International Value [[{“value”:”
2025 was a strong year for international equity markets, as improving fundamentals and investor sentiment helped narrow the long-standing valuation gap between U.S. and non-U.S. stocks. The MSCI EAFE Index returned 31.2% for the year. Our International Value Equity strategy delivered a 35.5% return, producing attractive absolute results and outperforming the MSCI EAFE by 4.3 percentage points and the MSCI EAFE Equal-Weighted Index by 6.0 percentage points. While performance trailed the 42.2% return of the MSCI EAFE Value Index, the strategy generated a meaningful excess return versus its broad market benchmark during a robust period for international equities.
While non-U.S. stocks closed some of the valuation gap with the U.S., we see more room to go. Foreign stocks remain at a wide discount to the S&P 500 despite posting similar fundamentals to their U.S. peers. This creates a fertile hunting ground for us, and we continue to find good businesses at bargain prices.
Our strong return this year came despite a couple of headwinds, both of which we expect to reverse. First, 2025 was another year in which the largest cap stocks drove market returns. The EAFE beat its equal-weighed version by 1.7 percentage points in the year, making this the eighth straight year of cap-weighted outperformance. Such periods of cap-weighted outperformance have historically preceded periods of mean reversion. Second, bank stocks massively outperformed, appreciating 67% and driving an astounding 16 percentage points of total return to the EAFE Value. We avoid banks for their weak business structures and poor fundamentals. This has made them long-term underperformers, a trend we expect to resume in the future.
Even though the portfolio was up significantly in 2025, we have high expectations for forward returns. Our fund ended the year at a forward P/E of 12.1x. While this is higher than the 10.4x P/E valuation we carried into 2025, it is still exceptionally cheap for a portfolio of attractively growing businesses.”}]]
