As the global economy contends with mounting climate-related losses – over USD600 billion in insured damages over the last two decades – the investment case for climate adaptation is gaining strength. From flooded subways in New York and burnt-out neighborhoods in California, to drought-stricken farms in Europe and storm-ravaged coastlines in Japan, major environmental disasters are no longer fodder for movies, and the costs to rebuild are no longer abstract.

In the United States alone, hurricane Milton and Helene in 2024 were amongst the costliest hurricanes in US history, at approximately USD35 billion and USD80 billion in damages respectively, while Canada’s wildfires in 2023 became the most expensive on record for the country, with damages surpassing $1 billion.

The future also holds a sobering reality: insurance claims are likely to rise in regions that were once considered “safe.” In fact, properties along Florida’s eroding shorelines are beginning to lose insurability altogether as entire homes inch closer to the sea with every storm surge. Meanwhile, infrastructure around the world faces the stress of extreme heat, intense rainfall and prolonged droughts, putting pressure on insurers, governments, and private capital to respond.

While mitigation (reducing emissions and overall environmental impact) remains essential, adaptation (making systems more resilient to the physical impacts of climate change) is emerging as an investable trend. For long-term investors, this shift presents an opportunity to capture growth, hedge risk, and align capital with real-world resilience.

Companies that help communities, infrastructure and ecosystems adapt to physical climate risks are unlocking new growth markets while also de-risking their operations and strengthening their long-term resilience. For investors, these businesses represent not only defensive plays but also strategic exposure to rising demand for resilient systems in sectors like water, energy, agriculture and construction.

At Global Alpha, we aim to capture these adaptation-driven opportunities across our small cap portfolio. Several of our holdings are actively contributing to building climate resilience from various angles including conservation, advisory services and infrastructure.

Valmont Industries Inc. (VMI US) offers advanced adaptation solutions for the agricultural sector. As climate change intensifies, the demand for efficient water management and resilient farming practices grows. Valmont’s innovative irrigation technologies, such as their Valley® centre pivots and remote monitoring systems, help farmers optimize water usage, enhance crop yields and reduce operational costs. These solutions not only support sustainable agriculture but also position Valmont as a key player in addressing the challenges posed by climate change.

Mueller Water Products Inc. (MWA US) develops smart water infrastructure, including leak detection and pressure management solutions. These technologies help cities reduce water loss, extend infrastructure lifespan, and ensure a stable supply of clean water – all essential in the face of increasing droughts and floods. By investing in smart water technologies, Mueller enables communities to make informed decisions and prioritize spending on critical assets, thereby enhancing resilience against climate-related challenges.

Montrose Environmental Group Inc. (MEG US) captures opportunities by providing end-to-end solutions for environmental risk management. From air and water quality monitoring to remediation and climate risk advisory, Montrose helps clients adapt operations to a changing climate. Their expertise in climate risk assessment and sustainability advisory helps clients navigate the complexities of climate adaptation, ensuring resilient and sustainable operations

Casella Waste Systems Inc. (CWST US) plays a critical role in climate adaptation by delivering resilient waste management and recycling services. From post-disaster clean-up to ensuring service continuity in rural and underserved areas, Casella helps communities recover quickly and maintain public health as climate-related events grow more frequent.

Rockwool A/S (ROCKB DC) supplies stone wool insulation that improves energy efficiency and helps buildings withstand extreme heat, fire and moisture. As the built environment faces growing physical risks, Rockwool’s products contribute directly to urban structural climate resilience.

Investors should consider these companies as part of a diversified portfolio aimed at capitalizing on the growing demand for climate adaptation solutions. By investing in firms that prioritize resilience, investors can not only mitigate risks but also drive sustainable growth and long-term value.

The stock market experienced significant volatility last week due to escalating trade tensions following President Donald Trump’s announcement of new tariffs aimed at reducing the US trade deficit. These tariffs were implemented on April 2, 2025 – a day referred to as “Liberation Day” – leading to widespread market reactions across developed markets globally.

The technology sector for both large and small caps were among the sectors most adversely affected during this period. Technology stocks faced substantial declines, with companies like Tesla and Nvidia experiencing drops of 36% and nearly 20% respectively, over a two-day span. Industrials and consumer discretionary also suffered notable losses, as companies within these industries are often sensitive to trade policies and global economic conditions.

In contrast, defensive sectors such as consumer staples, healthcare and utilities showed resilience. These sectors tend to be less sensitive to economic cycles and trade fluctuations, providing a buffer during periods of market volatility.

The new US tariffs could reduce global GDP growth by 50 bps, with a 100-150 bp drag on US growth, a 60 bp drag on Asian growth and a 40-60 bp drag on Euro-area growth. It is expected the US administration will negotiate country-specific comprehensive packages involving trade, defense, energy and immigration. The aim is de-escalation in the global trade war over the coming weeks and months, though negotiations with China will likely prove difficult, given the geopolitical tensions between the two countries.

Global Alpha will continue to monitor the effect of tariffs on the companies it is invested in. From supply chain to end consumer, the ripple effects are multi-factor dependent. Can production relocate? Is it a service or a good?  Where are competitors located? Can the buyers absorb the price increase? And ultimately, what is the demand destruction?

The length of tariffs is also unknown as we recently saw with Vietnam which offered to remove tariffs less than 48 hours post Liberation Day. Nike re-couped half its losses on the announcement.

Presently, our largest exposure to tariffs is the aluminum company Alcoa Corp. (AA US) with 50% of its Canadian production destined to the United States with no real US substitution. The company estimates that a car price tag will increase by $1200 from aluminum alone. If tariffs persist, on-shoring plans could re-surge.

On-shoring will continue to accelerate whether tariff induced or not. Political tensions are only increasing and productivity will continue to rise and automate. In fact, we may be on the verge of one of the largest productivity gains in recent times through the realization of a theme society has dreamt of for a long time: humanoid robotics.

In our discussion with companies, we can start seeing mid- to near-term plans to use humanoid robots. Tesla’s development plans for the Optimus humanoid robot begins with progression of human-superior autonomous driving by Q4 2025 (sensorial decision making). Following that step would be the replication of that technology in humanoid robots. The first launches of the Optimus Robot in the logistics sector are planned for Q1 2026. With this plan, it is easy to imagine Mr. Musk telling President Trump that his industrial labour shortages will be solved in the mid-to-long term.

The global humanoid robot market size was valued at USD 2.4 billion in 2023 and is projected to grow from USD 3.3 billion in 2024 to USD 66.0 billion by 2032, exhibiting a CAGR of 45.5% during the forecast period. Asia Pacific dominated the humanoid robot market with a share of 42.0% in 2023.

The wheel-drive version (versus biped) segment held the highest market share of 65.6% in 2024 and an even higher market share in real-use cases; the biped is still in its infancy when addressing performance.

In 2022, Elon Musk suggested that the Optimus robot could eventually be priced at around $20,000 to $30,000 per unit when mass production begins. This price range is based on Musk’s vision for the robot to be affordable, allowing widespread adoption and possibly replacing some human labour in industries like manufacturing, logistics and even home use.

The Optimus robot is designed to resemble a human in both appearance and movement. It stands 5’8” tall (around 173 cm) and weighs about 125 lbs (approximately 57 kg).

Global Alpha is a shareholder of GXO Logistics Inc. (GXO US)

GXO is a global leader in supply chain solutions and logistics services. The company focuses on providing advanced logistics capabilities for customers across a variety of industries, including retail, e-commerce, consumer goods, automotive and technology. GXO operates with a strong emphasis on innovation and technology, aiming to enhance efficiency, optimize operations and improve customer service through automation, robotics and artificial intelligence.

Today, GXO is a leader in the implementation of traditional robots like autonomous mobile robots (AMRs) or robotic arms. However, the company is likely to continue exploring humanoid robots as the technology evolves.

Key areas of GXO:

1. Warehouse management: GXO operates large-scale, automated warehouses that utilize sophisticated technology to manage inventory, order fulfillment and distribution. This includes the use of robotics, AI and data analytics to improve efficiency and accuracy in managing supply chains.
2. E-commerce fulfillment: GXO specializes in providing logistics services for e-commerce companies, including fast order processing, picking, packing and last-mile delivery solutions.
3. Transportation and distribution: The company offers end-to-end transportation management services, optimizing routes and using data-driven systems to improve fuel efficiency, delivery time and cost-effectiveness.
4. Cold chain logistics: GXO also manages cold storage and temperature-sensitive goods, offering specialized logistics solutions for food, pharmaceuticals and other perishable products.

GXO is exploring humanoid robots for:

1. Assistive tasks in warehouses: Humanoid robots are being developed with the potential to assist in warehouses with tasks that require human-like dexterity and mobility. They could perform tasks like sorting, packaging and even delivering materials across different sections of a warehouse.
2. Customer service: Humanoid robots might also be used in customer-facing roles within logistics operations. For instance, they could assist with customer queries or provide support in retail environments where GXO provides fulfillment services.
3. Human-robot collaboration: GXO, like other companies in the logistics and supply chain sector, is likely to focus on robots that complement human workers rather than replace them entirely. Humanoid robots can be deployed in environments where human workers are still essential, but can be augmented by automation to handle repetitive or physically demanding tasks.

Global Alpha also owns Kerry Logistics Network Limited (636 HK)

Kerry Logistics is a Hong Kong-listed third-party logistics (3PL) provider offering a comprehensive range of supply-chain solutions. Their services include integrated logistics, international freight forwarding (air, ocean, road, rail and multimodal), industrial project logistics, cross-border e-commerce, last-mile fulfillment and infrastructure investment. With a presence in 59 countries and territories, Kerry Logistics has established a solid foothold in many of the world’s emerging markets. ​

Incorporating robotics into their operations has significantly enhanced Kerry Logistics’ efficiency and profitability. For instance, in 2023, they implemented the “KOOLBee” sorting robots across facilities in Hong Kong, Tianjin and Dongguan. These intelligent and flexible robots increased overall sorting productivity by 270%, enabling the company to meet the growing demands of fashion e-commerce fulfillment. ​

Additionally, in 2021, Kerry Logistics introduced “KOOLBotic” robotic arms dedicated to cold chain logistics in the food and beverage industry. These robotic arms improved sorting productivity by 20% and allowed operations to run 20-hour shifts in low-temperature environments, effectively reducing human contact during the pandemic. ​

By integrating such robotic solutions, Kerry Logistics has not only boosted operational efficiency but also enhanced its capacity to handle large volumes and meet customer expectations, thereby positively impacting profitability.

Although we are excited by the prospect of humanoid robots, the early stages of the technology keeps us from integrating their commercial viability in our financial assumptions.  It is a question of “when,” not “if.” These themes continue to provide us with opportunities and earnings growth in our investment universe.

In early March, our emerging markets team traveled to Jakarta, Indonesia. Given the political transition following the presidential election last year and ongoing macroeconomic headwinds, we sought to assess the market firsthand. For bottom-up investors, Indonesia has long been one of the most promising equity markets in Emerging Asia, and despite near-term challenges, we continue to see compelling long-term investment opportunities.

Jakarta can be a difficult city to navigate, but with the onset of Ramadan, the usual congestion was noticeably lighter, allowing us to efficiently move between meetings. As the world’s largest Muslim-majority country, Indonesia experiences notable shifts in consumer behavior and urban activity during the holy month. While moving around the city, we were particularly impressed by the quality of Jakarta’s road infrastructure, which, in many areas, exceeds what we have seen in the capitals of more developed countries. The improvements in connectivity and urban planning are a testament to Indonesia’s infrastructure investments over the past decade. Over the course of the week, we met with companies across the consumer, healthcare, real estate and industrial sectors, gaining valuable insights into the country’s evolving economic landscape.

A recurring theme in our discussions was the growing fragility of the Indonesian consumer, particularly in Java, the most economically and demographically significant of Indonesia’s 17,000 islands, accounting for 56% of the population and 57% of GDP. Over the past few years, real wage growth has lagged inflation, eroding purchasing power across all income segments. However, while businesses serving the urban middle class are experiencing a notable slowdown, some ex-Java regions have shown resilience, benefiting from recent minimum wage increases, social aid for low-income groups, commodity-linked employment and past infrastructure investments.

This consumer sentiment is most evident in downtrading, as households opt for cheaper alternatives across food, personal care and general merchandise. A notable trend has been the shift away from multinational companies, such as Unilever, in favour of more affordable local alternatives that offer comparable quality at lower price points. Companies in healthcare and discretionary retail are reporting lower volumes, even as premium segments remain more stable. Our meetings and channel checks confirmed that consumption weakness among middle-income consumers is entrenched, creating a challenging near-term outlook for businesses exposed to domestic demand.

The continued depreciation of the rupiah adds to the pressure. The currency is among the worst-performing in Asia year to date, despite active central bank interventions. Foreign investors have pulled USD1.8 billion from Indonesian equities this year, and on March 18, the Jakarta Composite Index triggered a trading halt after a 5% intraday drop, highlighting nervousness in the local market.

Although the new government has set ambitious economic targets, many investors remain cautious about execution risks. President Prabowo has announced a goal of achieving 8% GDP growth, a level Indonesia has not seen since 1995. With structural constraints and weak private sector investment, breaking out of the 5% growth range recorded in recent years remains a significant challenge.

One of the government’s most ambitious initiatives is the Danantara Sovereign Wealth Fund, designed to consolidate state-owned assets and fund strategic projects. Danantara has a goal of reaching USD900 billion in assets under management, which would make it one of the largest sovereign wealth funds globally. However, questions remain about its governance, transparency and the potential impact on state-owned enterprises (SOEs). With Danantara expected to rely on SOE dividend payouts, banking and energy sectors could see their capital allocation priorities altered.

At the same time, the government’s pivot away from infrastructure spending raises concerns about long-term economic sustainability. Over the last decade, Indonesia’s growth has been supported by significant public infrastructure projects, such as the Trans-Java Toll Road, which improved connectivity and regional economic development. The decision to reallocate resources toward populist policies, such as the free school meal program, has introduced fiscal uncertainties, particularly as recent revenue collection fell short of expectations.

Implementing free school meal programs has proven effective in combating malnutrition and improving educational outcomes in various countries. For instance, India’s Mid Day Meal Scheme, which serves nutritious lunches to over 97 million children daily, has led to increased school attendance and a 31% reduction in anemia prevalence among adolescent girls. However, executing such an initiative across Indonesia’s vast archipelago presents significant logistical challenges. Ensuring the consistent distribution of fresh meals to remote and diverse regions requires substantial infrastructure and coordination efforts.

Beyond economic policies, we noted concerns about the rising military presence in government institutions, a development that some investors worry could signal a shift toward a more centralized power structure. While Indonesia has undergone remarkable democratic progress since the fall of Suharto’s authoritarian rule in 1998, memories of military-dominated governance still linger. While this shift has raised alarms among some observers, it is important to distinguish today’s political landscape from the Suharto era, as institutional limits on military influence have since been established.

For foreign investors, rule of law, policy predictability and strong institutions remain critical factors in assessing investment opportunities. Any perception of reduced transparency or shifts away from a market-driven economy could weigh on investor sentiment. While the trend warrants monitoring, fears of a full-scale return to military-dominated governance appear overstated.

Despite macro headwinds, Indonesia continues to offer structural advantages that make it one of the most attractive long-term investment destinations in Emerging Asia. With a population of over 270 million and a median age of just 30, the country remains one of the largest and youngest consumer markets globally.

Amid the macroeconomic pressures, healthcare remains one of Indonesia’s most resilient sectors, driven by rising demand and structural under-penetration. The country’s healthcare expenditure stands at only ~3% of GDP, one of the lowest in ASEAN, with the doctor and hospital bed ratios per 1,000 inhabitants (0.7 and 1.2, respectively) remaining well below the global average. The positive demographic trend and government-backed healthcare program (BPJS Kesehatan) continue to support patient volumes, with private hospital networks benefiting from both scale efficiencies and growing intensities. As Indonesia works to improve access to quality healthcare and expand private insurance adoption, the sector presents compelling long-term growth potential, even in a more challenging economic environment.

Indonesia has demonstrated resilience through past economic cycles, maintaining a relatively strong external position with foreign exchange reserves of approximately USD155 billion and government debt at ~39% of GDP. In 2024, the country recorded a current account deficit of 0.6% of GDP and a fiscal deficit of 2.3% of GDP, both within a manageable range for an emerging market. From a valuation perspective, Indonesian equities are now trading at very compelling levels, with the Jakarta Composite Index (JCI) at ~11x forward P/E, roughly two standard deviations below its 10-year average.

Source: Bloomberg

If global monetary conditions ease, Indonesia could be well-positioned for a rerating.

In this environment, stock picking is key. We continue to focus on companies with strong pricing power, resilient demand drivers and long-term structural advantages – qualities exemplified by our holdings in Sido Muncul and Mitra Adiperkasa.

Industri Jamu Dan Farmasi Sido Muncul Tbk PT (SIDO IJ) is Indonesia’s leading producer of traditional herbal medicines and functional beverages. Its flagship brand, Tolak Angin, is synonymous with natural flu and cold relief, commanding a market share of 72% in the herbal cold symptoms product category and enjoying strong consumer loyalty and premium pricing power while remaining a staple of Indonesian households. The company’s vertically integrated supply chain improves cost efficiency, further strengthening its margin resilience in an inflationary environment. Unlike many consumer goods companies that face pressure from rupiah depreciation, Sido Muncul is largely insulated from currency volatility as its raw material sourcing and key input costs are primarily local. With a net cash position and ~7% dividend yield, Sido Muncul combines defensive qualities with long-term structural growth, supported by expansion into functional beverages and overseas markets.

Mitra Adiperkasa Tbk PT (MAPI IJ) is Indonesia’s largest specialty retailer, operating a diverse portfolio of global brands, including Zara, Sephora, Nike, Starbucks and Apple (via authorized retail partnerships). The company benefits from strong pricing power through exclusive brand partnerships and a premium positioning, which allows it to maintain healthy performance even in softer consumption periods. While mass-market retail faces headwinds, Mitra Adiperkasa is well-positioned in the more resilient mid-to-premium consumer segment. Its long-term structural advantages stem from strong brand relationships, a well-executed omnichannel strategy and a track record of navigating economic cycles, making it a long-term winner in Indonesia’s evolving retail landscape.

Indonesia is experiencing a challenging economic transition, but its long-term structural advantages remain intact. Our Indonesian holdings are positioned for strong business fundamentals despite macro volatility.

Earlier this month, we attended the Daiwa Investment Conference in Tokyo, which is the largest conference of its kind in Japan. Over 400 companies and 650 investors participated. We met a total of 20 companies, of which six are holdings in our portfolios. Across various industries, many companies emphasized improving ROE, shareholder return and corporate governance.

The overall sentiment remained cautiously optimistic despite tariff concerns. So far, only one new tariff has been applied to imports from Japan during this second Trump administration: 25% tariffs on steel and aluminum products from all countries and regions, including Japan.

Negotiations between the United States and Japan are hard to predict. Below are key factors to consider:

• Japanese vehicles account for about 30% of Japan’s exports to the United States. If high tariffs were imposed on these, the impact would be significant.
  
   
• Japan is the single-largest overseas investor in the United States, accounting for 15% of total foreign direct investment (FDI). Net FDI by Japan in the United States reached a record high of 73 trillion yen (USD77 billion) in 2024.
• Japan targets to spend 2% of GDP on defence. Based on the record-high GDP last year at 609 trillion yen, that would mean over 12 trillion yen (USD81 billion) on defence. Japan is a major buyer of US military hardware, which includes items like missile defence systems, fighter jets and munitions.

Year to date, Japanese small caps have outperformed large caps thanks to less exposure to tariffs. This is an ideal environment for domestic-oriented companies that benefit from healthy inflation, higher consumption driven by wage hikes, and inbound tourism.

• Inflation: The core consumer price index in Japan is expected to rise 2.9% year-over-year in February 2025, after +3.2% in January. The central bank policy rate in Japan is at only 0.5%; still lots of room to raise the rate to keep inflation under control.
• Wage hike: According to Rengo, Japan’s largest union group, Japanese companies have agreed to raise wages by 5.46% in the fiscal year 2025, the second year in a row above 5%. This reflects record-high corporate profits and the need to retain staff amid a labour shortage.
• Inbound tourism: A record high of 36.9 million foreigners visited Japan in 2024, up 47.1% from 2023, and up 15.6% from 2019. The largest number of visitors to Japan came from South Korea, followed by China, Taiwan and Hong Kong. Tourists’ consumption exceeded 8 trillion yen (USD53 billion) for the first time. Expo 2025 Osaka will take place between April 13 and October 13, 2025, and aims to attract over 28 million visitors, including 3.8 million from overseas.

As part of its growth strategy, Japan has set a target of 60 million foreign visitors and 15 trillion yen in consumption in 2030. Kotobuki Spirits Co. Ltd. (2222 JP), a company we initiated last year, is well positioned to benefit from such trend.

Founded in 1952, Kotobuki Spirits is a leader in premium gift sweets in Japan. The flagship brand is LeTAO which is known for its desserts, but especially its cheesecake. Other brands include Now on Cheese, Tokyo Milk Cheese Factory, The Maple Mania and more. Points of sale are in prime locations such as train stations, department stores, shopping malls and airports. Customers are local consumers, corporates and inbound tourists (20% of total sales). Gift giving is a common part of Japanese culture and oftentimes gifts are in the form of food or treats. The size of Japan’s domestic food and beverage gift market was estimated to exceed $32 billion in 2023.

Kotobuki Spirits’ main growth strategy is to expand distribution. About half of sales are from its directly owned stores, while the rest is from wholesale and online retail. Currently, it owns 130 stores and plans to open 5-10 every year. Thanks to its strong pricing power, the company raised prices by an average of 3% in fiscal year 2023 and by 10% in fiscal year 2024.

The management team is very stable and experienced. President Seigo Kawagoe is the son of the late founder. He has been with the company since 1994. The Kawagoe family owns 29% of outstanding shares. In the December 2024 quarter results, its sales grew over 14% and its operating profit was up 15%.

Europe has decided to take its defence into its own hands as it experiences a fast-evolving geopolitical environment. In order for Europe to reduce its reliance on US military support, it would take a reversal of decades of underinvestment. After rapid growth in the last few years, NATO’s European members are about to reach the targeted 2% of GDP spent on defence. However, much more would be required for Europe to boost its defence capabilities.

Over the past weeks, many countries and organizations have stepped forward, announcing proposals to increase their defence spending.

The European Commission proposed to suspend the EU budget rules to allow member states to increase defence spending. If members collectively raise their defence budgets by an average of 1.5% of GDP, this would theoretically create an extra funding capacity of €650 billion over four years.

Norway is contemplating the idea of converting €300 billion of its sovereign wealth fund into European defence bonds to support the production and procurement of military equipment in Europe.

Germany is prepared to spend big on defence and infrastructure. Last week, Germany’s bloc representing the two main parties presented a sweeping fiscal reform package with an aim to reform the debt brake and create a new infrastructure fund worth €500 billion. The debt brake reform is meant to exempt any defence spending over 1% of GDP from the deficit limit rule. This would allow Germany to substantially increase its defence budget.

In order to do so, Germany would need to amend its constitution which requires a 75% voting majority in parliament. This means the Christian Democratic Union, Christian Social Union and Social Democratic Party will need support from the Greens, who have rejected the plans as of today. The Greens have been advocating for both higher military spending and greater support for Ukraine, as well as an expansion of debt-financed investments in the past. Based on their own political positions, we believe it would be a surprise if they did not eventually agree to the plans.

Obviously, the European defence OEMs (original equipment manufacturers) and their suppliers will be a direct beneficiary of that defence spending trend. Other indirect beneficiaries include IT services companies, machinery manufacturers and aerospace suppliers. RENK Group AG (R3NK DE), a company we initiated last year, is also well positioned to benefit from the rearmament in Europe.

Founded in 1873, RENK is the global leader in mission-critical drivetrain components for the defence and energy transition sectors, providing systems to set vehicles, vessels and machinery in motion. Its competitive advantages include its ability to manufacture robust and reliable transmission systems and it features better power density vs. its peers. In naval propulsion, its manufacturing precision of less than 2-3 microns helps develop ultra-low vibration and noise systems. Its manufacturing and service footprint include 14 plants and three maintenance and repair service sites.

The higher-margin aftermarket business, which represents about 37% of revenue, provides high visibility and strong cash generation. The company generates 56% of its sales in Europe, 29% in the Americas and 15% in APAC. For its 2024 fiscal year, the company’s reported revenue of €1.1 billion (+23% vs. last year) and an adjusted EBIT of €189 million (+26%). RENK posted a record order intake of €1.4 billion for 2024 (+14%).

We believe RENK is well-equipped to capture market share in the European defence industry.

The “Magnificent 7” – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla – have long dominated markets, driving index returns and capturing investor attention. Their leadership in AI, cloud computing and consumer tech has fueled impressive growth, but with stretched valuations and increasing regulatory pressures, the question remains: Are they still the best opportunities?

Meanwhile, European banks have quietly outperformed these tech giants, benefiting from rising interest rates, strong capital positions and attractive valuations. These financial institutions are delivering solid earnings growth, improving margins and returning capital to shareholders. This week, we highlight how investing in so-called “boring” businesses can still generate market-beating returns – even against the strongest stocks.

Banks in Europe? That’s boring, right?

European banks, often viewed as “boring” investments, have faced years of stringent regulations since the Global Financial Crisis (GFC), designed to bolster stability and reduce systemic risk. While these measures have limited growth compared to more dynamic sectors like tech, they have also fostered steady earnings, lower risk and more attractive valuations. Despite Europe’s slow GDP growth, driven by factors such as an aging population and geopolitical instability, European banks have outperformed expectations. Benefiting from rising interest rates, improving credit conditions and a stable regulatory environment, these institutions have offered investors a more resilient, low-volatility alternative to today’s high-growth stocks.

European banks dominate the Magnificent 7

As we look at the performance comparison between European banks and the Magnificent 7, the data speaks for itself. While the tech giants have had their moments of dominance, European banks have quietly outperformed. This chart highlights how these so-called “boring” financial institutions have consistently delivered stronger returns, offering an intriguing investment opportunity for those seeking stability and growth in today’s market.

Source: Bloomberg

Introducing BAWAG: A strong performer in our portfolio

Now, let’s explore how our portfolio has positioned itself in relation to standout European banks, with a focus on BAWAG Group (BG VI), a key holding. As one of Austria’s leading banks, BAWAG has shown remarkable resilience and growth, driven by its solid capital position, cost efficiency and attractive valuation. In this section, we’ll discuss how BAWAG’s performance compares to our broader portfolio and whether it has contributed to our outperformance in the current market environment.

A turbulent history: BAWAG’s path to recovery and growth

BAWAG has a storied history marked by periods of both innovation and turbulence. Founded in 1922 by a former Austrian chancellor, the bank’s initial mission was to offer favourable credit terms to lower- and middle-income individuals under the name “Austrian Worker’s Bank.” The bank was forced to close in 1934 due to political reasons, but reopened in 1947, reestablishing close ties with Austrian trade unions.

In 2005, BAWAG merged with PSK, the Austrian Postal Savings Bank, founded in 1883. However, the bank faced a major setback in 2006, requiring a state bailout after an accounting scandal tied to the bankruptcy of US broker Refco. Several BG executives, including the CEO, were found guilty of fraud following subsequent investigations. In 2007, BAWAG was sold to a consortium led by Cerberus Capital Management, but another round of state aid was needed in 2009 due to the GFC.

The years following saw extensive restructuring as Cerberus took full control. BAWAG underwent significant cost-cutting and streamlined operations, which ultimately paved the way for a recovery. The bank was recapitalized in 2013 and again in 2014, with GoldenTree Asset Management acquiring an equity stake through a debt-for-equity swap. By the end of 2017, BAWAG went public, marking the culmination of its recovery and transformation.

Today, BAWAG stands as a testament to resilience, having overcome significant challenges to become one of Europe’s more efficient banks. The heavy restructuring and focus on capital efficiency and cost-cutting have allowed BAWAG to achieve one of the highest returns on tangible equity (RoTE) in the sector. This transformation has set the foundation for the modern BAWAG, which today continues to thrive in a competitive European banking landscape.

What BAWAG does with its significant capital

BAWAG has made strategic moves to deploy its substantial capital, further solidifying its position in the European banking landscape. Recently, BAWAG announced two key M&A deals aimed at expanding its footprint and capabilities. These include the acquisition of Knab, a fully online bank in the Netherlands, and the purchase of Germany-based Barclays Consumer Bank Europe.

Knab, previously known as Aegon Bank N.V., has long focused on serving the self-employed and was the first fully online bank in the Netherlands. After being acquired in 2023 by ASR Nederlands N.V., a Dutch insurance company, Knab was sold to BAWAG in February 2024. This acquisition allows BAWAG to tap into a growing digital banking market and broaden its customer base in the Netherlands, especially among self-employed individuals, a demographic that aligns with BAWAG’s growth strategy.

In addition to this, the purchase of Barclays Consumer Bank Europe in Germany strengthens BAWAG’s presence in a key European market, expanding its retail banking offerings and customer base. These strategic investments show how BAWAG is using its capital to strengthen its position in both digital banking and consumer markets, positioning itself for future growth across the continent.

It’s all about management

BAWAG’s success is driven by its highly effective and aligned management team. Widely regarded as one of the best communicators in European banking, the team is deeply invested, owning 3.9% of shares outstanding – more than any investment of another management team or board in the sector. This substantial ownership ensures strong alignment with shareholder interests.

We are approaching March and the time of year that many people abandon New Year resolutions. A Forbes poll showed that around 30% of those surveyed had abandoned theirs after just two months. However, Global Alpha’s company fitness drive continues as a small, dedicated band keeps up regular visits to the gym! Exercising is all well and good for your health, but the importance of nutrition also needs some focus.

Nutrition plays an essential role in sports and fitness. It helps optimize training outcomes, shortens recovery periods, minimizes the risk of injuries and ensures performance consistency. Many are aware of the importance of nutrition: how it supports a healthy and active lifestyle as well as boosting mental health. Consumption of fortified foods and beverages continues to increase among people wanting to supplement their diets with nutrients that not only boost the immune system but also improve their energy levels and health.

The global sports nutrition market is estimated to be worth USD40 billion. The United States is by far the largest sports nutrition market, with USD22.3 billion in sales and expected to grow at 4.6% a year through to 2027. Sports protein powder is the largest segment at USD21.1 billion and remains one of the fastest growing segments at 5.9%. Meal replacements is the second largest category, followed by non-protein products (e.g. pre-workout and amino acid supplements). Protein bars and the ready-to-drink category are both expected to grow around 5% a year.

Glanbia plc (GLB ID) is a recent addition to the International Strategy that is exposed to these trends. The origins of Glanbia are in Irish dairy farming; producing milk, butter and cheese. After many co-operatives were combined to form a larger entity, the company changed its name to Glanbia, which means “pure food” in Irish. Glanbia has since forayed into the sports nutrition market through their production of whey protein.

Why would a dairy company be an ideal candidate for whey protein nutrition?

Whey protein production starts when whey is separated from milk during cheese production. Liquid whey is filtered to remove fats and lactose. Protein concentrates typically have 70% to 85% protein content, while isolates are 90% or above due to more extensive filtering. Whey protein isolate is created by using additional filtering to attain a higher purity level. The primary benefit of whey protein is its quick absorption rate. This means it is ideal for post-workout recovery as it contains all the essential amino acids needed for muscle repair and growth. Once the qualities of whey became more well-known, it was an obvious opportunity for Glanbia to participate.

The company comprises three divisions – Glanbia Performance Nutrition, Glanbia Nutritionals, and cheese joint venture operations. Glanbia’s expertise is in protein nutrition, and they own the Optimum Nutrition brand, the leading sports nutrition brand in the world, and there is a strong complementary thread of protein nutrition expertise across both segments.

Glanbia Performance Nutrition division

Glanbia Performance Nutrition is a portfolio of leading brands in performance and lifestyle nutrition. Optimum Nutrition is part of that portfolio and is the leading sports nutrition brand in the world by sales. It was acquired in 2008 and has a reputation for high quality, innovative products across protein and energy using the very best ingredients and manufacturing processes. Optimum Nutrition consumers are typically highly engaged in the category, working out 80% more than the average buyer in the category. They are typically more affluent and spend more on sports nutrition products, seeing it as an “essential” spend.

Growth opportunities for Optimum Nutrition still exist in the United States, despite it being the most mature market, as household penetration remains below 5%. Unlike peers that have sales skewed to the United States, Glanbia is more global. It has scaled in ten markets, is present in another thirteen countries, and is among the category-share leaders in each geography. Glanbia’s international expansion strategy is measured. The buildout leverages local market resources until scale justifies a larger expansion, at which point Glanbia typically acquires local distribution capabilities and invests in local teams.

Glanbia Nutritionals division

Glanbia Nutritionals is a leading provider of customized premix solutions and whey protein isolate. Consumer interest in supplementation is growing and this division’s ingredient solutions improve the nutritional profile of the product through protein for powders, bars or beverages, or micro-nutrients to be included in vitamin and mineral pre-mix blends, powders, gummies, capsules or tablets. In addition to the health and fitness industry, this division serves the mainstream food and beverage industry via avenues such as infant nutrition, clinical nutrition, fresh dairy and yogurts.

Alongside these two divisions, Glanbia is also the number one supplier of American-style cheddar cheese.

Ready to refocus

It’s not always been blue skies for Glanbia, though. In 2018, Glanbia acquired SlimFast to expand the portfolio’s weight management products and bring scale to the ready-to-drink format. Since then, the weight management segment as whole has been under pressure as consumers reduce their consumption or migrate to nutrition brands not overtly associated with dieting. SlimFast faced a significant headwind in the decline of keto-oriented products when compared to another mainstream lifestyle brand such as Atkins which has developed an image as a “low carb” alternative. Glanbia is attempting to refocus SlimFast on core high-protein meal replacement shakes, in ready-to-drink and ready-to-mix formats. If this proves to be unsuccessful, existing shakes capacity can be re-positioned to support growth of Optimum Nutrition in a capacity-constrained market.

To summarize, the greater focus on healthy living and the mass appeal of protein and fortified foods should mean continued structural growth of sports nutrition and, as market-share leader, Glanbia gives us the desired exposure to this industry.

Who doesn’t love the smell of freshly brewed coffee in the morning? Coffee is an essential part of the morning routine for many millions of people worldwide.

With over 437 million posts on TikTok related to coffee, it’s no surprise that coffee demand has been soaring over the last couple of years. According to the National Coffee Association, 67% of Americans consumed a cup of coffee every day; this is more than any other beverage of choice. Much of the growth is driven by younger generations who have embraced coffee as part of their daily routines. As these generations enter the workforce – specifically Gen Zers – they are estimated to hold USD360 billion of disposable income and coffee companies around the world have been harnessing their spending power. Some of the key elements that differentiate the winners and losers in the coffee market is product innovation, creativity and connecting with consumers.

Both Europe and North America are big consumers of coffee – in fact, Finland is the country that consumes the most coffee globally. The average Finn consumes about 12 kg of coffee per year, which is the equivalent of 4 cups of coffee a day. In the United States, the average American consumes about 4.2 kg of coffee per year. Global coffee production in 2023 reached a staggering 178 million 60 kg bags. These production volumes cumulate to USD473 billion.

De’Longhi

One of Global Alpha’s holdings, De’Longhi S.p.A. (DLG MI), is significantly benefiting from the latest growth in the coffee market. A well-known Italian manufacturer and distributor of small domestic appliances, De’Longhi primarily sells all kinds of coffee machines for personal use. In addition to capitalizing on the at-home coffee market generating over 50% of their revenue from this segment, De’Longhi recently acquired two additional companies that specialize in the professional markets: La Marzocco and Eversys. This will allow the company to also benefit from coffee consumption outside of the home too.

The company saw an acceleration in sales in 2024, with organic revenue growth up 14% versus the previous year. The mid-teen growth in sales was mostly driven by at-home coffee machines. Its professional segment will be an interesting growth driver for many years ahead.

To maintain a competitive edge, the company has a strong track record of fostering innovation and driving new product development. De’Longhi spends 2.4% on average* of sales on R&D annually. This commitment not only enhances De’Longhi’s market position, but it also enables it to respond effectively to evolving customer needs and industry trends. The most recent example would be the launch of its Rivelia automatic coffee machine which features a cold coffee extraction feature to cater to the growing popularity of cold coffee beverages. As the company navigates the continuously changing landscape of the industry, its dedication to product innovation will undoubtedly lead to sustained growth and solidify its position as a leader in the market.

*Geoffrey D’Halluin, “What’s brewing?’’, BNP Paribas, 19 September 2024.

Much ink has been spilt recently on the falling fortunes of the Chinese economy. While the OG dragon of Asia struggles with the malaise of a weak economy and declining population, a smaller dragon in the neighbourhood has been making quiet economic strides earning the moniker “Ascending Dragon” owing to its geographical shape.

Vietnam is formally classified as a frontier market, but it looks and feels like an emerging market economy that has arrived. In 2024, we saw a parade of high-profile executives from Tim Cook to Jensen Huang announce billions of dollars’ worth of investments. Sure, it has challenges, with the coming threat of tariffs and the recent turmoil in the property and corporate bond market. But with a new leadership and the upcoming prospect of being upgraded to an emerging market, Vietnam could very well consolidate its position as ASEAN’s newest growth engine.

The story of Vietnam’s rise parallels to some extent the timeline of China’s rise. After the ravages of the Vietnam War with its GDP per capita stagnating at $300, the government decided to introduce the “Doi Moi” reforms in 1986 to reorient the economy from the existing soviet central planning model to a “socialist market oriented” economy. It’s easy to forget that until as recently as 1994, Vietnam was under a US-led trade embargo.

With the embargo lifted, tailwinds from globalization in the 1990s and early 2000s boosted the economy as it joined the ASEAN free trade zone in 1995 and the World Trade Organization in 2007. Investments in primary education and infrastructure to equip a young and restless population (now approaching 100 million) has paid off handsomely. The result has been an average GDP growth rate of 6.8%, far ahead of its ASEAN peers as seen below.

ASEAN-6: GDP growth

Source: Oxford Economics

What makes Vietnam interesting in our opinion is its positioning as a neutral player in the current geopolitical climate. As key trading partners like the United States have looked to diversify their supply chain from China, Vietnam has received foreign direct investment (FDI) from both the United States and China while also receiving FDI from big players like Korea and Japan. Geographical proximity, its strategic maritime location and similar culture make it an easy choice for global companies to relocate their factories. The World Bank expects Vietnam to grow at 6.7% in 2025, making it the second fastest growing economy behind India.

It also expects to draw $25 billion in additional capital into the stock market by 2030 if it gets classified by the FTSE as an emerging market later this year. Vietnam took an important step in this direction last year when it eliminated “prefunding,” the practice of ensuring investors have sufficient funds before purchasing a security. In a market that is 90% retail driven, we expect institutional participation to lift trading multiples, leading to better liquidity and market efficiency. Finally, crossing the much higher hurdle of the MSCI’s criteria for emerging market classification (expected between 2026-28) means Vietnam would get the full attention it deserves as the ascendant dragon of Asia.

One of the holdings in our portfolio that is a beneficiary of the rise of the Vietnamese consumer is Phu Nhuan Jewelry JSC (PNJ VN). With over 400 stores, PNJ is the market leader in branded jewelry space in Vietnam. It caters to the mid- and high-end consumer, offering everything from gold bars to value-added jewelry and high-end watches. It has a longstanding relationship with traditional artisans, allowing it to manufacture up to 4 million pieces of jewelry every year making it fully vertically integrated.

The beauty of investing in emerging markets is seeing parallels in themes, customs and market dynamics across disparate markets. Similar to India, the Vietnamese consumer has a deep love for gold for reasons both material and spiritual. Besides bringing health and good luck, a history of war, foreign occupation and hyperinflation means gold remains top of mind as a store of value vs. the more recently introduced Vietnamese Dong. We also see similarities to India with regard to formalization of the economy with over 70% of the jewelry sector in Vietnam operating in the unorganized space, providing a long runway of growth for PNJ.

When the COVID-19 lockdowns happened, it was no surprise that travel-related stocks were among the hardest hit. However, as the world emerged from the pandemic, these stocks saw an impressive recovery as people were eager to start traveling again. With tourists armed with excess savings accumulated during the pandemic, tourism and business travel rebounded, filling planes, hotels and rental cars around the globe.

Now, fast forward to 2025, the post-pandemic recovery is behind us and the picture looks very different. Consumer spending data indicates a slowdown as higher interest rates and the potential return of inflation are putting a pinch on consumers. Even though personal savings are now back down below pre-pandemic levels, it’s important to focus on absolute wage growth, which remains strong in many regions. In other words, people are earning more, but also need to spend more just to maintain their lifestyles.

US disposable personal income and personal savings
Source: The Fed – An update on Excess Savings in Selected Advanced Economies

With the weak outlook for consumer spending, the question arises: should we really be viewing all categories of discretionary spending the same way? In a market that’s constantly swayed by daily news and short-lived noise, it’s crucial to look past the temporary trends or “hype.” Instead, we should focus on identifying secular trends – those underlying shifts – that will remain resilient, no matter where we are in the economic cycle. From our perspective, travel and leisure is certainly an industry that will benefit from one of these secular shifts in the years to come.

• One trend we’ve been seeing is a shift from spending on goods to a growing preference for experiences. With wage growth remaining strong across developed markets, there comes a point where consumers naturally pivot – there’s only so much you can buy, but experiences, like travel, have no limits. That’s exactly what we’re seeing play out: higher-income groups in developed markets are showing a strong appetite for travel, and consumer surveys are backing this up with increasing indications of a preference for experiences over material goods.

Young affluents show stronger appetite for travel post-pandemic

Source: Understanding affluent travel behaviors and aspirations

• Another key tailwind for the resilience of travel, even in a weak consumer spending environment, is the rising demand from the emerging market middle class. As some emerging economies such as India, China, Korea, Mexico and Brazil continue to develop, their expanding middle class is increasingly seeking travel experiences, both domestic and international. The World Economic Forum estimates that by 2030, Asia – home to three of the world’s five most populous countries (India, China and Indonesia) – will have 3.5 billion people in its middle class, making up two-thirds of the global middle class. Furthermore, a travel survey by Skift found that these travelers plan to allocate an average of 23% of their income to travel in the next year, with 81% stating that it remains a priority despite economic challenges.

India: Change in passenger arrivals vs. 2019 levels, by destination country


Source: Travel Trends 2024: Breaking Boundaries

• Greater mobility is another key tailwind for travel-related companies. With remote work still prevalent worldwide, we’re seeing the rise of a new generation of digital nomads – individuals who leverage flexible work arrangements to explore the world. This shift toward a “work from anywhere” model is reshaping travel patterns and creating lasting demand for the travel and leisure industry.

Given our strong conviction in travel and leisure, here are some of the key plays in our portfolios and why we hold them.

Founded in 1912 by Martin Sixt, and managed by the family since, Sixt SE (SIX2 DE) is one of the oldest car rental companies in the world. The company is headquartered in Germany and operates across more than 110 countries. It differentiates itself from competitors through its premium car offering, thanks to its German heritage and strong relationship with German carmakers. Its motto is “Don’t rent a car, rent THE car.”

After becoming a top two player in Europe, Sixt has expanded in the United States by prioritizing a presence in the busiest airports, which has yielded above average results, but has brought some challenges along with it. The key difference between the US and European car rental business models lies in the accounting of fleet ownership. In the United States, rental companies primarily assume the risk of lease or buyback agreements, meaning they bear the depreciation risk.

Sixt experienced that risk first-hand in early 2024 when the resale value of electric vehicles fell as much as 20% and the company had to book accelerated depreciation in its book which sent the stock price down close to 30% over Q2. We took that opportunity to initiate a position in this high-quality name as we expect the impact of depreciation to be short term in nature as the management has taken steps to accelerate the rotation of its fleet. We remain confident in the company’s ability to successfully execute its US expansion plans and take market share from competitors such as Hertz and Avis.

Founded in 1995, easyJet plc (EZJ UK) is one of Europe’s leading low-cost carriers (LCC), offering a pan-European point-to-point flight network at a cost advantage to legacy and charter airlines. With a strong brand recognition, the company has grown notable presence at capacity-strained airports. Unlike ultra-low-cost-carrier (ULCC) peers, easyJet differentiates itself by operating from major primary airports rather than secondary hubs, prioritizing customer experience and maintaining competitive, flexible service offerings that command significant brand loyalty from its passengers. easyJet also benefits from a streamlined cost structure and ability to rapidly adjust capacity to market conditions, giving them a competitive advantage in times of sector disruption. Additionally, the company is taking market share from traditional full-service carriers by extending its reach beyond standard short-haul flights through its easyJet Holidays business, tapping into the roughly $80 billion European package holiday market. easyJet’s focus on cost efficiency, network optimization, diversifying revenue streams and gaining market share from legacy carriers positions it as a long-term winner in European aviation.

Meliá Hotels International S.A. (MEL ES) is a leading global hospitality group founded in Spain in 1956. As the second-largest hotel group in Latin America and the third largest in Europe, Meliá has expanded to over 390 hotels across 40 countries with 63 new hotels in the pipeline. The company operates through a multi-brand portfolio spanning the premium, upscale and midscale segments. Meliá caters to a diversified mix of leisure and business travelers in key resort destinations across the Americas, Spain and EMEA. Their strategy to increasingly adopt an asset-light model – more than half of their portfolio consists of managed and franchise properties – reflects their focus on scalability and margin improvement. Meliá differentiates itself with a strong brand portfolio, a high Global Reputation Index score, and growing direct-to-consumer sales, which enhance margins and strengthen customer loyalty. With an established presence in high-growth markets, along with its ongoing upscale repositioning and expansion pipelines, the company is well positioned for continued growth.

Founded in Denver, Colorado, Samsonite International S.A. (SMSEY) is the world’s largest lifestyle bag and travel luggage company. Its broad, high-quality broad portfolio includes Samsonite, Tumi, American Tourister, Gregory, High Sierra, Kamiliant, eBags, Lipault and Hartmann, collectively sold in over 100 countries through more than 1200 company-owned stores. Samsonite’s business model is centered on brand management, product design, and marketing, with 95% of its manufacturing outsourced to a global network of around 1,500 third-party facilities.

Samsonite’s asset-light structure allows them to prioritize brand building and innovation, reflected in their eco-friendly collections and omnichannel expansion, including a fast-growing e-commerce segment. The company is well positioned compared to its peers thanks to its scale-driven brand power and global presence resulting in a strong 17% market share of a roughly $22 billion luggage market. Additionally, their focus on cost control and supply-chain diversification reduces tariff risk and further supports margins, strengthening their position to achieve sustainable long-term growth.