Baptism of fire 

It has only been a short period since I wrote the Day 1 investor letter. It included our first bid, a stock with a significant earnings downgrade, and notable moves in a handful of software and classified businesses. Volatility in our investment universe was high over the period, with some significant intraday moves in stocks falling on days when we received and invested cash. 

Focus on the fundamentals 

On the big picture, our one-year forward earnings forecasts have risen roughly 3% over the period since inception, while the fund’s current multiple has fallen by about 3%. That overall signal makes me bullish. We aim to invest in positions that, based on our internal modelling, could support returns of 15%+, driven by 20%+ EPS growth in companies with improving margins. We expect some mild derating over time as top-line sales growth moderates and are well aware that the transition from fast sales growth to fast earnings growth can be a bumpy one. It is one of the reasons we believe it is the space to focus – because fundamental research really pays off. When share prices are volatile it can be disorienting but our anchor is the models we build for each company and the expected Internal Rates of Return implied by our forward-looking forecasts. The key question for us today is whether the recent derating in the portfolio is justified by deteriorating fundamentals or not. We must be humble to the potential for error but willing to back our judgement in the face of volatility. 

Digging into stocks 

So where did the derating occur in recent weeks? The main contributors were three of our healthcare technology stocks: Veeva, Doximity and Phreesia — all of which actually had one-year upgrades during the period. Life sciences software provider Veeva derated significantly after announcing it was losing a customer as it migrates off the Salesforce platform, though the share price move far exceeded the potential revenue impact (less than 1% of projected 2030 sales). A recent investor event indicated the $6 billion revenue target for 2030 remains on track. A recent share buyback announcement reinforces management conviction in the long term fundamentals.  Doximity delivered a strong Q2 well ahead of consensus, but increased perceived competition led to multiple compression. The pharmaceutical advertising space remains under-digitised and Doximity remains one of the highest ROI channels for pharma, so it should benefit from continued digital adoption and share gains going forward. Only time will tell if the competition impacts the financial performance of the company. Phreesia delivered another strong quarter with excellent cost control and operating leverage, using AI to improve efficiency. Despite an EPS-accretive deal announced in Q3, the stock derated amid concerns around its Network Solutions business due to a temporarily soft macro backdrop. All three companies are focused on making healthcare more efficient and helping physicians concentrate on improving patient outcomes.  We maintain our view that prospects for all three companies remain excellent. 

Deratings also occurred in our Technology SaaS and Media Classified holdings. Baltic Classified Group (BCG) had a downgrade due to a weak Estonian car market driven by a new national motor vehicle tax change, which the management team had already flagged. We expected the short-term downgrade but maintained a smaller initial position because we like the long-term opportunity. We have since purchased more as the stock fell nearly 30% over the period with only a 4% reduction in one-year earnings forecasts. Our five-year earnings outlook has barely changed even with additional investments into AI.  

The Good 

On the positive side, ASML, our largest position by market cap and position size continued to perform well. TSMC needs more capacity to fulfil orders from GPU and fabless semiconductor manufacturers. Even with Chinese and US government efforts to develop competing solutions, ASML remains, in our assessment, the dominant supplier for at least the next 5–10 years in our view.  DRAM prices have risen sharply; this gives a growing number of customers the incentive to consider investing in leading edge capacity. Pricing dynamics for new EUV orders will be interesting as these DRAM players and Intel compete with TSMC and Samsung to secure machines.  We expect a good update when they report, while recognising outcomes may differ from expectations. 

Allfunds was acquired by Deutsche Börse. It’s always positive on the day, but it is frustrating to redeploy capital so soon after investing.  The deal is going to be a long drawn out process and we see better opportunities in the areas of the market which have been derated.  

The Bad 

SOITEC reported weak numbers as the outgoing CEO cleared the decks for the new management team and worked through inventory channel clean-up for FD-SOI wafers. Paying a trough multiple for trough sales is uncommon with future leaders due to the premium valuation they normally attract. After a tough environment in Mobile their products have a new growth driver as they start to penetrate datacentres, and with Moore’s Law slowing and power consumption increasingly important, we hope the new team can secure new customers and applications for their SOI technology. Early signs of cyclical rebound among customers suggest Soitec may be near the bottom. We look forward to meeting the new CEO who has a long history in the semiconductor field.  

The Ugly 

The largest negative contributor over the period was eDreams. I was attracted by the successful shift to subscription and the significant increase in cash generation achieved under its five-year plan that ended in March 2025. It was therefore surprising to see a meaningful strategic pivot in November, given management had suggested continuity when we met just before our fund launch. The actions announced could enable the company to scale beyond our 2030 assumptions but at a substantial near-term EPS cost. We have spoken with management, board members, other investors, (including a hedge fund that is short the stock), and contacts within the company to assess whether our longer-term forecasts remain viable. The upside from here is very significant in our opinion, while acknowledging considerable execution and market risks.

Outlook 

We are excited about the stocks in the portfolio. We are investing in companies where we believe their proprietary data and close customer relationships provide a moat against disruption by large AI players such as Google (including Anthropic and DeepMind) and OpenAI. These are the firms that, in our view, now have the reach and scale to disrupt. We also believe that “AI native” startups raising capital may pivot to acquiring derated traditional leaders (if they can outcompete private equity) before many are relegated to the history books.  It was interesting to see Cisco briefly reach all–time highs 25 years after the dot-com boom. I wonder if this technology cycle will be different this time.  The upgrades to forecasts give me confidence we should battle through the current market uncertainty.  I thank our patient and early investors.