International and Global Equity Strategies

October 2025

 

Global equity markets maintained strong momentum throughout the third quarter of 2025, with significant progress made across most major regions. Investors appeared increasingly confident that the worst of the macroeconomic and policy risks has passed. This optimism was reflected in the recovery of valuations and the sustained capital flows into equities.

Japan emerged as a market of renewed interest, with large-cap conglomerates and technology leaders capturing attention as the Nikkei reached levels unseen for decades. In Europe and the UK, the recovery continued, aided by improving sentiment after a period of depressed multiples. US equities outperformed following a sharp pullback earlier in the year. Additionally, currency movements were less influential than in the second quarter. The US dollar remained relatively weak against a global basket of currencies led by the euro.

In general, the last quarter emphasized the resilience of global markets in the face of ongoing uncertainty, while highlighting the importance of regional and sector-specific opportunities for active investors.

INTERNATIONAL GROWTH STRATEGY

We recently visited several companies in Japan as part of a research field trip, including meetings with current holdings. We returned feeling very positive about the macro and micro factors supporting further price appreciation. Currently, just over 22 percent of our international growth strategy is invested in Japan, and we have benefited from this exposure. The digitization of all paper records is a theme that we identified a few years ago, and it is still in its infancy. This is an area that remains surprisingly behind Western practices.

Pembroke’s international strategy underperformed the MSCI EAFE index during the third quarter. Performance was driven by broad-based strength across European and UK holdings, many of which continue to benefit from multiple expansion of depressed levels. At the same time, several of our consumer-oriented businesses experienced multiple compression against high expectations. Another notable headwind came from our investments in Sweden, particularly in the industrial sector.

Overall, we had roughly the same number of winners and laggards, with most portfolio companies performing as expected. We remain confident in the strategy’s underlying fundamentals and believe the portfolio is well positioned for the second half of the year and beyond.

Positive Contribution

One standout performer was Sun Corporation (6736.T), a Japanese technology company specializing in security software and back-end VMS solutions (Vendor Management Systems). The company has an investment arm that creates value through technological expertise. They also develop VMS solutions for legacy hardware.

We strongly believe in the management team, whom we had the opportunity to meet. Some of their investments have created significant value and now account for a substantial proportion of their capitalization. The stock rebounded sharply during the quarter after it entered the period at the depressed valuations that are typical of the Japanese market. We continue to believe that Sun Corp is trading at a discount and expect further revaluation.

Negative Contribution

One notable source of underperformance was Judges Scientific (LON:JDG), a UK company that manufactures highly specialized scientific instruments. Its products range from tools that measure the tension in human hair to systems that assess the fireproofing quality of construction materials.

We have strong confidence in the company’s management. Founder and CEO David Cicurel holds a significant stake in the company, and we are confident in his ability to continue acquiring and developing innovative technologies internally. The stock fell sharply during the quarter after entering at somewhat elevated levels. The company also has significant exposure to US university equipment budgets and was impacted when the Trump administration started to cut funding.

Role in a Diversified Portfolio

This strategy provides targeted exposure to international growth businesses across the full market-cap spectrum. Its aim is to capture opportunities throughout the business lifecycle, primarily in developed countries. The strategy offers long-term growth potential and portfolio diversification alongside core North American equities.

GLOBAL GROWTH STRATEGY

Despite turbulence in the second quarter, global equity markets posted strong results in the third quarter. It seems that markets have anticipated the worst and, as tariff adjustments take effect, global equities are recovering. Overall, during this period, the performance of our newly launched Pembroke global growth strategy was slightly below that of the indexes.

Performance was broad-based across regions. European and Japanese equities, which had already achieved significant year-to-date gains, maintained their momentum. Our US exposure performed even better, partly because those positions sold off more sharply in the previous quarter.

Despite prices having moved higher, we remain optimistic about certain international market valuations, particularly in Japan and the UK. We see opportunities to invest in fundamentally strong businesses with a long runway ahead of them.

Positive Contribution

Idexx Laboratories (IDXX:NASDAQ) performed well during the quarter. Its upward movement was driven by strong earnings and margin improvements, solid organic growth, resilient recurring revenue and positive indications of demand for new products such as inVue. While the updated guidance was cautious, it was not overly negative, which reassured investors that the core business remains strong despite macroeconomic headwinds.

The company slightly lowered its revenue expectations due to fewer US clinic visits, macroeconomic pressures and weather-related disruptions. However, this was partially offset by a small foreign exchange tailwind. More significantly, Idexx narrowed its earnings per share range while maintaining the midpoint, signalling confidence in profitability. Management emphasized that margins should remain intact despite revenue pressures. They acknowledged demand challenges, but underscored their ability to protect margins and meet earnings guidance, delivering a message of resilience.

Negative Contribution

Spotify (SPOT:NYSE) was the standout underperformer this quarter. Despite reporting strong results, particularly in its premium tier which generates almost 90 percent of profits, the stock price fell. Subscriber conversion exceeded expectations, and recent price increases had a minimal impact on churn. This signals both pricing power and platform stickiness. However, the stock had already risen by 40 percent ahead of the release of this information, leaving expectations ahead of reality.

The business itself is performing as anticipated, and the ad-supported tier remains a compelling growth lever. As more users upgrade to premium, incremental profits increase with limited additional costs, boosting margins and accelerating earnings growth.

Role in a Diversified Portfolio

This strategy provides targeted exposure to large-cap growth businesses in the US and internationally. Aiming to capture innovation among global market leaders, it provides long-term growth potential and can be used as a core holding in a growth portfolio or as part of a balanced portfolio.

GLOBAL EQUITY STRATEGY

To come

Role in a Diversified Portfolio

This strategy provides broad exposure to businesses across the market capitalization spectrum. Aiming to capture comprehensive global diversification in equities, it offers a consistent experience while maintaining a focus on growth. It can be used as a core holding in a portfolio.

 

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