International and Global Equity Strategies

July 2025

 

Almost across the board, international markets extended their first-quarter strength into the second. The early days of the quarter were far from smooth sailing—Liberation Day brought disruption, tossing a wrench in the works for corporations (or perhaps a spanner, given our European lean). However, this disruption proved short-lived, with markets rebounding swiftly and pricing in the view that any forthcoming tariffs would be less punitive than initially feared.

We also saw a decline in the U.S. dollar, which supported foreign currency valuations. While this helped short-term returns, we do not tend to focus on such movements as currencies typically oscillate around long-term averages. Our focus remains on the fundamentals of the businesses we own.

In general, we are optimistic about the valuations of some international markets, particularly in Japan and the United Kingdom. Currently, we are able to invest in fundamentally strong businesses that are growing at a low double-digit rate, are not leveraged, and have a long runway ahead of them.

INTERNATIONAL GROWTH STRATEGY

Pembroke’s international strategy produced strong absolute returns in the second quarter. In Canadian dollars, it outperformed its benchmark, the MSCI EAFE Index (Europe, Australasia, and the Far East), by a significant margin.

This performance was driven by broad-based strength across European and United Kingdom holdings, many of which experienced a rise in valuations from previously depressed levels. Additionally, several of our consumer-oriented businesses resumed organic growth after navigating difficult year-on-year comparisons. Another tailwind came from global allocators rotating out of the U.S. markets—a trend we believe has further room to run, supported by compelling valuations and improving business fundamentals.

Overall, more of our portfolio companies performed well than underperformed, and the vast majority are executing in line with our expectations. 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

We achieved our strongest results in the Industrials and Consumer Discretionary sectors. Within these sectors, the share price of Judges Scientific (LON: JDG) recovered sharply. Judges Scientific focuses on acquiring and developing companies within the scientific instrument sector. The company’s main activities and those of its subsidiaries include designing, manufacturing and selling scientific instruments.

The company started the quarter with a low valuation due to a deferred contract, which is now expected to be realized in 2025. Management confirmed that the delay was a matter of timing, not substance, and the stock responded accordingly. We continue to see a long runway for value creation.

Negative Contribution

Technology holdings were the main cause of underperformance during the quarter. One of these companies, Globant S. A. (GLOB:NYSE), experienced a fall in its share price during this period. Globant is a technology services provider offering engineering, design and innovation services to clients. Based in Argentina, the company sells content management systems and e-commerce applications.

During the quarter, management reported satisfactory results but lowered its forecasts, suggesting limited growth until the end of the year. This announcement fell short of Pembroke’s expectations, prompting the investment team to reassess the position.

GLOBAL GROWTH STRATEGY

In the second quarter, our recently launched Pembroke global growth strategy achieved a solid absolute return, though it underperformed slightly against its benchmark. Performance was generally broad-based across all regions. European and Japanese equities, which had already achieved significant year-to-date gains, saw some moderation amid the quarter’s volatility.

Currency movements also played a significant role. The U.S. dollar weakened significantly, while the yen and Canadian dollar appreciated—providing a benefit for investors holding non-USD assets. Although tariffs dominated the headlines, their potential impact was largely offset by the dollar’s decline.

Positive Contribution

Spotify (SPOT:NYSE) was the standout performer in the second quarter, with shares rising by around 40%. The company posted strong results, particularly in its premium tier, which now accounts for around 90% of profits. Subscriber conversion exceeded expectations, and recent price increases had a minimal impact on churn—an encouraging sign of pricing power and platform loyalty.

The ad-supported tier also remains a compelling growth lever. As more users upgrade to premium, incremental profits are generated with limited associated costs, which bolsters margins and accelerates earnings growth.

Negative Contribution

Apple (AAPL:NASDAQ) was a notable underperformer within the portfolio. The company was directly affected by tariff headlines and missed out on the late-quarter recovery that lifted many other tech companies.

Despite its strong position in hardware and services, concerns have emerged around Apple’s relative lag in artificial intelligence. Ongoing weakness in China and intensifying competition in emerging markets—which are key areas for smartphone growth—also continue to pose challenges.

While we remain positive about Apple’s long-term prospects, the pace of growth in the near term may be slower than anticipated. Nevertheless, consistent progress, even if uneven at times, still aligns with our investment framework.

GLOBAL EQUITY STRATEGY

The Pembroke global equity strategy is a diversified global equity portfolio with exposure to Canadian, U.S., as well as international developed and emerging equity markets. The managers intend to maintain diversification by region, market capitalization size, managers and passive and active strategies. The strategy is benchmarked against a custom index comprising 64% MSCI All Country World Index (ACWI) and 36% S&P/TSX Composite Index.

In the second quarter, the strategy delivered a positive return, but performed slightly below its custom benchmark. During this period, the Canadian, U.S. and international equity allocations all made positive contributions to absolute returns. On a relative basis, the portfolio’s underperformance was primarily driven by the U.S. and global strategies, which lagged broader markets. This was partially offset by the outperformance of the Canadian equity strategies.

The portfolio invests in passive exchange-traded funds to achieve exposure to certain large-cap liquid equity markets. By the end of the period, the strategy comprised four equity market ETFs: the iShares Core S&P 500 ETF, the iShares S&P/TSX 60 Index ETF, the iShares Core MSCI EAFE ETF and the iShares Core Emerging Markets ETF.

In total, the portfolio’s allocation to passively managed ETFs was approximately 26.0% at the end of June 2025. By region, 37.1% of the strategy was allocated to Canada, 42.8% to the U.S., 9.7% to Europe, 2.3% to Japan and 8.1% to other regions. The top exposures by sector include Industrials, Financials, Information Technology and Consumer Discretionary.

 

Back to Top of Page

Other Articles Of Interest