RGI Global Alpha Fund Update - August 25
Outlook
‘Earnings season’ can occasionally feel like running through treacle, but it does serve a purpose in providing us with datapoints to check our investment cases are on track and, sometimes, new threads on which to pull via new disclosure.
One way we can keep score on our own investment process is our ‘fundamental hit rate’, or in other words the proportion of our portfolio companies which are meeting or exceeding consensus expectations. To be sure, this is a blunt instrument due to well-known issues (for example, some management teams might manage consensus closely to ensure a ‘beat’ on the day), but we think it holds some informational power.
For the period just gone, 62% of our holdings beat revenue expectations and 74% beat at the EPS line.[1] We view this as a solid outcome. Share price performance on the day following results was more mixed, with just over half of our companies outperforming the global benchmark.[2] Our growing sense over the last several years is that immediate share price responses to earnings have become close to random, driven almost entirely by positioning.
In the US, the average stock price reaction of companies raising or cutting their full year EPS guidance was the most negatively skewed since 2001. The average company cutting guidance fell -10%, more than double the reaction for those raising (+4%).[3] Within this portfolio, the skew was similar at ~2x the average negative reaction for the quarter of our holdings that missed EPS estimates versus the positive reaction for those that beat.[4]
Given our belief that over the long-term share prices follow compound earnings and free cash flow growth, the more meaningful (and encouraging) figure for our investors is that companies in the portfolio are on average growing pre-tax profits at 10% year-on-year.[5] This is healthy growth in a challenging environment.
Strategy Update
Activity
We bought no new investments and exited one in August.
Bank of Ireland was also sold as it reached our assessment of fair value.
The primary buying activity was to increase the weight of existing investments in Altus Group and Fielmann Group.
Performance
The Fund returned +0.4% in August. In comparison, the MSCI ACWI index returned +0.4% and the MSCI ACWI Value +1.1%.[6]
TopBuild (+11% in GBP) was the largest positive contributor following strong Q1 results, continuing July’s strong performance. It delivered better profit margins than expected in Q2, with pricing holding up despite weak volumes in residential housing end markets. Full year guidance was unchanged, implying a slight downgrade to the organic revenue growth outlook (given it now includes some revenue from the Progressive acquisition, discussed last month). Kansai Paint (+16%) raised its ordinary dividend per share by 50%. At the current share price, it offers a yield of ~4.4%.[7] Sony Group (+11%) quarterly results came in materially above analyst expectations, led by a big beat in the Games segment.[8]
Fielmann Group was a modest negative contributor to relative returns (-7%). It experienced some profit-taking following its half-year / Q2 results, for which the headline figures had already been pre-announced.
[1] Source: Bloomberg Finance LP. Data to 1 September 2025.
[2] Source: Bloomberg Finance LP. Data to 1 September 2025.
[3] Source: https://x.com/bespokeinvest/status/1954540666652107258
[4] Source: Bloomberg Finance LP. Data to 1 September 2025.
[5] Source: Bloomberg Finance LP. Data to 1 September 2025.
[6] Fund: B share class (GBP), midday to midday pricing. Benchmark: close-of-business to close-of-business pricing. All performance data from Bloomberg Finance LP.
[7] Source: Bloomberg Finance LP. Data to 1 September 2025.
[8] Source: Bloomberg Finance LP. Data to 1 September 2025.