Walter Scott & Partners Ltd. 2025 mid-year investment outlook: Global and International equities Renaissance Global Growth Fund & Renaissance International Equity Fund

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[Walter Scott & Partners Ltd. 2025 mid-year investment outlook: Global and International equities Renaissance Global Growth Fund & Renaissance International Equity Fund]

[Featuring Murdo MacLean Client Investment Manager, Walter Scott & Partners Ltd.]

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>> Murdo MacLean: Hi there. My name is Murdo McLean, I'm a Client Investment Manager at Walter Scott based in Edinburgh. I started here at Walter Scott in 2006, spent 12 years on our research team covering Japanese and Asian equities. And then for the last six years I've had the pleasure of covering most of our Canadian client base as a client-facing individual. It's my pleasure to be speaking with you today.

So the first half of 2025 has been nothing short of eventful. It still feels very much like there are many chapters yet to be written about 2025, given the fact that many of the things that were announced back in April were kind of put on pause and we will soon get clarity, we hope, on some of those aspects.

The year started with this view that the US market, as good as it is, had perhaps gotten over its skis a little bit from a valuation perspective where traditional premium of the US over international of 30 to 40% had risen to something like 80%. And so there was clearly asset allocation calls being made towards the sort of X US part of the opportunity set. And I think we saw that with the fact that the US had suffered its worst quarter in Q1 for 30 years. And to us as a long term manager, certainly one that takes count of valuation because the valuation is one of the key determinants of a good investment or a bad investment.

That made sense.

It seemed a sensible and perhaps overdue mean reversion within markets. The whole maelstrom of April's Liberation Day or Obliteration Day as I've heard it now referred to, felt like an obvious reaction to quite a shocking policy sort of announcement. But what we've seen since then, particularly in June, has been curious I think. It's basically reverted to the playbook that we've seen over the last 12 months or so. It's AI, it's US tech, it's US over international, all within the context of the fact that you have no clarity about the ultimate policy decisions.

So we're kind of back where we were, I would say, a few months back. And I think that leads us to conclude that there is definitely a prospect for more volatility ahead this year. We still very much believe that you have to be in businesses that are going to be able to deliver tangible bottom line growth, whatever the end point is for these tariff negotiations, whatever the outcome, things will be more difficult for companies than they were 12 months ago. I think that is without argument the magnitude of which we don't know. And so I think very much from our perspective, global and international strategies, that's where we want to be. We want to be in businesses that have got really strong market positions, pricing power, balance sheet strength, cash flow generation, just the sort of businesses that you and I want to work for, we want to own, if we were of that position. Those are the businesses that will ultimately see our clients best through this near term uncertainty.

In terms of positioning, as you will well know, ultimately the shape of our global and our international portfolios is very much an outcome of the bottom up approach. It is the team of 20 people sitting around day in, day out discussing what we own and what we don't own and how we can make it better. And by better, what I mean is how can we make sure this portfolio is as robust as it can be from a growth perspective, from a profitability perspective, from a balance sheet perspective, because we just don't know what's around the corner. And this year, like every year that's come before, is a constant reminder that you just don't know what's going to happen. And so our objective at all times is to make the portfolio as profitable as it can be without overpaying and as financially robust as it can be. So in many ways, irrespective of what's happening outside of our windows, the job remains the same.

Our positioning as we look out over the next six months, 12 months and so on, is we want to be aligned to businesses that are operating with a natural structural tailwind to their businesses. So that naturally leads us to businesses in sectors such as healthcare, technology, of course, some of the areas of the consumer space, industrials. Now we have a fair chunk of both portfolios in those sectors, but they are very diverse in terms of what they touch. What I think we're very excited about, I would say going forward, and I think that is the tone I would like to get across here, is that we're very bullish around the potential for growth in areas like healthcare and in industrials. And that's a big part of the portfolio and I think these are world class businesses and we're very excited about that.

Technology is a given, technology will always be really exciting and AI is the buzzword of the day. But what I think we will see over the next five and ten years, without a doubt, is how the opportunity in AI expands outside technology. Right now it's basically hardware, it's chips, it's these sorts of stories all the time. What we will see if AI is worth its salt is that this will begin to penetrate different sectors. We will really see the benefits of AI as a tool. And I think that is very exciting for any business that is trying to plan for the next 10, 20 years. And we believe the portfolio is super well-positioned in that regard.

So we think for the next six months, but short-term in equities is always unknown. But for the next three, five, ten and beyond. Yeah, I think our approach to selecting stocks is exceptionally well positioned for that sort of time frame.

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