outputs will follow. We must focus on the process rather than the outcomes, as the process is the only thing in our control. We can’t influence what the market chooses to reward over any given quarter or even year.
To this end, at the beginning of 2025, the International Alpha investors set themselves two main objectives that we believe will help us meet our clients’ objectives: to further broaden idea generation and to embed improved valuation discipline into research and decision-making.
When we judge ourselves against these aims there is a lot to be encouraged by, and we are confident that this will help lay the foundation for positive outcomes in the future. First, our efforts to expand the funnel of ideas have borne fruit. In 2025, we searched for quality growth companies in areas that we hadn't explored in recent years, and this approach has paid dividends. During the third quarter, we took holdings in two exceptionally well-run banking franchises that benefit from long-term family ownership and operate in consolidated markets that allow for attractive through-the-cycle returns. In the final quarter, we took a new position in a high-quality copper-focused miner, positioned for several years of strong production growth, underpinned by datacentre demand and the energy transition. We also purchased a global leading producer of farmed Atlantic salmon, which is enjoying burgeoning demand, as more consumers seek healthy, high-protein foods. It also exhibits very low correlation with other portfolio holdings. These new purchases have added more resilience to the portfolio, albeit this hasn’t been rewarded during a time when a narrow range of themes have been in vogue.
The portfolio's valuation profile has also normalised, having reached elevated levels during the pandemic. This has been achieved partly through reducing winners more proactively, with the help of some useful tools developed by our independent risk team, but also through being more disciplined on price before taking new holdings. A number of the stocks purchased during the year, such as Brazilian exchange, B3, Singaporean bank, United Overseas Bank (UOB) and Chinese online community buying platform, Pinduoduo (for those clients that invest in China), trade at or below a market multiple of earnings, while offering superior growth prospects. We also decided against some investments on valuation grounds and took some money off the table from names that have enjoyed a strong run, and where our view had become less differentiated from the market.
Beyond our bespoke objectives, we also – always – measure ourselves against the strength of the portfolio fundamentals relative to the market. And here, again, there is a positive picture to share. The aggregate growth and quality metrics for the portfolio remain strong, having improved against both the index and the portfolio's own history over one and five years. Based on consensus estimates, three-quarters of the portfolio holdings are expected to deliver double-digit earnings growth over the next three years, and in contrast to a few years ago, every company is now profitable and free cash flow positive. This is consistent with the optimism expressed by most of the management teams we have recently engaged with, notwithstanding some concerns about the lingering impacts of tariffs on demand levels in the manufacturing economy.
During the past five years, markets have been particularly turbulent, and the conditions for quality growth investors like ourselves have been extremely testing. We have not delivered the performance that our clients expect and our longstanding run of consistently outperforming through different market cycles and conditions has been interrupted.
Our style of investing has been unfashionable for some time now, but we remain resolutely confident that it will once again be rewarded. It is fundamentals, not sentiment, that drives share prices over the long term. By staying the course, and investing in the most exceptional businesses, exposed to a diverse collection of themes, outcomes will inevitably improve. We can’t predict when performance will turn, but there is empirical evidence that the top quintile of growth companies outperform considerably for those willing to be patient. Looking ahead over the next five years and beyond, as we like to do, we strongly believe that now is an excellent time to be a quality growth investor.
International Alpha
Annual past performance to 31 December each year (%)
| 2021 | 2022 | 2023 | 2024 | 2025 | |
| International Alpha Composite (gross) | 0.1 | -28.4 | 19.8 | 5.9 | 20.2 |
| International Alpha Composite (net) | -0.5 | -28.9 | 19.0 | 5.3 | 19.5 |
| MSCI ACWI ex US Index | 8.3 | -15.6 | 16.2 | 6.1 | 33.1 |
Annualised returns to 31 December 2025 (%)
| 1 year | 5 years | 10 years | |
| International Alpha Composite (gross) | 20.2 | 1.8 | 8.4 |
| International Alpha Composite (net) | 19.5 | 1.2 | 7.7 |
| MSCI ACWI ex US Index | 33.1 | 8.5 | 8.9 |
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.
Risk factors
This communication was produced and approved in January 2026 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.
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