US Equity Growth: investor letter Q1 2025

Your capital is at risk.

Adventurer Sir Ranulph Fiennes’ greatest mission took three years to complete and passed through the most treacherous trade route in the world – the Northwest Passage, a 900-mile labyrinth of waterways separated by enormous ice sheets and towering 300-foot icebergs, running from Alaska to Greenland. It forms part of the first and only successful north-south circumnavigation of the world.

Bold ambition, resilience, and pioneering spirit helped him overcome great adversity in pursuit of his missions. His salutary lessons from a lifetime of exploration apply to your portfolio companies, particularly as they relate to successful risk-taking in the face of uncertainty.

The only certainty is uncertainty

In the US, we have undergone a change of leadership that sees Donald Trump begin his second Presidential term. It has been accompanied by a sharp rise in uncertainty in recent months. Trade policy has been the greatest contributor to uncertainty. In the two months since the new Administration took office, there have been no less than 18 announcements and directives (of varying scope and size) relating to trade and tariffs.

The onslaught of announcements is dizzying, and the rise in uncertainty is having two main impacts. First, in the real economy, consumer confidence has taken a dent. Fear of higher prices looms large in the memory of the US consumer. Similarly, the optimistic outlook of American businesses has cooled this year. The second effect can be seen in the stock market – there has been a marked rise in volatility.

The rising pessimism from the top-down stands in stark contrast to what we are seeing and hearing from companies: they remain upbeat and focused on their mission rather than distracted by politics.

The importance of preparation

We are seeing the ‘fitness’ of your portfolio improve, and it is now much stronger than it was three years ago. Over 90% of the portfolio is profitable or generating positive free cash flow1; and holdings, in aggregate, are net cash on the balance sheet.

Meanwhile, they continue to reinvest in R&D (at three times the rate of the S&P 500), and the portfolio is forecast to grow two times faster than the S&P 5002. Growth has reaccelerated and your companies are leaner and fitter, having successfully dealt with the challenges they faced in the wake of the pandemic. Your portfolio is in strong financial health to navigate the uncertain environment.

But how exposed is the portfolio to the tariff threat?

The portfolio’s composition offers some resiliency. For one, the revenue exposure has higher domestic sales than the index and lower sales to China. Second, the portfolio has greater exposure to the digital economy (think software, services, digital media and entertainment) rather than the physical economy (think commodities, consumer and hard goods). It is unlikely Netflix’s hit South Korean export, “Squid Game,” will be high on the tariff agenda.

Where there is a potential threat, we’re ensuring mitigation strategies are in place. For example, Shark Ninja and Yeti are two consumer goods companies with supply chains in China. We’ve discussed with their management teams the strategies they’re implementing to move US supply out of China. We can factor the tariff risk into our analysis and positioning.

Learning from setbacks

Recent volatility has provided an early stress test of the portfolio construction enhancements we implemented last year. This portfolio will inevitably display higher volatility than the index, such is the nature of our concentrated, high-conviction growth approach. That is unchanged. However, it has been encouraging to see the portfolio’s relative volatility near more normal, pre-pandemic levels.

Patient long-term investment is not an excuse for inaction. Over the past 12 months, we have trimmed many of the portfolio’s strongest contributors. In January, we meaningfully reduced adtech platform The Trade Desk and made another reduction to NVIDIA on valuation grounds. More recently, we trimmed Netflix and continued to reduce Tesla (after substantial reductions in November and December) and The Trade Desk. We can use our active approach to our advantage and be nimble regarding valuation, something the index can’t.

Leadership, teams and character

Navigating challenging periods necessitates vision and leadership. It is one of the reasons culture is a foundational pillar in our assessment of companies.

17 of the top 20 holdings are run by founders, and across the entire portfolio, around three-quarters are, far more than the index. We look favourably on founder-led companies. These individuals tend to possess deeper, intrinsic motivations to realise their ambition, greater agency to prioritise long-term growth, and a long-term mindset aligned with our own. Some have the added advantage of detailed technical understanding, equipping them to better develop and integrate technologies.

Shopify serves to illustrate the point. In 2023, founder-CEO Tobi Lütke, a former computer programmer, made a bold decision to exit their logistics business in favour of pursuing the emerging opportunity from generative AI. Lütke now sees AI as the focus for a “decade of high velocity and massive change.” Shopify has launched AI-powered tools like Shopify Magic and Sidekick, tools which increase the platform’s utility for merchant customers. The pivot has proven effective, creating more value for merchants, which, alongside greater operational efficiency, has seen growth reaccelerate and operating margins inflect 20 per cent higher over the last couple of years.

Against a backdrop of scarce technical expertise, Globant is strategically positioned to capitalise. The race to upgrade technology cuts across industry and geography and Globant’s proven technical know-how for digital transformation is mission-critical for companies crossing the technological Rubicon. It doesn’t just build software – its consultants and developers help businesses figure out how to effectively utilise technology by providing creative, independent thinking. Their nimble ‘Pod’ structure excels at building bespoke solutions and getting the most from IT resources. As enterprises are shifting from experimenting to deploying AI, we see a big potential unlock emerging and Globant’s technical expertise makes them ideally positioned to capture this growth.

The controversy surrounding Tesla, held for more than a decade, has reached new levels recently. Musk’s close relationship with President Trump and role in DOGE may be damaging the EV maker’s brand at a point when its growth has stalled. How much of a distraction this has become for the visionary leader and what the close relationship with the Administration means for Tesla is a point of contention. We are weighing the severity and implications of all this in conjunction with what remains a massive amount of white space in its other, earlier-stage opportunities, such as energy storage, autonomous driving and robotics.

The value of perseverance

When the outlook becomes more challenging or uncertain, great leaders adapt and persevere. We look for evidence of this in companies, and the post-pandemic period was a challenge that your portfolio overcame; companies are battle-hardened and more resilient for it.

Persevering in the face of uncertainty is important to how we invest on your behalf. We are bottom-up fundamental investors. We research companies and develop deep conviction before making each investment. We get to know founders and leaders, appreciate their vision and understand their strategies for executing that vision.

Conviction can be tested in times of uncertainty, when the market noise rings loud and volatility is elevated. During these periods, we revisit our research, trust in our process and ensure holdings’ behaviour is consistent with our expectations and forward-looking hypothesis.

We have learned the value of perseverance. Early investments in NVIDIA (2016), Tesla (2015) and Shopify (2018) have paid off with exceptional holding period returns of 48x, 17x and 10x, respectively. Along the way, however, we faced steep drawdowns, challenges to the investment thesis and periods of market overexuberance. Experience reinforces our approach, and it helps us maintain the courage of our convictions.

Resilience and adaptability

While a new US President and Administration disrupt established norms, exceptional companies thrive amid uncertainty. Global trade is under siege and America is at the centre of it. But just as Sir Ranulph and his team were able to chart a course through the Northwest Passage – the world’s most challenging trade route – we believe your portfolio of exceptional growth companies, led by resilient and adaptable founders and leaders, are well-positioned to navigate any challenges that lie ahead.

1On a trailing 12-month basis

2 Data at 28 February 2025. Based on a representative portfolio. US dollars. R&D-to-sales and 3-year forward sales forecasts. For the Russell 1000 Growth index it is 2x and 1.3x respectively. For the Russell 3000 Growth it is 2x and 1.5x respectively.

Source: Revolution, S&P. US dollars. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. 1 year figures are not annualised. 

Past performance is not a guide to future returns.

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