New York, USA – Investors have been closely following the performance of the US stock market, with the Magnificent Seven emerging as the latest favorite after surpassing FAANG stocks. The continuous outperformance of the US market has led many to overlook international markets. Despite concerns about US stock valuations, the market has consistently surged ahead of its international counterparts.
For international investors, the argument for diversifying into overseas markets typically revolves around the idea that the US market’s outperformance cannot last forever. While valuation gaps continue to widen between US and international markets, asset allocators are urged to consider shifting towards international investments.
However, a new approach to international investing is being proposed – one that focuses on wealth creation outside of the US without solely relying on valuation metrics. Instead of traditional asset allocation strategies, a new portfolio has been designed with the sole purpose of generating wealth for clients over time, while minimizing risks.
The portfolio aims to identify and invest in a select group of non-US businesses with the potential to compound shareholder value over the long term. By focusing on companies that are in the early stages of growth but show promise for significant future success, the portfolio strives to capture unique wealth creation opportunities beyond the borders of the US.
One notable addition to the portfolio in the last quarter was France-based Pluxee, a payment network company spun off by parent company Sodexo. Pluxee’s innovative model allows companies to offer benefits to employees through digital payment cards, streamlining the process of distributing and redeeming rewards. With a significant portion of its revenue coming from Latin America, Pluxee has positioned itself as a key player in the global benefits card market.
In addition to new investments, the portfolio also saw the sale of two holdings – Mexico-based auto insurer Qualitas and Italy-based air navigation service provider ENAV. While Qualitas had been a strong performer, its valuation exceeded intrinsic value targets, prompting a decision to divest. ENAV, on the other hand, faced strategic shifts under new management, leading to the decision to exit the position.
Throughout the quarter, the portfolio outperformed its benchmark, with top contributors including Despegar.com, a Latin American online travel agency, and Hensoldt, a German defense business specializing in electronic sensors. On the flip side, detractors such as Medmix and IQE faced challenges in their respective industries but remained part of the portfolio as they navigate through market dynamics.
As investors continue to seek opportunities for wealth creation, the focus on international markets offers a diverse range of prospects beyond the traditional US-centric investments. By embracing a new approach to international investing and identifying companies with strong growth potential, investors can capture the unique wealth creation opportunities available outside of the US market.
