International Alpha: investor letter Q1 2026

As with any investment, your capital is at risk.

Recent relative performance has tested our clients’ patience, and we share the frustration, but we write today with genuine conviction and optimism in the future. The portfolio is better positioned than at any point in the past fifteen years: faster growing, more attractively valued, and more resilient to volatility. Its premium to the index is the lowest it has been since 2010. Starting points like this one are rare.

And yet to call this a starting point is, in one sense, misleading. The portfolio as it is today is the product of a long evolution. The aggregate earnings growth figure reflects dozens of the holdings executing well over decades, and continuing to exceed expectations. The low valuation premium speaks of a market that, of late, has harshly penalised quality growth. Alongside this, our own trading, particularly over the last two years, has actively shaped the positioning: we have used this period of market dislocation to add companies where we have found compelling opportunities at attractive prices, and we have strengthened the fundamental characteristics of the portfolio in the process. The portfolio you hold today reflects intention more than circumstance, and for this reason, we are confident in its chance to outperform from here.

If that optimism feels at odds with the underperformance we have experienced, it is because we have experienced this kind of volatility before, and we know what to do. Our philosophy is built to endure change: not anchored on a particular state of the world, but on the belief that fundamental growth drives share price returns over the long term, and that exceptional companies, identified with patience and discipline, can compound their earnings faster and for longer than the market expects. The philosophy says nothing about which sectors those companies will come from, or what they will look like. The drivers of exceptional growth are always changing, and we have always strived to adapt with them. What makes the current moment distinctive is not the need to adapt, but the scale and speed of what we are adapting to, as multiple structural forces converge to create what feels like a regime shift.

Looking past the noise of daily headlines, the key insight to understand the change we are living through is this: the world has grown more complex and uncertain, and this has a cost. There are at least three important mechanisms at play. First, when uncertainty increases, investors require higher compensation to take on risk. In the real economy, this translates into structurally higher interest rates. Second, globalisation, the great integrating force of the post-Cold War era, is reversing. Every duplication of supply chains, every reshoring decision, every strategic redundancy is a friction, and frictions are costs that fall on consumers, on margins, and on state coffers. And third, despite AI’s undeniably deflationary potential, for now the diffusion of this technology is contributing to the complexity rather than resolving it, adding considerable tail risk to a world that already feels unpredictable. Each of these forces influences how we apply our long-term growth investment philosophy to the new market environment taking shape before us.

Structurally higher global uncertainty matters for how we build the portfolio. In a world where unintended factor tilts can quickly become the dominant force in portfolio returns, resilience, more than ever, comes from breadth. Appropriate diversification does more than reduce the chances of extreme outcomes: it is what allows the value we identify at the stock level to emerge at the portfolio level. Stock-picking is our edge, and it cannot do its work if performance is captured by large, correlated positions we did not consciously choose. We have learned this the hard way through a tough period of performance dominated by style and industry headwinds, and we have worked hard over the last two years to correct it, in tight collaboration with our risk team. And while markets are yet to reward the improvements we have made to our portfolio construction process and outputs, we are more confident than ever in the balance and positioning of the portfolio. For example, over the last two years, we have reduced our underweight in banks, which had grown out of step with our view of the industry and had come to dominate performance. The process has been gradual, as we searched carefully for banks that meet our investment criteria: excellent management, disciplined capital allocation, attractive growth prospects, and valuations that offer meaningful upside.

Reducing risk was not the only reason to consider banks. There is a structural case that stands on its own. When the risk premium rises, capital becomes scarcer, and the businesses that provide it and allocate it earn structurally higher returns. This is the foundation of our additions across banking franchises and financial market infrastructure over the recent quarters. We continue to be extremely selective, however. European banks have re-rated to prices not seen since before the financial crisis, which significantly caps the potential upside. Fortunately, we are finding plenty of opportunities to exploit this structural theme elsewhere. In Japan, SMTG is benefiting from the long-awaited deployment of capital by a population that has historically been extremely conservative with their savings, supported by a normalisation of the monetary environment. In Peru, Credicorp is growing into an improving domestic demand backdrop while rapidly scaling its digital payment platform, Yape. The economic environment in the country has rarely been more favourable in recent memory, thanks to its burgeoning mining industry and stabilising political environment. Generally, we are really excited about the opportunities opened by deeper and more dynamic financial markets across the Emerging world, from B3 in Brazil to UOB in Southeast Asia, to Discovery in South Africa, where we are seeing improving macroeconomic conditions as well as impressively innovative new business models being developed to cater to a large, growing, and underserved customer base.

The structural opportunity in banks is reinforced by the scale of what they are being asked to finance. Over the last decade, globalisation has been unravelling. Every country pursuing energy independence, semiconductor self-sufficiency, or domestic manufacturing capacity is building what it previously imported. That is enormously capital-intensive and creates a sustained and enduring tailwind for suppliers of capital.

That race also creates demand for physical inputs. Every grid upgrade, every reshored facility, every new infrastructure project calls on copper, critical minerals, and energy. After a decade of underinvestment, the pipeline of new supply is thin. The structural copper deficit is projected to persist for the better part of a decade, with hundreds of new mines needed to meet demand. Beyond our long-standing holding in Rio Tinto, we have begun adding dedicated copper exposure through Lundin Mining and Zijin Mining, both selected for idiosyncratic characteristics that fit with our philosophy on top of the structural tailwind. Lundin is owned by the Lundin family, whose alignment with long-term shareholders and disciplined capital allocation set it apart from most mining peers; its assets in Chile are among the best in the industry, and its nascent Vicuna mine could add 50 percent to group volumes in 10 years. As those clients who can invest in China will know, Zijin's track record speaks for itself: it is the only copper miner in the world to have exceeded mined copper production guidance for five consecutive years. Its scale allows it to operate at the lowest end of the cost curve, creating a structural advantage.

Well before war broke out in the Middle East, we also started bolstering the exposure to global energy supply chains, from production to transmission via electrification. We recently bought Petrobras, one of the few oil majors still growing production, with a known expertise in deepwater extraction, and CATL, the leader in the global battery market. And in the networks that carry that energy, existing holdings Stella Jones, the dominant supplier of wooden utility poles in North America, and Nexans, one of the world's leading high-voltage cable manufacturers, are positioned to benefit from what is shaping up to be a multi-decade upgrade of electricity transmission infrastructure.

The energy demand boom is, in no small part, AI's doing. But AI's implications for the portfolio run considerably deeper than power consumption. AI is the most consequential technological shift of a generation, and one of the hardest to invest in well. Owning the semiconductor supply chain has been the right approach in international markets for much of the past three years, and you have benefited through some of the largest holdings. After exceptionally strong runs, we have taken profits from names that have been rewarded for exceptional execution and strong growth delivery – reducing Samsung, TSMC, and Technoprobe – and recycled that capital into a broader set of companies that have been left behind by the market but are well positioned to benefit from many of the same structural growth drivers. We continue to back the critical enablers of AI where the long-term structural growth opportunity is most evident, while adding exposure throughout the AI value chain with stocks like MediaTek and SoftBank – the latter offering exposure to some of the most advanced AI companies in the world. Where businesses have simply been lifted by the AI tide despite fleeting competitive edges, we are comfortable sitting out.

The more open question is what AI does to software. AI is compressing the cost of software development and automating knowledge work in ways that threaten businesses which depended on information asymmetry or process complexity as a moat. We have exited names where we believe this risk has materially weakened the original growth thesis. We believe several of the longstanding software names are well positioned, however: businesses with genuine distribution advantages, trusted customer relationships, and proprietary data can deploy AI as a lever rather than face it as a threat. Within software, we retain high conviction in SAP, Experian, and Shopify: each benefits from strong barriers to entry and a defensible position relative to AI disruption.

These three structural shifts, and the market volatility they have engendered, have translated directly into action. Portfolio turnover in the opening quarter of 2026 has risen above levels you are accustomed to seeing, in part due to the deliberate pursuit of the opportunities described above, and in part a response to market dislocation. When prices move sharply, we can add to our highest-conviction ideas at more attractive entry points. But we also need to act decisively to exit positions where the original growth thesis has weakened. Sartorius Stedim and Meituan are the clearest examples of this: in both cases, competitive dynamics had shifted materially, and with so much competition for capital, we felt that the opportunity cost of continuing to hold them was too high.

None of this is a departure from our history. This portfolio has navigated regime change before – repositioning into financials, industrials, and energy in the mid-2000s after the dotcom unwind, and again into rapid growth in the early 2010s as low rates and the digital transformation took shape. In both cases, increased portfolio activity reflected the range of investment opportunities available, and the strategy went on to deliver some of its strongest returns. The same logic applies today, and our philosophy gives us room to adapt to a changing environment.

Our track record gives us further reason for confidence. Over more than two decades, the strategy has outperformed in over 80 percent of rolling five-year periods, through cycles that were, in their time, equally as severe as the current one. Periods when the portfolio's premium to the index has been as low as it is today have consistently preceded strong returns. This is all the more encouraging given the extremely attractive fundamentals of the portfolio, from earnings growth to returns on investment to balance sheet strength. But more than what is changing, what is staying the same is the root of our optimism: our philosophy, our team, and the fundamental qualities of the companies you own. These are the solid foundations that give us the conviction to act, and the right conditions to turn the opportunity we see in front of us into future returns.

International Alpha

Annual past performance to 31 March each year (%)

Annualised returns to 31 March 2026 (%)

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.

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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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