Global Alpha: investor letter Q1 2026

As with any investment, your capital is at risk.

 

If you sailed south from the mouth of the Santa Cruz River, following the Atlantic coastline of Argentina down, around Cape Horn on the Southern tip of South America and then up into the Pacific Ocean, you would be taking the most direct and obvious route to the Pacific Ocean. If you did so in the early 1500s, you would likely be seeking a route to the Spice Islands of the East and the promise of spectacular riches that so captivated European maritime explorers during the Age of Discovery. However, you would fail in this journey, as doing so would lead you straight into the teeth of the 'Furious Fifties', some of the most ferocious seas on earth, dominated by thirty-metre waves and giant Antarctic icebergs. In 1520, Portuguese navigator Ferdinand Magellan took a less direct route, making the first recorded journey through the Straits that now bear his name. Under his command, a Spanish fleet spent 38 days navigating its way through this jagged labyrinth, at times heading seemingly entirely in the wrong direction, while beset by unpredictable winds and treacherous tidal currents. At one point, the San Antonio, the fleet’s largest ship and primary supply vessel, mutinied and reversed course back to Spain. On making it through this ordeal and into the relatively peaceful waters on the other side, Magellan wept and christened this ocean the Mar Pacifico – the Peaceful Sea. 

 

Bottlenecks and abundance

It has been another Strait – that of Hormuz – which has dominated headlines more recently. This narrow chokepoint has been effectively closed by Iran, bringing significant disruption to global energy markets. This disruption, and the broader implications of the ongoing US and Israeli attacks on Iran, have amplified a growing nervousness in equity markets, with the MSCI AC World index (‘the ACWI’) down around ten per cent from its February highs, while Value has outperformed Growth by close to a double-digit percentage over the quarter (all at time of writing and in USD terms). In this environment, the portfolio lagged the ACWI by about 5 percent. These are choppy seas.

Underneath these headline numbers, two major themes become visible. First, there are worries about geopolitics, a fragmenting world and access to scarce resources, of which the unfolding energy crisis is only the most recent expression. If we had been writing this letter in January, no doubt we would have been talking about the threats made by one NATO member to invade the sovereign territory of another. It is a sign of how quickly old geopolitical certainties have been eroded that such a shock to the global order has already fallen off the news cycle.

A glance at the attribution over the quarter clearly shows this theme of ‘physical bottlenecks’. Those companies benefitting from the three major limiting factors in the buildout of AI infrastructure – in memory chips (Samsung Electronics), leading-edge manufacturing capacity for the most advanced AI-chips (TSMC) and power and cooling systems (Comfort Systems) – as well as energy-related names, such as Petrobras and EOG (Brazilian offshore oil and US shale-focussed natural gas companies, respectively), all feature amongst the top contributors, having delivered substantial share price appreciation.

The second clear trend was triggered by the release of Claude Cowork, an agentic coding tool, at the end of January, which provided a crystal-clear illustration of the tangible applications emerging from the rapid, dramatic improvements in Artificial Intelligence. Intelligence is becoming abundant, and the cost of creating code is collapsing. This triggered an abrupt reassessment of the outlook for companies deemed most at risk of disruption from these tools. This rush for the exits was most impactful in software, with the sector suffering unprecedented relative weakness, but it was felt across a broad waterfront of digital businesses, or those that might be classified as ‘asset-light / information-heavy’. A selloff dubbed by investment headline writers, the “SaaSpocalypse.”

Again, the attribution clearly illustrates the impact of this angst towards any companies seen as having any part of their competitive advantage, even tangentially, rooted in software. AppLovin (AI-driven digital advertising), DoorDash, Shopify and Sea (all e-commerce), Adyen (payments) and CoStar (data and analytics for the Real Estate industry) all saw share price declines of over 30 percent over the quarter.

Amongst the noise, we also distinguish clear signals within each of these themes. New opportunities are emerging which might help us travel more safely to our destination. Let us take each in turn.

 

An expansion of growth

We perceive a broadening of the growth opportunities available to us. Returns over the past fifteen years have been dominated by capital-light “technology” companies, increasing returns to scale, those successfully globalising their cost bases, and those benefiting from the emergence of China as an economic powerhouse. In this environment, US returns far outstripped those of other regions, with West Coast-based tech giants accounting for an ever-increasing share of both profits and market capitalisation. Portfolios concentrated on these capital-light, high-margin businesses delivered strong returns.

From this point, we may be entering an era in which marginal costs and capital intensity are no longer declining and where growth may be more capital-intensive, driven by AI infrastructure and the associated real-world build-out. Decades of underinvestment in physical assets, alongside trends towards electrification, the rebuilding of defence capabilities, and reshoring, all point towards an improving outlook for heavier industries. In short, the marginal dollar of global capex may be shifting from intangible assets towards tangible bottlenecks, with implications for where pricing power resides. We have therefore taken this opportunity to broaden the range of growth drivers within the portfolio, increasing exposure to the physical infrastructure underpinning global economic activity, emerging markets, and supply chain bottlenecks.

In energy, as gasoline prices in the US surge past $4 a gallon, it’s not hard to imagine Trump declaring ‘mission accomplished’ and announcing a ceasefire. While this may allow oil markets to normalise, it will do nothing to correct at least a decade of substantial underinvestment in exploration and production. We are increasingly convinced that demand will remain well supported, if not inflect, because of the sheer demand for power: a powerful capital cycle that offers fertile ground for attractive returns. We have made new purchases in EOG (US energy company) and EQT, and added to Petrobras. Similarly, we believe the demand for certain metals, notably copper, will be sustainably higher, whilst a similar trend of chronic underinvestment in new supply should favour incumbents. As a result, we have purchased Freeport-McMoRan, the copper miner, and Credicorp, a Peruvian bank, operating in an economy significantly leveraged to the copper price.

Finally, we have also taken new holdings for you in Skandinaviska Enskilda Banken and United Overseas Bank, two banks based in Sweden and Singapore, respectively. Both have the opportunity to translate increasing demand for, and returns on, capital into meaningful loan growth. We are also confident that this growth can be accompanied by improving returns on equity over time, as costs are levered and the loan mix changes. Both are conservatively-managed, comparatively straightforward banks with aligned ownership. These ingredients, combined with attractive yields, allow for sustainable double-digit returns, which, in many of the potential worlds in front of the portfolio today, seem attractive to us.

 

The freedom to be ambitious

Importantly, these investments also serve another purpose. By broadening the portfolio’s exposure, they provide the freedom to maintain conviction in other areas where the upside potential remains substantial. With portfolio tracking error, beta and factor risk all falling, there is space to embrace more volatile or out-of-favour ideas elsewhere in the portfolio.

If new holdings in banks, energy companies and miners offer exposure to previously underrepresented opportunities for the portfolio, other areas of conviction are much more established. Artificial intelligence remains one such area. While the market remains conflicted, with the narrative oscillating between exuberance and scepticism, the underlying drivers of adoption remain intact. The demand for computational power, for data infrastructure, and for applications that improve productivity continues to grow.

As noted earlier, this flipping of sentiment has been especially dramatic in software. Such a widespread draining of confidence offers a rich opportunity. Not all of this disquiet is unjustified, but there are likely many babies being thrown out with the bathwater. Our approach is to identify the businesses best positioned to benefit and to support them through periods of uncertainty. The value in DoorDash, for instance, doesn’t lie in the code that powers the app on their customers' phones, but in the complex, real-world system it has built: coordinating a complex three-sided marketplace (of customers, restaurants and drivers) with speed, reliability and trust, all at scale. As software becomes more abundant, these operational and network advantages are likely to become more important, not less. AI may lower the barriers to building a competitor app, but customers come back to DoorDash not because it has a better app, but because it promises a wide selection of meals, reliably delivered, on time and at a reasonable price. AI tools are helping DoorDash improve the system that underpins this proposition, reinforcing, not weakening, its advantages.

Or take Shopify, where the concern is that AI-driven interfaces could disintermediate traditional e-commerce platforms. Yet this perspective dismisses Shopify’s role as infrastructure - the organising layer coordinating merchants, consumers, payments, and logistics. If anything, an emerging world of AI agents interacting with commerce systems may increase the value of such infrastructure, rather than diminish it. Similarly, Samsara, which attaches physical monitoring devices to customers' physical assets to provide an operational dashboard, continues to demonstrate strong underlying growth. AI is helping accelerate the expansion of its product suite, and its increasing penetration of large customers suggests a business that is still early in its development. The selloff implies a dramatic underestimation of the durability of its competitive advantages. We have taken this opportunity to add to our holdings in both Shopify and Samsara, as well as Adyen, the payments technology platform.

In contrast, we have sold our holdings in Salesforce, EPAM, S&P and The Trade Desk, where our conviction has weakened. While there are stock-specific considerations to each decision, they shared a concern that their ability to sustain growth and margins amid accelerating change appears to be diminishing. EPAM and Salesforce both had relatively short holding periods. In both cases, our original investment rationale was that these companies would develop, deploy and scale new products at a pace which would more than offset threats to their existing business. It now appears more likely that the speed of change will overtake them. In a highly dynamic environment, we have sought to align our exposure with companies better positioned to benefit from this acceleration.

 

Putting it all together

The aggregate impact of our evolving thinking in these areas has led to meaningful changes in the portfolio. Turnover has picked up to around 30 percent on a rolling twelve-month basis. Importantly, we have plotted this new course without sacrificing the growth you expect. This is our role in our asset allocation. We can think of this as our compass - an unwavering focus on delivering long-term growth, on identifying exceptional companies capable of compounding returns over many years. In this regard, our conviction remains intact. The businesses we own on our clients' behalf continue to grow, innovate, and strengthen their competitive positions. The fundamentals of our portfolio, as measured by aggregate growth and quality statistics, remain extremely robust.

We are, however, acutely aware that this has been true for some time. Strong fundamentals have not, over recent years, translated into the outcomes you, or we, expect. This is not an expression of doubt in the companies in the portfolio, but rather a recognition that, although fundamentals matter, they are not the only thing that matters - the journey is also important. We must chart a course that ensures the portfolio can navigate unexpected challenges across a sequence of short-term periods that ultimately compound into the long term, without compromising the growth our clients expect.

While this broadening of the range of growth drivers has been driven by stock-specific enthusiasm, it has also helped make the portfolio more diverse by more traditional measures, expanding the number of sectors and industries represented. The impact is a flatter portfolio on a sector and industry basis. Relatedly, they have also had the beneficial impact of dampening the volatility profile, while, as mentioned, both tracking error and beta have substantially reduced. All of this has helped tilt the portfolio such that stock-picking, rather than factor risk, is more likely to be the primary driver of returns. Our aim is to build a portfolio with the potential for superior growth characteristics to be rewarded across the broadest range of scenarios. Why face the Furious Fifties, if an easier route exists?

Finally, we have been able to make these changes without having to pay up for the benefits we believe they have delivered to the portfolio. The relative valuation premium we are required to pay remains exceptionally modest relative to the broader market.

While the nature of investing means we may never reach the equivalent of a Mar Pacifico, we can ensure that we are both heading in the right direction, while avoiding the worst of the squalls on the way to the portfolio’s growth characteristics ultimately being rewarded. 

 

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Annual past performance to 31 March each year (%)

	2022	2023	2024	2025	2026
Global Alpha Composite (gross)	-10.8	-9.9	20.9	-0.8	13.2
Global Alpha Composite (net)	-11.4	-10.5	20.2	-1.4	12.5
MSCI ACWI	7.7	-7.0	23.8	7.6	20.5

 

Annualised returns to 31 March 2026 (%)

	1 year	5 years	10 years
Global Alpha Composite (gross)	13.2	1.8	10.6
Global Alpha Composite (net)	12.5	1.1	9.9
MSCI ACWI	20.5	10.0	11.9

Source: Baillie Gifford, 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 April 2026 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.

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