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Within crowded international benchmarks lies a cohort of companies whose strategic foresight and pricing power can set them apart. By treating these businesses as a standalone growth asset class—and applying an owner’s mindset, concentrated conviction and unwavering selectivity—investors may unlock return potential that passive allocations may miss.
Key Points
- A narrow universe of global leaders across industries has driven durable earnings growth beyond the reach of broad regional indices.
- A concentrated team and portfolio allow us to develop deep, region-specific knowledge, which we view as an essential edge for uncovering promising investment opportunities in international markets.
- Selectivity is critical in international markets because broad benchmarks can conceal wide gaps in quality. By focusing only on the highest-conviction businesses, we aim to unlock the potential for long-term value creation.
Within vast international benchmarks lies a narrow universe of businesses whose innovation, strategic foresight, resilient earnings power, cash generation, and favorable capital allocations can set them apart. These select companies have engineered their own resilience, diversifying supply chains, localizing production, and commanding pricing power. By focusing on these businesses that we believe to be high quality, investors may tap into secular growth drivers that can be obscured by the broader geopolitical or macroeconomic concerns.1
Across developed and emerging markets alike, corporate-governance reforms, technological shifts, and demographic changes are creating fresh pockets of leadership. In Japan, for example, once-stagnant consumer-staples firms are now pioneering semiconductor-materials production, while robotics innovators win new factory mandates as companies seek efficiency gains. In Europe, automation specialists thrive amid trade-war volatility, and niche healthcare suppliers maintain steady demand despite policy headwinds. These opportunities transcend borders: the next generation of compounders can potentially be found wherever rigorous selectivity replaces passive exposure.
While investors might shy from international exposure, fearing macroeconomic and geopolitical uncertainty, we believe that businesses that “create their own weather”—by owning their value chains, reinvesting intelligently and defending pricing power—emerge stronger from volatility.
By treating international markets as a unified opportunity set, we endeavor to isolate the growth leaders trading at discounts to their long-term trajectories and position portfolios for durable, compounding returns.
Capturing Growth Opportunities Requires an Active Approach
In our view, capturing global growth requires more than broad sector tilts or regional quotas. It demands a research-intensive, owner-driven approach honed over decades. At our core lies a single conviction: over the long run, earnings growth is the dominant driver of equity returns. We neither time markets nor chase momentum; instead, we immerse ourselves in the businesses we own, thinking like owners responsible for long-term franchise value.
Our international portfolio managers partner with 20 research analysts—each covering a handful of companies for years. In using this structure, we seek to foster deep institutional knowledge and open, high-trust debate. Every prospective investment must clear rigorous hurdles: sustainable above-average earnings growth, leadership in an attractive industry, durable competitive advantages, financially healthy balance sheets, clear mission and value-added focus, and a valuation that reflects where the company can be in five years.
We manage concentrated portfolios that allow us to commit meaningfully to our highest-conviction ideas and often engage directly with management on strategy, capital allocation, and emerging risks. It also ensures we know each company thoroughly—its competitive dynamics, growth drivers and balance-sheet levers—so that when volatility strikes, we understand exactly why we remain invested.
Valuation discipline underpins every decision. We model each business’s earnings trajectory over a five-year horizon—and often stretch to 10—and then calibrate the premium we’re willing to pay today. In collaborative research meetings, we stress-test growth assumptions, debate downside scenarios and align on the price that balances opportunity with risk. This ensures our international sleeve reflects only those franchises whose potential compounding merits a valuation premium in our view, rather than chasing thematic trends or index weightings.
Where We See Opportunities in International Markets
Many of our businesses are driving or benefiting from secular shifts that transcend regional boundaries and deliver durable growth. Some of those include:
- Financial services digitalization
Cross-border payment services and digital-wallet providers are capturing rapid ecommerce adoption and under-banked populations. By simplifying remittances, merchant payments, and mobile transactions, these platforms are intended to unlock durable revenue streams—especially in Asia and emerging markets where online payments remain nascent. - Legacy process improvement
Companies that enable manufacturers to diversify supply chains and localize production are thriving amid trade-war uncertainty and rising labor costs. European and Japanese firms specializing in robotics, factory automation, and computer-aided design are securing long-term contracts as global supply chains reconfigure. These businesses enjoy pricing power and resilient demand, whether building new plants closer to end markets or retrofitting existing facilities for greater efficiency. - The future of computing
Demand for computing power is accelerating faster than many appreciate, driven by artificial-intelligence workloads and data-intensive applications. Semiconductor-equipment leaders, high-precision materials suppliers and specialty glass tools manufacturers occupy critical choke points in the value chain. These businesses command premium pricing as they enable chipmakers to meet escalating performance and complexity requirements, positioning them for long-duration secular growth potential. - Retail revolution
The retail revolution that is ecommerce has only just begun: online sales still comprise around 20 percent of global retail.2 Leading regional marketplaces, direct-to-consumer luxury platforms and discount-retail websites are capturing this runway, scaling logistics networks and leveraging brand strength to drive consistent expansion.
By zeroing in on these distinct themes—rather than broad regional allocations—we focus capital on the relatively few international leaders we believe have sustainable competitive advantages, pricing power and clear paths to compound earnings over the long term.
The Imperative of Selectivity
Passive international indices can mask a stark divergence in quality. For every growth leader, dozens of cyclical or slow-growth firms dilute returns and introduce unwanted volatility. To harness the compounding power of global earnings, we believe investors must apply an unwavering focus to identify those businesses that combine innovation, pricing power and reinvestment agility.
Selectivity begins with bottom-up research calibrated to uncover what we consider to be “hidden gems” in each market. Our process for uncovering opportunities lies in understanding the secular tailwinds that are supporting these “gems”, but it is most deeply rooted in our years of experience, pattern recognition, and adherence to our six criteria that underscore our search process.
This rigorous filtering inevitably leads to a concentrated portfolio. But in our view, concentration is not synonymous with risk; rather, it is the natural outcome of investing only in businesses we know well and believe in deeply. We exit positions only when, in our opinion, a company’s fundamentals deteriorate beyond a transitory setback, its valuation becomes unjustified, or we believe a better opportunity exists. Because each new addition requires freeing up capacity, every change represents an upgrade in expected growth or quality—never mere portfolio churn.
Moreover, a concentrated, research-driven approach sharpens our risk-management insights. Quantitative tools help us monitor each holding’s volatility profile and correlations, but our true confidence stems from intimate knowledge of each business’s strategic playbook and balance-sheet strength. When uncertainty flares—whether from geopolitical events or rapid policy shifts—our research provides insights on which companies can pass through price increases, defend their moats and continue to invest in growth.
Unlocking Global Compounding
International equities are far more than a geographic footnote; they represent a standalone growth asset class brimming with underappreciated leaders. From Europe’s automation and digital-services specialists to Japan’s governance-driven renaissance and emerging-market platform leaders, the world beyond U.S. borders offers a rich pool of compounding earnings stories.
By marrying an owner’s mindset with concentrated conviction, rigorous valuation discipline, and unwavering selectivity, Sands Capital aims to deliver a differentiated pathway to capture that global opportunity. We don’t split hairs over regional benchmarks. We hunt down tomorrow’s potential market leaders, wherever they trade, and hold them with the conviction needed to let compounding take effect.
1 At Sands Capital, we define high-quality businesses as those which meet our six criteria.
2 Boston Consulting Group. “E-Commerce to Hit $6 Trillion, Representing 20% of Global Retail Sales.” BCG, October 31, 2023. https://www.bcg.com/press/31october2023-ecommerce-global-retail-sales
Disclosures:
The views expressed are the opinion of Sands Capital and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed were current as of the date indicated and are subject to change.
There is no guarantee that owning securities of companies meeting the six criteria will cause the portfolio to outperform its benchmark or index.
This material may contain forward-looking statements, which are subject to uncertainty and contingencies outside of Sands Capital’s control. Readers should not place undue reliance upon these forward-looking statements. There is no guarantee that Sands Capital will meet its stated goals. Past performance is not indicative of future results.
All investments are subject to market risk, including the possible loss of principal. Recent tariff announcements may add to this risk, creating additional economic uncertainty and potentially affecting the value of certain investments. Tariffs can impact various sectors differently, leading to changes in market dynamics and investment performance. You should consider these factors when making investment decisions.
International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional and economic developments. Investments in emerging markets are subject to abrupt and severe price declines. The economic and political structures of developing nations, in most cases, do not compare favorably with the United States or other developed countries in terms of wealth and stability, and their financial markets often lack liquidity. Because of this concentration in rapidly developing economies in a limited geographic area, the strategy involves a high degree of risk. In addition, the strategy is concentrated in a limited number of holdings. As a result, poor performance by a single large holding of the strategy would adversely affect its performance more than if the strategy were invested in a larger number of companies. The strategy’s growth investing style may become out of favor, which may result in periods of underperformance.
Differences in account size, timing of transactions, and market conditions prevailing at the time of investment may lead to different results, and clients may lose money.