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International markets are often overlooked and underappreciated:
The U.S. contributes about one-fourth to global GDP, yet accounts for approximately two-thirds of the MSCI All Country World Index by market cap. Even if one believes some disparity is warranted, we would argue there’s a starting disadvantage to managers overlooking international markets and automatically screening out the other one-third of market cap. In fact, when we run our typical screens as one of the earliest stages of our investment process, we find a higher ratio of companies with attractive growth and return on invested capital metrics in developing economies versus advanced economies. Especially compared to the U.S., which is perhaps the most efficient market in the world, international markets, particularly developing markets, present more opportunities to find mispricings, where a high quality company could be trading at a meaningfully discounted valuation. While we also continue to find exciting ideas in the U.S., client portfolios tend to be [dramatically] overweight their home market, missing out on alpha opportunities internationally.
If we consider today’s headlines, it wouldn’t be unreasonable to expect continued volatility in markets. From our perspective, these periods create opportunities for active investors, especially those with an unrestricted investment universe. Our goal is to screen in, versus screen out, investment opportunities to maximize our chances of creating portfolios of the highest quality, most undervalued names across the globe.
S&P500 vs MSCI AC World ex USA NTM P/E
International markets have traded at a discount to the U.S. for fifteen years, with the gap widening more recently, creating valuation opportunities internationally for active investors.
Past performance is no guarantee of future results. The index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment. Source: Factset. Data as of May 2025.
S&P500 vs MSCI AC World ex USA NTM P/E
DISPLAY 1:
International markets have traded at a discount to the U.S. for fifteen years, with the gap widening more recently, creating valuation opportunities internationally for active investors.
We seek to invest in highly unique companies that aren’t available in the U.S. – and are more insulated from geopolitical uncertainty:
In Europe, for example, we find unrivaled brand stories, particularly in the luxury space. And while these companies tend to have global revenue exposure which would make them more susceptible to impacts from geopolitical troubles, they also have strong pricing power that enables them to pass on any incremental costs that arise, protecting margins. In other instances, like in Latin America or Asia, we own companies that benefit from secular growth trends, driven by the growing middle class, domestic consumption and high internet penetration – from ecommerce giants and super apps to financial services and more – but with revenue exposure limited to the region.
Across the globe, we find companies that are driven by domestic demand, and in the context of current dynamics, these companies are less likely to be affected by trade policies instituted by the U.S. To the extent we see a paradigm shift from the last three decades with the World Trade Organization’s founding and deglobalization trends occur, these companies could be amongst the beneficiaries, while U.S. companies with global operations and commoditized offerings could be most negatively impacted. Further, if the USD continues to weaken on the back of policy announcements, international stocks can benefit from the currency dynamic as the companies’ profits become relatively more valuable.
Since the founding of the WTO, the U.S. has made up a fairly consistent percentage of global GDP, but has increased as a percentage of global market cap by nearly twenty points over the same period
Source: IMF. Data as of May 2025.
DISPLAY 2:
Since the founding of the WTO, the U.S. has made up a fairly consistent percentage of global GDP, but has increased as a percentage of global market cap by nearly twenty points over the same period
Investing in high quality companies is a form of risk management, in every environment:
Recent events aside, Global Opportunity invests with a bottom-up stock selection process that ultimately looks for high quality companies that are generally less impacted by changes in the macro, regulatory and political environment as normal course of business. We do the homework on companies’ supply chains and end markets, and consider any sensitivities in their business models that may come from adverse developments as part of our process. We believe our choice companies have sustainable competitive advantages with the growth prospects and financial strength to weather these periods of stress and ultimately outperform over the cycle.
When we consider the International Advantage Strategy in particular, we layer in additional considerations to focus on predictability and stability. With the advantage style of investing, we look to hold companies that are more mature in their lifecycle with established track records of profitable growth. From our perspective, this adds an additional layer of risk management to mitigate the downside risk of our clients’ assets, as we seek to eliminate as much uncertainty as we can in our portfolios.
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Risk Considerations:
There is no assurance that a Portfolio will achieve its investment objective. Market values can change daily, including the possibility of declining below what you paid for them, due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in these Portfolios. Please be aware that these Portfolios may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. To the extent that the Portfolio invests in a limited number of issuers (focused investing), the Portfolio will be more susceptible to negative events affecting those issuers and a decline in the value of a particular instrument may cause the Portfolio’s overall value to decline to a greater degree than if the Fund were invested more widely. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Privately placed and restricted securities may be subject to resale restrictions as well as a lack of publicly available information, which will increase their illiquidity and could adversely affect the ability to value and sell them (liquidity risk). There is no assurance strategies that incorporate ESG factors will result in more favorable investment performance. China risk Investments in China involve risk of a total loss due to government action or inaction. Additionally, the Chinese economy is export-driven and highly reliant on trade. Adverse changes to the economic conditions of its primary trading partners, such as the United States, Japan and South Korea, would adversely impact the Chinese economy and the Fund’s investments. Moreover, a slowdown in other significant economies of the world, such as the United States, the European Union and certain Asian countries, may adversely affect economic growth in China. An economic downturn in China would adversely impact the Portfolio’s investments. Risks of Investing through Stock Connect. Any investments in A-shares listed and traded through Stock Connect, or on such other stock exchanges in China which participate in Stock Connect is subject to a number of restrictions that may affect the Portfolio's investments and returns. Moreover, Stock Connect A shares generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules. The Stock Connect program may be subject to further interpretation and guidance. There can be no assurance as to the program’s continued existence or whether future developments regarding the program may restrict or adversely affect the Portfolio's investments or returns. Active Management Risk. The Adviser has considerable leeway in deciding which investments to buy, hold or sell, and which trading strategies to use. Such decisions will affect performance. To the extent the Portfolio invests a substantial portion of its assets in the information technology sector, the Portfolio may be particularly impacted by events that adversely affect the sector, and may fluctuate more than that of a portfolio that does not invest significantly in companies in the technology sector. To the extent the Portfolio invests a substantial portion of its assets in the consumer discretionary sector, the Portfolio may be particularly susceptible to the risks associated with companies operating in such sector.
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