| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 6.22% | -4.21% | -4.21% |
Harding Loevner's International Small Companies Equity portfolio declined 4.0% gross in Q1 2026, underperforming the MSCI ACWI ex US Small Cap Index by 3.6 percentage points. Two contrasting events shaped markets: Anthropic's AI coding breakthrough triggered a software sector selloff dubbed the SaaSpocalypse, while US-Israel airstrikes on Iran caused oil prices to surge over 60%. The manager believes the market's reaction to AI collapsed important distinctions among software businesses, assuming faster disruption than likely. Enterprise software companies with deep domain expertise like Nemetschek and Temenos face lower AI substitution risk due to complex regulatory requirements and high switching costs. The portfolio's software holdings accounted for over three-quarters of underperformance. The manager used the IT rout to add to Kinaxis and purchase ATOSS Software while exiting AI-vulnerable IT services providers Alten and Globant. Energy was the quarter's strongest sector, and the portfolio added mining equipment distributor Ferreycorp for copper exposure. Winners will emerge as industry distinctions become clearer.
While AI disruption triggered a broad software selloff, the manager believes important distinctions exist between vulnerable commoditized software providers and specialized enterprise software companies with deep domain expertise, complex regulatory requirements, and high customer switching costs that provide protection against AI substitution.
Markets aren't yet convinced, but winners will eventually emerge as industry distinctions become clearer between vulnerable software providers and those with deep domain expertise and strong customer relationships.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 24 2026 | 2026 Q1 | 2454.TW, 3661.T, 3769.T, AOF.DE, BEC.DE, CKN.L, FERREYCORP.LM, HEXPOL.ST, KXS.TO, LBTY.BR, NDAQ.DE, REY.MI, S24.DE, SHKELKAR.NS, SNR.L, TEMN SW | AI, energy, geopolitics, international, small cap, software, technology | - | AI coding advances triggered software selloff but manager sees important distinctions between vulnerable providers and specialized enterprise software with regulatory complexity and switching costs. Used IT rout to add quality names while exiting AI-vulnerable services. Iran war drove oil surge. Portfolio underperformed on software exposure but positioned for eventual market recognition of quality differences. |
| Jan 20 2026 | 2025 Q4 | 0005.HK, 0700.HK, AAPL, BHP.AX, BP.L, GSK, HSBA.L, LLY, MARS, MC.PA, MKC, MSFT, NESN.SW, OR.PA, PAN, SANOFI, SAP.DE, SHOP.TO, VOW3.DE, WEED.TO | AI, Consumer Staples, gold, growth, international, momentum, Quality, small cap |
DIA IM CWK LN 002891 CH 4527 JP HERDEZ MM EVT GR |
Harding Loevner's small-cap international fund gained 16% in 2025 but lagged momentum-driven markets favoring AI and gold themes over fundamental quality. The fund increased Consumer Staples exposure while maintaining conviction in quality-growth companies with durable advantages, believing patient capital focused on fundamentals will outperform speculative momentum plays over time. |
| Oct 19 2025 | 2025 Q3 | AAPL, ADBE, AIRTEL.L, AMAT, AMD, AVGO, CRM, CSCO, IBM, INTC, KLAC, LRCX, MRVL, MSFT, MU, NVDA, NXPI, ORCL, QCOM, TXN | AI, Europe, Health Care, international, IT Services, momentum, Quality, small cap |
6869 JP AFX GR MEDI NO |
Harding Loevner's international small-cap strategy underperformed in Q3 as momentum-driven markets favored higher-beta stocks over quality businesses. Health Care holdings faced cyclical headwinds despite strong demographic tailwinds, while IT services companies navigated AI disruption concerns. The manager maintains conviction in quality-focused approach, adding attractive Health Care positions during weak sentiment periods and positioning for long-term fundamental outperformance. |
| Jul 22 2025 | 2025 Q2 | 3697.T, 4544.T, 7203.T, AAPL, ALTEN.PA, BC8.DE, BELIMO.SW, CYBR, GLOB, GOOGL, MELI, MSFT, NVDA, RPY.MI, TMV.DE | AI, cybersecurity, innovation, international, IT Services, small caps, technology |
CYBR GLOB 4527 JP 3697 JP |
International small caps returned 17% in Q2, matching benchmarks. AI adoption is viewed as structurally transformative, with portfolio companies leveraging the technology to strengthen competitive advantages rather than creating models. CyberArk benefits from AI-driven security needs, while IT services firms navigate mixed implications. The manager sees AI as a potential equalizer across geographies and company sizes. |
| Mar 31 2025 | 2025 Q1 | AAPL, ADBE, AMAT, AMD, AMZN, AVGO, CRM, GOOGL, INTC, KLAC, LRCX, META, MRVL, MSFT, NFLX, NVDA, ORCL, QCOM, TSLA, TXN | emerging markets, Europe, growth, international, Japan, Quality, small cap | - | International small-cap fund underperformed in 2024 due to currency headwinds and sector-specific weakness, but maintains focus on quality-growth companies with superior fundamentals. Valuation premiums have narrowed significantly, creating attractive entry points for high-quality businesses. Recent additions Carl Zeiss Meditec and Shift exemplify the opportunity to acquire strong companies at reasonable prices. |
| Dec 31 2024 | 2024 Q4 | AAPL, BCHN.SW, BELB.SW, BKNT.MC, BOSS.SW, CARL.DE, CLRK.L, CRAN.L, DPLM.L, EVT.DE, GRFN.L, LEMN.SW, PFVN.DE, RGHT.L, RTHB.L, SHOP.TO, SNR.L, STRA.DE, TECN.SW, TOMRA.OL | emerging markets, Europe, growth, international, Japan, Quality, small cap | - | International small-cap quality-growth strategy underperformed in 2024 due to currency headwinds and regional weakness, particularly in Europe. Despite near-term challenges, the manager maintains conviction in superior-quality holdings with strong fundamentals. Valuation premiums have compressed, creating better future opportunities. Added Carl Zeiss Meditec and Shift at attractive prices while trimming expensive positions. |
| Sep 30 2024 | 2024 Q3 | ALT.PA, BC8.DE, BCHN.SW, BLMO.SW, BOSS.SW, CKN.L, CRAN.L, CYBR, DPLM.L, GLOB, GRAF.L, KIN.TO, LOTB.BR, NEMN.DE, REY.MI, SNR.L, STE.DE, TECN.SW, TMV.DE, TOM.OL, VAIS.HE | emerging markets, Food, healthcare, industrials, international, small caps, technology | - | Harding Loevner's international small-cap strategy outperformed in Q3 through stock selection in companies serving essential human needs. The fund emphasizes food and healthcare businesses like Cranswick and STRATEC that remain immune to AI disruption, benefiting from demographic trends including aging populations and protein demand growth while maintaining geographic diversification across developed and emerging markets. |
| Jul 18 2024 | 2024 Q2 | 1347.HK, AAPL, ACNB, ADVT.TW, ALTN.PA, AMZN, AWS, BCHT.DE, CYBR, GLOB, IBM, KIN.TO, LEM.SW, MSFT, NMET.DE, REP.MI, RMV.L, TMV.DE, VAIS.HE | competition, E-Commerce, international, Quality, small caps, underperformance | - | International small caps underperformed in Q2 as mega-cap tech dominance continues. The portfolio focuses on quality businesses with competitive moats that can defend against large competitors. Key thesis centers on identifying situations where market fears about new entrants are overestimated, as demonstrated by Allegro's successful defense against Amazon in Poland through network effects and strategic positioning. |
| Apr 15 2024 | 2024 Q1 | AAPL, ADBE, AMD, AMZN, CRM, GOOGL, INTC, META, MSFT, NFLX, NVDA, ORCL, PYPL, QCOM, SHOP.TO, SPOT, SQ, TSLA, TWLO, UBER | AI, cybersecurity, international, Japan, semiconductors, small caps, value | - | Harding Loevner's international small-cap strategy underperformed in Q1 as Japanese value stocks surged following the Bank of Japan's policy shift. The manager focuses on riding powerful waves like AI and cybersecurity through niche players Pfeiffer Vacuum and Cyberark, both benefiting from structural growth trends with strong competitive moats in consolidated industries. |
| Jan 31 2024 | 2023 Q4 | 002891.SZ, 036570.KS, 0522.HK, 0696.HK, 1269.TW, 1882.HK, 2175.T, 2371.T, 2395.TW, 2815.T, 3588.HK, 3654.TW, 4536.T, 4694.T, 4975.T, 500790.BO, 5031.KL, 6147.TW, 6199.T, 7956.T, 9962.T, ATE.PA, BC8.DE, BCHN.SW, BELN.SW, BGEO.L, BKT.MC, BOSN.SW, CEVI.ST, CHR.CO, CKN.L, CPA, CWK.L, CYBR, DALOG.KL, DIA.MI, DPLM.L, EVT.DE, FPE.DE, G24.DE, GFTU.L, GLOB, HERDEZ.MX, HFG.DE, HPG.HM, KWS.DE, KXS.TO, LDA.MC, LEHN.SW, LOTB.BR, MABANEE.KW, MEGACPO.MX, MFSL.NS, NEM.DE, PDIA.JK, PDXIF, PFV.DE, RAT.L, RENT3.SA, REP.MI, RMV.L, ROBR.PS, RUI.PA, SAB1L.VS, SBS.DE, SMNIF, SNG.BU, SNR.L, SQUP.DH, SXT, TECN.SW, THULE.ST, TMV.DE, TOM.OL, VAISF, YOUGF | AI, growth, international, Japan, Quality, small caps, Style Headwinds, technology | - | International small-cap fund underperformed in 2023 due to quality growth style headwinds, particularly in Japan. Strong IT sector performance driven by AI enthusiasm offset weakness in industrial holdings. Japan's corporate governance reforms may create future opportunities despite current challenges. Portfolio maintains quality focus with geographic diversification and underweight Japan positioning. |
| Mar 3 2023 | 2022 Q4 | 0GEG LN, CHR SW, DPH LN, GEB GR, LELA GR, TOM NO | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
AIAI coding tools like Anthropic's Claude Opus 4.6 triggered a software sector selloff, but the manager believes industry change is gradual. AI poses risks to simple software providers but less threat to complex enterprise software with deep domain expertise and customer relationships. |
Software Automation Enterprise Software Coding Disruption |
SoftwareSoftware stocks fell precipitously in the SaaSpocalypse but the manager sees important distinctions between vulnerable commoditized providers and specialized enterprise software companies. Commercial software providers have flourished despite past disruptions like open-source. |
SaaS Enterprise Software Open Source Barriers Maintenance | |
OilUS and Israel airstrikes on Iran caused oil markets to surge with Brent crude rising over 60% in March. Energy was the strongest performing sector, rising 25% in the quarter as war disrupted global supply chains. |
Geopolitics Supply Chain Energy Crude Iran | |
GeopoliticsThe war in Iran proved more consequential for markets than AI developments, given prospects of continued disruption leading to broader economic ramifications. Physical world vulnerabilities to real-world frictions remain significant. |
Iran War Supply Chain Oil Disruption | |
| 2025 Q4 |
GlobalInternational equities outperformed U.S. equities by the widest margin in over a decade, with MSCI ACWI ex US up 32.4% versus 17.9% for S&P 500. Currency headwinds for U.S. assets and fundamental strength in European defense spending and Asian semiconductor leadership drove returns. Manager positioned portfolios for this rotation entering the year based on valuation and concentration risk concerns. |
International Diversification Currency Valuation |
AIAI remains transformative but markets are shifting from hype to show-me phase, focusing on which companies will earn durable profits. Industry has spent over $400 billion on capex while producing roughly $50 billion in revenues. Physical constraints including power shortages and build delays are challenging assumptions of frictionless scaling. |
Technology Capex Monetization Infrastructure | |
Private CreditPrivate markets are finally offering attractive opportunities as supply and demand balance has shifted. Traditional institutions are over-allocated, distributions have dried up, and scarcity of capital gives patient liquidity providers leverage on price and terms. Manager preparing to launch private markets fund in Q1 2026 targeting these dislocations. |
Illiquidity Secondaries Opportunity Pricing | |
Commercial Real EstateReal estate presents opportunities where price and replacement cost have meaningfully diverged. Commercial real estate market down approximately 20% since 2022 while construction costs have risen 20-30%. Refinancing cliffs are forcing motivated behavior, creating opportunities to acquire assets at deep discounts below replacement cost. |
Valuation Refinancing Construction Distressed | |
| 2025 Q3 |
Health CareThe portfolio's Health Care holdings faced headwinds from momentum-driven markets favoring short-term sentiment over long-term fundamentals. Despite turbulent conditions including COVID disruptions, rising interest rates, and policy uncertainty, the underlying demand drivers remain strong with aging demographics and increasing health investments. Equipment and supplies companies with recurring revenue models are positioned for recovery. |
Medical Devices Diagnostics Recurring Revenue Demographics Equipment |
AIAI presents both opportunities and challenges for the portfolio's IT services holdings. While AI could potentially reduce demand for traditional time-and-materials contracts, it also creates new service opportunities. Companies are adapting by shifting to subscription models and developing AI-powered tools, with the transition phase creating temporary uncertainty before stabilization. |
IT Services Automation Productivity Disruption Subscription | |
MomentumThe portfolio underperformed due to momentum-driven markets that rewarded recent price trends over fundamental quality. Higher-beta stocks surged while quality companies underperformed, creating a disconnect between short-term market sentiment and long-term business fundamentals that the portfolio targets. |
Beta Quality Fundamentals Sentiment Volatility | |
QualityThe portfolio emphasizes quality businesses with durable competitive advantages, strong balance sheets, and rational industry structures. Quality companies significantly underperformed lower-quality counterparts during the quarter, but the manager maintains conviction in this approach for long-term outperformance. |
Competitive Advantages Balance Sheets Durability Fundamentals Resilience | |
| 2025 Q2 |
AIThe accelerating adoption of artificial intelligence is viewed as a decisively structural trend with far-reaching effects on how people work. Companies in the portfolio are investing in AI to strengthen competitive advantages, with examples including Reply developing customized AI tools and Shift deploying AI engineers to achieve significant cost savings. |
Artificial Intelligence Machine Learning Automation Digital Transformation Technology Adoption |
CybersecurityAI is creating new security risks as businesses increasingly trust AI with their data. Identity and access management is seeing greater demand, with CyberArk positioned to benefit from the proliferation of machine identities and AI agents that require digital identity protection. |
Identity Management Machine Identities Digital Security Access Control Data Protection | |
IT ServicesIT consulting businesses face mixed implications from AI adoption. While AI threatens to displace entry-level programming tasks, it presents new opportunities for agile firms to develop customized AI solutions. Companies are moving away from time-and-materials contracts toward outcome-based pricing models. |
Technology Consulting Software Development Digital Services Business Transformation Outsourcing | |
| 2025 Q1 |
QualityThe manager emphasizes investing in quality-growth small companies with superior profit margins, returns on equity, and balance sheet strength. The portfolio's average profit margin, return on equity, and return on assets exceed benchmark levels, while maintaining healthier balance sheets. |
Quality Growth Margins Returns Balance Sheet |
Small CapsThe fund focuses exclusively on international small-cap companies, with weighted median market cap of $2.8 billion. The manager discusses the prolonged underperformance of small caps versus large caps since 2021 and the challenging environment for quality-growth small companies. |
Small Cap Market Cap Underperformance International Size Premium | |
ValueThe manager notes that valuation premiums for quality-growth companies have substantially narrowed over the past year, creating better future return opportunities. They recently added Carl Zeiss Meditec and Shift at more reasonable valuations after significant price declines. |
Valuation Premium Opportunity Reasonable Attractive | |
| 2024 Q4 |
QualityThe manager emphasizes investing in quality-growth small companies with superior profit margins, returns on equity, and balance sheet strength. The portfolio's average profit margin, return on equity, and return on assets exceed benchmark levels, while maintaining healthier balance sheets. |
Quality Growth Margins ROE Balance Sheet |
Small CapsFocus on international small-cap companies outside the US, with the portfolio containing companies in the market cap range of the MSCI ACWI ex US Small Cap Index. The manager notes persistent divergence between large and small cap performance since 2021. |
Small Cap International Market Cap Divergence | |
ValueThe manager discusses taking advantage of more reasonable valuations after the valuation premium for quality-growth companies substantially narrowed. They added Carl Zeiss Meditec and Shift at attractive valuations relative to their growth prospects. |
Valuation Premium Attractive Pricing | |
| 2024 Q3 |
FoodHuman beings will continue to require food for survival, making food companies relatively immune to AI disruption. Cranswick benefits from growing protein demand as scientists find many people aren't eating enough protein to maintain muscle and ward off aging effects. Lotus Bakeries has built strong brand awareness through airline partnerships and achieved 20% household penetration in successfully penetrated markets. |
Protein Brands Demographics Nutrition Distribution |
DiagnosticsAs demographics shift to an older population, a greater portion of disposable incomes will likely be spent on monitoring health. STRATEC and Tecan supply labs operated by biotech and pharmaceutical businesses, hospitals, and universities. Both companies have durable competitive advantages in their niches and have historically generated strong returns as measured by cash flow return on investment. |
Aging Healthcare Lab Equipment Automation Demographics | |
AIGenerative artificial intelligence is described as a powerful wave with potential to reshape industries and the economy. While AI may have profound effects on many industries and companies, human needs for food and health-related products remain unchanged. The technology may change how businesses operate but won't affect underlying demand for essential products. |
Technology Disruption Automation Innovation Transformation | |
| 2024 Q2 |
E-commerceAllegro's success in defending against Amazon's entry into Poland demonstrates the opportunity for small-cap investors to identify situations where market fears about large new entrants are overestimated. Allegro leveraged smart parcel distribution strategy and network effects to maintain market position despite Amazon's significant resources. |
Marketplaces Network Effects Logistics Competition |
Small CapsSmall caps have underperformed larger peers by a wide margin over the last couple of years, as mega-cap stocks dominate market returns. The portfolio focuses on high-quality businesses with competitive advantages in growing, profitable niches that can withstand attacks by large, well-funded competitors. |
Underperformance Quality Competitive Advantages Barriers | |
| 2024 Q1 |
AIGenerative AI is a powerful wave gaining momentum since ChatGPT's launch, with global spending on enabling chips expected to surge from $50B in 2023 to $100-400B over the next few years. Smaller companies like Pfeiffer Vacuum occupy important niches in the AI supply chain, manufacturing advanced vacuum pumps critical for semiconductor clean rooms where AI chips are produced. |
Semiconductors Chips Manufacturing Supply Chain Technology |
CybersecurityRising ransomware attacks (up 70% in 2023) and expanding digital identities create strong demand for cybersecurity solutions. Cyberark benefits from protecting privileged access management, with only 50% of privileged users currently secure at customer organizations, presenting significant expansion opportunities. |
Ransomware Digital Identity Access Management Security Software Data Protection | |
SemiconductorsIncreasing semiconductor complexity drives greater need for specialized manufacturing equipment like Pfeiffer Vacuum's pumps. As transistors become smaller and more sensitive to impurities, more powerful vacuum pumps are required for clean room environments, with nearly half of Pfeiffer's sales going to semiconductor customers. |
Manufacturing Equipment Clean Rooms Vacuum Technology Chip Production Precision Manufacturing | |
JapanBank of Japan's landmark move to end negative interest rates and yield curve control boosted value stocks in Japan, which led the index performance. The cheapest Japanese stocks outperformed the most expensive by nearly 1,600 basis points during the quarter. |
Monetary Policy Interest Rates Value Stocks Central Banking Market Leadership | |
| 2023 Q4 |
JapanJapan represents the single-largest country weight in the international small-cap benchmark but has been a source of style headwinds for quality growth stocks. The manager discusses Japan's economic reforms, corporate governance improvements, and new TSE mandates that may benefit lower-quality companies in the short term but could increase the number of high-quality companies over time. |
Corporate Governance TSE Quality Growth Reforms |
QualityThe portfolio focuses on quality growth stocks, which faced significant style headwinds in 2023, particularly in Japan. High-quality small companies underperformed low-quality ones, and the manager's research process seeks companies with strong competitive advantages, managerial excellence, and sustained high profitability. |
Growth Profitability Competitive Advantages Style Headwinds | |
AIArtificial intelligence captivated investors given the technology's potential to drive long-term productivity gains and growth. The IT sector was propelled by enthusiasm over AI, with the sector surging nearly 35% for the year. |
Technology Productivity Growth IT |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jan 20, 2026 | Fund Letters | Jafar Rizvi | 002891 CH | Yantai China Pet Foods Co., Ltd. | Consumer Staples | Packaged Foods & Meats | Bull | Shenzhen Stock Exchange | Certifications, Exports, Foodsafety, Labor, Petfood, Share, Supplychain | Login |
| Jan 20, 2026 | Fund Letters | Jafar Rizvi | 4527 JP | Rohto Pharmaceutical Co., Ltd. | Consumer Staples | Personal Products | Bull | New York Stock Exchange | Demand, expansion, eyecare, Normalization, premiumization, Skincare, supplements | Login |
| Jan 20, 2026 | Fund Letters | Jafar Rizvi | HERDEZ MM | Grupo Herdez, S.A.B. de C.V. | Consumer Staples | Packaged Foods & Meats | Bull | New York Stock Exchange | buybacks, Capitalallocation, divestiture, Food, Margins, spinoff, Streamline | Login |
| Jan 20, 2026 | Fund Letters | Jafar Rizvi | EVT GR | Evotec SE | Health Care | Life Sciences Tools & Services | Bear | Xetra | biopharma, Cycles, Outsourcing, Partnerships, profitability, R&D, spending | Login |
| Jan 20, 2026 | Fund Letters | Jafar Rizvi | DIA IM | DiaSorin S.p.A. | Health Care | Health Care Equipment | Bear | Borsa Istanbul | Barriers, cashflow, Consumables, diagnostics, Margins, Regulation, Testkits | Login |
| Jan 20, 2026 | Fund Letters | Jafar Rizvi | CWK LN | Cranswick plc | Consumer Staples | Packaged Foods & Meats | Bull | New York Stock Exchange | Animalwelfare, CapEx, consolidation, Margins, Pricing, Regulation, scale, Supply | Login |
| Oct 19, 2025 | Fund Letters | Jafar Rizvi | 6869 JP | Sysmex Corporation | Health Care | Health Care Equipment | Bull | NYSE | diagnostics, Emerging markets, Installed base, Margins, Reagents, recurring revenue, visibility | Login |
| Oct 19, 2025 | Fund Letters | Jafar Rizvi | AFX GR | Carl Zeiss Meditec AG | Health Care | Health Care Equipment | Bull | - | Demographics, Installed base, margin normalization, Ophthalmology, Premium iols, Recurring mix | Login |
| Oct 19, 2025 | Fund Letters | Jafar Rizvi | MEDI NO | Medistim ASA | Other | Health Care Equipment | Bull | NYSE | Cardio surgery, Disposables, Free Cash Flow, Procedures, Sales expansion, TAM, Utilization | Login |
| Jul 22, 2025 | Fund Letters | Jafar Rizvi | CYBR | CyberArk Software Ltd. | Information Technology | Systems Software | Bull | NASDAQ | AI, cybersecurity, Identity, Recurring, Regulation, Software | Login |
| Jul 22, 2025 | Fund Letters | Jafar Rizvi | GLOB | Globant S.A. | Information Technology | IT Consulting & Other Services | Bull | New York Stock Exchange | AI, Consulting, Digital, growth, Platforms, Subscription | Login |
| Jul 22, 2025 | Fund Letters | Jafar Rizvi | 4527 JP | Rohto Pharmaceutical Co., Ltd. | Consumer Staples | Personal Products | Bull | New York Stock Exchange | AI, consumer, eyecare, healthcare, innovation, manufacturing | Login |
| Jul 22, 2025 | Fund Letters | Jafar Rizvi | 3697 JP | SHIFT Inc. | Information Technology | Application Software | Bull | New York Stock Exchange | AI, Japan, Quality, services, Software, Testing | Login |
| TICKER | COMMENTARY |
|---|---|
| NDAQ.DE | Germany's Nemetschek, for instance, benefits from the complexity of the regulatory framework that its customers—mainly architects, engineers, and builders—must navigate when using its software to design and construct buildings. Europe mandates a set of 10 technical standards, known as the Eurocodes, that govern how buildings and structures are engineered, covering everything from the required number of longitudinal bars in a concrete column to criteria for fire resistance and seismic resilience. As a result, Nemetschek's more than seven million users rely on its software not just for design and planning but also to ensure compliance with a complex array of rules and standards. The company's tools also have been used in the planning of buildings and structures that have stood for decades, fostering familiarity and trust. Therefore, customers tend to view switching to alternative software as costly and risky. Nemetschek has integrated AI into its software to help users more easily interact with construction plans by quickly visualizing proposed design changes, for example, or locating specific details within complex technical drawings. |
| TEMN.SW | For instance, a big bank is no more incentivized to abandon its core systems than an airline is to abandon air-traffic control. The operational, reputational, and regulatory consequences of a failed software migration are simply too high. For the more than 3,000 banks and financial institutions across 150 countries—including 41 of the world's 50 largest banks—that rely on Temenos Group's banking software, there is little incentive to move to an AI-based alternative. In banking, Temenos has launched tools to automate fraud detection, compliance monitoring, and the diagnosis of payment-processing issues, which are high-value, rules-intensive functions. |
| KXS.TO | Meanwhile, we took advantage of the rout in IT stocks to add to our Canadian software holding Kinaxis as well as purchase shares of ATOSS Software, based in Germany. Kinaxis's platform is used by large, global companies such as Ford, Honeywell, Raytheon, and Samsung to manage sprawling, high-volume supply chains in real time. The software aids in the planning of inventory, orders, and sales and operations, a complex set of tools that aren't easily replicated. It took years of research and development for Kinaxis to build this enterprise-grade product, including input from teams at large organizations with which it sought to do business. The company is investing in AI and projects continued growth in subscription revenue and profitability for this year. |
| AOF.DE | ATOSS Software provides workforce-management tools to businesses in Germany, Austria, and Switzerland—the German-speaking region known as DACH, where it holds a roughly 30% market share. German labor law is among the most complex in the world, and the company's software is tightly intertwined with human-resources systems to help customers navigate these legal complexities. The involved and compliance-heavy nature of those systems leads to high customer switching costs and keeps the risk of AI substitution at bay. The company's growth has recently accelerated: Revenue climbed 11% in 2025 to 189 million euros ($222 million), with management aiming for 400 million euros by 2030. |
| FERREYCORP.LM | We also added a new Industrials holding that provides indirect exposure to the metals and mining industry (particularly copper). Ferreycorp is a distributor of Caterpillar mining and construction equipment in Peru. Several projects in the country backed by mining giants Anglo American, Glencore, Southern Copper, and Teck Resources should support ongoing spending on such equipment. Ferreycorp also has a strong aftermarket service business with a sizable backlog in both the mining and construction end markets. |
| SNR.L | Within Industrials, shares of Senior, a UK-based supplier of thermal-management and fluid-conveyance systems, rose after receiving takeover offers from a number of strategic and financial suitors. |
| LBTY.BR | Most Consumer Staples holdings were positive contributors, particularly Lotus Bakeries. The Belgian packaged-food manufacturer reported 13% growth in sales volumes within its Biscoff cookie business, after a new plant in Thailand eased capacity constraints. Lotus also struck a product-collaboration deal with Mondelez's India division. |
| S24.DE | Anxiety over AI disruption also weighed on Communication Services holdings such as Scout24, a German real estate listings platform. |
| CKN.L | Stock selection was strong in Europe ex EMU, led by Senior and UK-based shipbroker Clarkson. The latter benefited from higher shipbroking activity and freight rates as the effective closure of the Strait of Hormuz increased ton-miles for oil tankers and other vessels. |
| 3661.T | We also trimmed our holding in Shift, a Japanese software-testing business. Shift has benefited from a distinctive position providing a labor-intensive service in a country facing a chronic shortage of IT engineers. However, the company's aggressive hiring at a time when businesses are increasingly adopting AI-based testing tools introduces near-term margin risk. IT stocks were broadly weak, especially Shift, after the company's management said lower utilization of its software testers was hurting operating margins. Underperformance in Japan was primarily due to aforementioned holdings Shift and GMO Payment Gateway. |
| REY.MI | An unhelpful overweight in the EMU was compounded by weak software and services stocks in the region. Italy's Reply, an early adopter of AI-enhanced tools, was pressured by the transition from traditional time-and materials contracts to outcome-based pricing. |
| BEC.DE | Bechtle, a German IT-systems integrator, was hurt by slowing demand from small and medium enterprises in its key geographic markets as well as a shortage of components such as memory chips. |
| 3769.T | In Financials, GMO Payment Gateway, a Japanese payments-processing company, suffered temporary setbacks due to the previously announced departure of a large customer, telecommunications carrier NTT Docomo, and delays in some local government projects. |
| 2454.TW | Taiwanese holding Aspeed Technology reported continued strong demand for its baseboard management controllers, which are used to help data center operators remotely manage servers. |
| HEXPOL.ST | Underperformance in Materials was primarily due to SH Kelkar and Hexpol. Hexpol, a Swedish specialty chemicals company, reported disappointing operating margins due to seasonally low utilization rates at its plants. |
| SHKELKAR.NS | SH Kelkar, a specialty flavors and fragrances company based in India, was hit by rising raw materials costs in the wake of the war. |
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