Hidden in plain sight: our quest for quality around the world
Recently, we highlighted the attractive opportunity we see in international equities.¹ On the back of more than a decade of underperformance relative to the U.S., we believe international now has some notable winds at its back, including cheap absolute and relative valuations and moderating dollar strength.
Regardless of present tailwinds, we believe that investors who either have or are considering an international allocation should take a discerning approach. In a universe where many publicly traded companies offer low returns on capital, low growth, high leverage, and negative free cash flow, we believe it’s crucial to narrow in on truly exceptional businesses with characteristics supportive of long-term compounding. In some cases, these businesses operate in specialized segments of the global economy where a U.S. based equivalent company either doesn’t exist or, in our opinion, is significantly inferior.
Here, we offer four examples to illustrate the unique, secular growth opportunities we identify outside the U.S.2 These include a leading semi-conductor manufacturer from the Netherlands, world leader in iconic luxury goods in LVMH, Argentina’s e-commerce powerhouse in Mercado Libre, and an Australian biotech company with CSL. Their market capitalizations range from $50 billion to $500 billion, but it would be a mistake to assume large cap is the exclusive domain of high-quality growth companies. Many small and small and mid cap companies with dominant market share positions in a given niche or geography have the potential to become the leaders of tomorrow. In some instances, these companies have achieved scale and are broadening their horizons globally. In other cases, they follow a playbook already tested and proven in the U.S., allowing them to achieve scale efficiently. Across the spectrum of sizes and regions, the common thread we seek is high-quality, unique businesses with a track record of sustainably compounded growth, which in turn can drive robust stock performance.
1 Polen Capital, Opportunity Beyond Borders, April 2023.
2 ASML is a holding in Polen Capital’s International Growth strategy as of March 31, 2023. CSL is a holding in Polen Capital’s International and Global Growth portfolios as of March 31, 2023. MELI is a holding in Polen Capital’s International and Emerging Markets Growth portfolios as of March 31, 2023. LVMH is a holding in Polen Capital’s Global Growth and International Growth strategies as of March 31, 2023.