International Alpha: why we do what we do

As with any investment, your capital is at risk.

Thanks to my bookish little boy, I’ve been revisiting children’s books. Reading them as an adult makes me appreciate the deep lessons hiding behind the playful rhymes.

Dr. Seuss’s Oh! The Places You’ll Go! is a firm favourite in our household.

For me, the message is clear: though progress might not be linear, and we might experience peaks and troughs, nothing is more important than taking it in your stride. It is a story to instil resilience in a little one, facing into all the experiences the big wide world has to offer over coming decades.

Just as I want my son to become resilient, we build your portfolio to deliver through the market’s ups and downs. And boy, has the market served up some ups and downs in the past five years.

Between 2019 and 2022, we experienced four of our five most volatile years for relative returns – returns surged for two years, then reversed dramatically.

We’ve absorbed lessons and sharpened our tools, but what matters most is that we stay anchored to our philosophy and process. Active share remains high, turnover low, and the fundamentals of your holdings are strong.

We are confident in why we invest the way we do, but that brings me to a question my son – like any child – asks more often than any adult: why?

Explaining our assumptions is part of earning your trust as clients. In this letter I return to first principles – what we do, why it works, and why we believe this approach leaves the portfolio well positioned for the years ahead.

We are growth investors, we take the long-term view, and we build a deliberately diversified portfolio of international companies. But why growth, why long term, why diversified, and why international? The sections that follow set this out.

Growth as the engine of returns

We invest in growth, because fundamentals drive share prices over time. Companies that grow the most deliver the best returns. 

Across decades of market data, this pattern is strikingly consistent: the top quintile of growth companies has delivered the strongest performance over rolling five-year periods.

Growth is the beating heart of compounding – and the surest path to long-term outperformance. Our research focuses on finding those businesses capable of sustaining top-tier earnings growth – through innovation, strong competitive advantages, or expanding addressable markets.

This persists because markets anchor on averages. Forecasts tend to assume that companies revert to the mean and grow roughly in line with GDP – a safe but unimaginative bet. In reality, outcomes are far more dispersed: a few exceptional businesses grow much faster and for much longer than consensus allows.

Our edge lies in recognising those outliers early, and in having the patience to own them through periods when the market underestimates their potential.

Growth’s advantage lies in its asymmetry: valuations are bounded, but growth can compound far beyond expectations. Getting the growth right matters more than perfect timing on valuation. This is borne out in the data: across two decades of rolling five-year periods, the top quintile of growth outperformed the bottom quintile of valuation consistently, by a significant margin.

Compound that and the difference is dramatic: the growth investor ends up far richer than the valuation purist.

Diversification as resilience

Growth is the engine of compounding, but no single engine runs smoothly forever. That is why diversification matters: it balances different sources of growth and helps the portfolio stay resilient through change.

Consider the banana. For decades, one variety ruled fruit bowls: the Gros Michel, or “Big Mike”. It was perfect for business – thick-skinned for shipping, slow to bruise, reliably sweet.

Then waves of Panama disease exposed the fragility of a monoculture. By the 1950s, Gros Michel was commercially wiped out.

Nature’s lesson is simple: monocultures are efficient but brittle; biodiversity adapts and endures.

We apply the same idea to investing. We aim to deliver outperformance through a deliberately diversified portfolio of growth businesses, from young upstarts to veteran powerhouses. Each plays a different role, balancing market fluctuations and protecting on the downside.

Diversification also broadens the sources of upside: it gives us more shots on goal, across industries, geographies, and phases of the market cycle.

You can see the benefits of diversification writ large in your portfolio. Among the top contributors to performance over the strategy’s history are companies that grow in very different ways, across different cycles, and through different business models.

There is no single archetype: many forms of growth can outperform, though their paths differ.

Four of the top ten contributors over the last decade illustrate this. ERP software giant SAP underwhelmed during the pandemic before motoring along under reinvigorated leadership from late 2022, unlike Latin American e-commerce and fintech player MercadoLibre, whose share price rocketed and then plummeted and then rocketed even higher than before in the same period.

Further contrasts can be found in semiconductor leader TSMC, which manufactures the chips that power the world’s digital infrastructure, and Constellation Software, a serial acquirer of software businesses. As the AI build-out picks up steam, the former benefits and the latter may be threatened – but as new business models emerge on top of the new AI infrastructure, this may well change.

SAP, MercadoLibre, TSMC, Constellation Software: these four companies are from Argentina, Germany, Taiwan, and Canada, each with quite distinct macro cycles, and across quite different sectors. Each delivered in different ways, at different times, but each is a long-term winner and has contributed, together with the others, to periods of portfolio outperformance since inception.

We don’t diversify mechanically; we diversify thoughtfully. We invest across distinct types of growth businesses, each capturing long-term opportunities that markets, focused as they are on the next quarter, often miss.

Together, these form a self-balancing portfolio: different rhythms of growth, all compounding value in their own way.

Why international?

The final question is, why international? Our primary motivation is, of course, that our clients look to us for diversification from their domestic market, but the opportunity for long-term, active, growth stock pickers in international markets has rarely been as attractive as it is today.

After a decade of exceptional performance, US equities now trade at a historic premium to the rest of the world.

On most measures, the MSCI ACWI ex-US is cheaper relative to the S&P 500 than it has been in more than twenty years, even while delivering higher historical and estimated EPS growth. That gap gives patient investors a better vantage point to identify underappreciated growth.

Concentration further sharpens the contrast. In the US, the top ten companies account for nearly 40 per cent of the S&P 500’s market capitalisation, increasing correlation and making outcomes reliant on a handful of technology mega-caps.

By contrast, the ten largest companies in MSCI ACWI ex-US represent only around 12 per cent of the index. This broader base is driven by a more diverse set of businesses, sectors and geographies, giving active investors room for genuinely differentiated views.

The international universe, spanning 46 countries and thousands of listed companies – China alone has over 5,000 – offers multiple, often uncorrelated sources of growth. Such breadth creates opportunity but also demands selectivity.

Many of the world’s most innovative businesses remain under-represented, or even absent, from major indices for years. MercadoLibre, for example, built a dominant ecommerce and fintech platform across Latin America long before it entered mainstream benchmarks. In this environment, an active approach grounded in research, imagination and long-term horizons is essential to identify the winners before they are widely recognised.

This is precisely what International Alpha is designed to do. Our long-term, bottom-up process is built for an opportunity set defined by diversity and change.

By combining a global perspective with local insight, and by holding a deliberately diversified portfolio of exceptional growth businesses, we believe we are well placed to capture the compounding potential that international markets have to offer.

Short-term dislocations

Having set out the rationale behind our approach – why growth, long-term diversification, and international – it’s important to acknowledge the reality that belief in a sound philosophy does not shield us from short-term turbulence.

The same characteristics that underpin long-term success can make performance appear uneven over shorter periods.

Recent periods of underperformance have typically coincided with rallies in value stocks relative to growth and quality. In these phases, the portfolio’s holdings have increasingly moved together as sentiment swings exaggerated short-term outcomes, even as fundamentals continued to progress. These dislocations don’t change our long-term conviction; they simply test it.

What gives us confidence that performance will improve is the enduring strength of the portfolio’s fundamentals. Over time, fundamentals drive share prices, and those fundamentals have rarely looked stronger.

Earnings growth, whether historical and forecast, is not only consistently higher than the index over all time periods, but also high relative to the strategy’s own history. The same can be said for revenue growth. Aggregate measures of portfolio quality – from return on equity to leverage to margins – are higher than ever. The portfolio’s premium to the index, once elevated, is now back to pre-pandemic levels, meaning that our clients are getting a better portfolio for less.

In this context, it remains crucial that we stay the course – true to our investment philosophy and focused on fundamentals, not swayed by style rotation.

Recent portfolio activity has increased resilience by expanding our opportunities while reducing correlations between holdings.

We have added “local heroes” such as Kaspi, the Kazakhstani super-app; Stella Jones, a North American telegraph pole manufacturer; and Money Forward, a Japanese back-office SaaS provider.

These companies offer multiple sources of potential upside while maintaining resilience through their domestic focus, limiting exposure to tariffs or geopolitical tensions.

At the same time, we have trimmed areas of duplication by selling positions where we have stronger alternatives in the same industries – from staples to industrials.

Life’s a great balancing act

Volatility is part of every journey. It tests conviction but also proves the value of staying true to our philosophy and process.

We believe in the portfolio’s ability to outperform over meaningful timeframes because it is built around enduring growth and high quality, thoughtfully diversified across business models, geographies, and sectors, and invested in the rich, often mispriced opportunities of international markets.

We also recognise that periods like this can be uncomfortable. The volatility that tests conviction for us can create very real challenges for you, our clients. We are acutely aware of the trust you place in us to manage your capital responsibly, and we want to thank you for your continued patience and partnership.

It reinforces our determination to stay disciplined, invest with imagination, and focus on what we believe will best serve your long-term outcomes.

Sometimes the greatest wisdom comes from humble sources, such as a children’s story. Returning to Dr Seuss, we are reminded that progress rarely runs in straight lines – but in investment, as in life, it rewards those who keep their balance, patience, and belief:

“On and on you will hike,

And I know you'll hike far

and face up to your problems

whatever they are.

So be sure when you step.

Step with care and great tact

and remember that Life's

a Great Balancing Act.

Oh, the places you’ll go!

Kid, you’ll move mountains!”

International Alpha

Annual past performance to 30 September each year (%)

Annualised returns to 30 September 2025 (%)

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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This communication was produced and approved in December 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

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