International Growth: investor letter Q2 2025

Your capital is at risk. 

“In the middle of difficulty lies opportunity” – Albert Einstein.  

Uncertainty is a constant in global markets, but it is also the wellspring of opportunity for long-term growth investors. Change is also a constant and is constantly underestimated. We know it can happen gradually, where over time the compounding effect of these small increments adds up to a major shift, and also suddenly. While short-term volatility can unsettle, it often creates the very conditions that allow patient investors to identify and back the next generation of exceptional growth companies. Change driven by technological innovation continues at pace all around us. These are reasons to be optimistic. 

The second quarter of 2025 saw international equity markets rise despite significant turbulence from shifting US trade policy and further conflict in the Middle East. The overall economic backdrop remains fragile, and uncertainties persist. Still, we remain resolutely focused on the long term, on the fundamentals of individual businesses, where we are seeing encouraging progress, and on identifying and owning businesses that have the potential to increase in value significantly. 

Performance 

The portfolio outperformed its benchmark in the second quarter, delivering strong absolute returns. The same is true over the past 12 months. While this short-term recovery in performance is encouraging, we measure success over multi-year periods, not quarters.  

Focusing on the more recent performance drivers, Spotify, Advantest and MercadoLibre are among the top contributors to relative returns this quarter. 

Spotify remains a standout contributor to the portfolio’s short- and long-term performance. It has more than doubled over the past year and almost tripled over five years. It is an excellent example of how our patient approach has been rewarded, particularly holding through the market uncertainty of 2022. The company delivered its first full year of profitability in 2024, and importantly, it continues to innovate and expand, now boasting nearly 700 million listeners and close to 300 million paying subscribers. This investment exemplifies our philosophy: backing management teams with the vision to transform industries and with the discipline to build market leaders over time.

We first invested in Advantest, a global leader in semiconductor testing, just over a year ago. The stock has more than doubled since, driven by strong operational results. We remain excited about the long-term opportunity, as increases in semiconductor demand and complexity drive industry testing requirements and intensity. Other semiconductor holdings, such as TSMC and the newer addition Disco, also contributed positively this quarter following share price weakness earlier in the year. 

MercadoLibre, the Latin American ecommerce and fintech business, continues to deliver strong performance over the long and short term. The shares are up around 60 per cent over the past year and 2.6x over five years, driven by rapid growth and increasing profitability. A long growth runway remains in both business areas. 

Several of the Chinese holdings feature on the negative side of the ledger in recent months, including tech platforms PDD Holdings and Meituan, and electric vehicle (EV) maker BYD Company. While the tension between China and the US has weighed on the shares of Chinese companies, particularly exporters, we believe these companies have substantial growth opportunities at home and in other markets outside the US. A good example is BYD, which recently became the world’s largest electrical vehicle manufacturer in terms of revenues and volumes thanks to its technology and cost leadership. Since we first invested early last year, BYD’s shares are up around 60 per cent.  

Within Europe, Argenx and Atlas Copco also detracted from recent performance.   

Argenx, a leader in antibody-based autoimmune therapies, has been a top contributor to portfolio returns over the long term. Operationally, it continues to do well, reporting a doubling of revenues year-over-year, improving operating profit and cash generation. The biotech recently launched a pre-filled syringe formulation of its blockbuster product, Vyvgart, to facilitate drug self-administration. We believe this will further boost revenues. Argenx continues to invest in its drug and product innovation platform, offering best-in-class efficacy, flexibility and significant growth potential. With substantial cash reserves, expanding indications and a clear path to profitability, we remain excited about this investment in next-generation immunology. 

Atlas Copco’s shares have been weaker over the past year amid mixed results and market concerns over near-term industrial activity. But beneath the noise lies a high-quality industrial powerhouse: exceptional returns, innovation-driven, high-margin service revenues and exposure to diverse end markets supporting resilience through cycles. Over the long term, Atlas remains well-positioned to benefit from global megatrends such as automation, energy efficiency and semiconductor expansion.  

In times of heightened uncertainty, our deep knowledge of Atlas Copco’s business model and relationship with its management through more than two decades of ownership offers reassurance. Atlas and other companies in the portfolio have successfully navigated previous cycles and complex environments, including the supply chain disruption resulting from the pandemic and, for exporters such as Atlas and fellow long-standing holding L’Oréal, even the previous high US tariff environment of the 1930s. 

In an accelerating multipolar world, the adaptability and resilience of the companies in the portfolio give us confidence in their ability to navigate uncertainty and capitalise on their long-term growth potential. 

Portfolio and research activity 

We continue to examine a wide variety of growth companies, recognising that the path to outlier returns can be achieved in different ways: extreme growth or extreme compounding, ideally both. We remain laser-focused on the high-growth companies driving change and transforming industries, while searching for those with enduring growth prospects and exceptional quality. 

The features we look for in all holdings remain the same: strong competitive edge, large growth opportunity, and quality of management. However, we will weigh them differently in our analysis depending on the type of company. Competitive edge is more established in some cases than others; the growth opportunity may require more imagination; the management team will be iconoclastic in some cases or more institutional in others. And it’s always dynamic. But the hurdle for inclusion in our portfolio remains high. We are broadening our inputs while obsessing over business quality and growth potential. 

Over the past few months, our broader research funnel has unearthed several exceptional businesses that exemplify the quality and growth potential we seek: Keyence, RELX and BELIMO Holding. Each represents a compelling investment thesis built on sustainable competitive advantages and powerful secular tailwinds. 

Keyence is a global leader in factory automation, known for its advanced sensors and vision systems that power high-precision manufacturing across industries. Its asset-light, fabless model and highly technical direct sales force drive exceptional margins and deep customer integration. As automation and smart manufacturing accelerate globally, Keyence is uniquely positioned to lead and compound long-term value. 

RELX has masterfully transformed itself into a digital-first information and analytics giant. It serves professionals across legal, academic, insurance and exhibition markets through high-margin subscription models that generate predictable, recurring revenues. The company's strategic pivot toward AI-powered analytics and digital solutions is unlocking new growth avenues while strengthening its already formidable competitive moats. 

BELIMO Holding may be less familiar, but this Swiss precision engineering specialist has quietly built an enviable position in heating, ventilation and air conditioning (HVAC) controls, a market experiencing rapid growth driven by energy efficiency mandates, data centre expansion, and smart building adoption. Decades of engineering know-how, high customer stickiness, and a culture of innovation enable exceptional margins and returns. With minimal capital requirements, we think BELIMO Holding offers a rare blend of outstanding quality and long-term structural growth. 

To fund these new investments, we exited positions in companies where our conviction in their ability to deliver transformative growth at attractive economics has diminished, such as Vestas Wind Systems, Umicore and AutoStore. Other sales included the software company Elastic, where execution has been mixed.  

Portfolio turnover has risen over the past 12 months, as we have been more active than usual in refreshing the portfolio. This reflects moving on from several holdings where signs of growth or quality had failed to re-emerge or emerge following the pandemic period, despite patience and, more importantly, an exciting research pipeline of new ideas. We expect turnover to settle back to a level consistent with our investment time horizon of at least five years.  

The team continues to be excited about the portfolio holdings and intentional about overall positioning – ie the long-term bets we are taking. For example, the recent meetings with the founders and management teams from companies like MercadoLibre, Spotify and Nubank reassured us about their growth opportunities and ability to execute on their long-term potential. The team also had unique access to some of the thought leaders within the AI space. Scientists and researchers from Microsoft, NVIDIA and the Santa Fe Institute helped us understand the evolution of AI and its implications for businesses and the broader economy. 

We also continue to be excited about the investment opportunities in China. It is reassuring to see how Chinese EV-related companies like BYD and CATL are turning from local champions to global leaders. We are also intrigued by Chinese biotech breakthroughs. One of the next best-selling oncology drugs may have a Chinese origin. 

Looking ahead: opportunity in volatility 

The portfolio remains focused on businesses with the culture, innovation, and financial strength to reshape industries and deliver outlier returns over the next five to 10 years. While short-term market swings are inevitable - particularly against a backdrop of geopolitical uncertainty and rapid technological change - we remain steadfast in our long-term approach. 

Our experience has shown that periods of uncertainty often present the best opportunities for long-term growth investors. In the same way that the seeds of today’s performance were sown five or even ten years ago, we are actively planting the seeds for the next five years. We are doing so with an open mind to the type of company that might flourish, while staying laser-focused on owning companies with superior growth and financial characteristics.  

In summary, while the near-term environment remains unsettled, we view this as fertile ground for disciplined, long-term investing in exceptional growth companies. Uncertainty is not a barrier; it is the source of tomorrow’s opportunity. 

Based on a representative International Growth portfolio, client portfolios may not mirror the representative portfolio exactly.

International Growth

Annual past performance to 30 June each year (%)

Annualised returns to 30 June 2025 (%)

*MSCI EAFE Index prior to 30 September 2018

Source: Revolution, MSCI. US dollars. 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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