VOLVER


Quarterly Letter

Second Quarter 2025

Quarterly letter

  • Second Quarter 2025

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Dear investor,

The second quarter of 2025 was marked by uncertainty. Although the announcement —and subsequent moderation— of the new tariff policy in the USA was the main source of volatility, it was not the only one. In the geopolitical sphere, the worst-case scenarios have come to pass: the peace talks in Ukraine have failed and tensions in the Near East have culminated in open warfare between Israel and Iran. Furthermore, the pressure to increase military spending has placed a question mark over the public deficits of some European NATO partners. Meanwhile, the Federal Reserve has decided to maintain interest rates, despite the fact that the market was expecting two downgrades in the first half of the year. A highly volatile environment that, against all odds, has been overcome by stock markets
with gains.

After recovering from the sharp fall in April, the Stoxx 600 closed the first half of the year with a 6.43% rise, while the revaluation of the S&P 500 was 5.38% in dollars(1). In the case of the IBEX 35, the gains were even greater, closing the first part of the year with returns of 23.45%. In our opinion, the  events of the quarter are further proof of companies’ strength and their ability to adapt to the most demanding environments. Equities have the necessary fundamentals and valuations to absorb the different episodes of uncertainty and continue to generate good long-term returns.

However (and as explained in other newsletters), despite this underlying strength, the increasingly extreme behaviour of the markets never ceases to amaze us. For some time now, we have become accustomed to the constant
breaking of different historical records. In 2020, we witnessed the worst fall in the history of stock markets. In 2022, the sharpest rate hike in 40 years. In the first quarter of 2025, we experienced the greatest change in geographic equity positionings since records began. In April, we saw the fastest 15% correction ever in a major equity index such as S&P 500. In the second half of the quarter, its recovery also broke the all-time speed record. Lastly, in the foreign currency market, the dollar is experiencing its worst first half of the year in nearly five decades. The market is in the midst of an unprecedentedly sharp and accelerated price regime.

Far from being a problem, this marketplace of extremes is a great ally. Volatility is always synonymous to opportunity and, in today’s volatile market, opportunities are constantly arising. As we explain in detail in the newsletters of each fund, we took advantage of the sharp swings of the quarter to rotate our portfolios. Specifically, in the sectors most impacted by the tariff announcement —such as discretionary or Industrial consumption—, we were able to acquire high quality companies at particularly attractive valuations. For this reason, we estimated that the value of our funds was higher at the end of the second quarter of 2025 than at 2024 year-end.

As regards business performance, we must differentiate between noise and reality. The noise suggests that the tariffs, the dollar and geopolitics herald an environment of economic cooling. However, the published data and results point to a different scenario. The returns from our companies are in line with what we expect from them in our investment thesis. Additionally, although management teams remain cautious, in most cases they have maintained their strategic objectives for the coming years. It is evident that the environment raises major uncertainties. But it is also evident that our companies have an advantage when it comes to adapting their business models better than their competitors. This will enable them to gain market share at the expense of weaker players and emerge stronger from any eventualities. After reviewing our theses, our conviction in all of them remains unchanged.

For this reason, with our sights set on the long term, our expectations have not changes significantly, despite the noise. At the macro level, the economic remains relatively strong, inflation is under control, Corporate and household indebtedness is minimal and employment is strong.

Moreover, the market has additional potential tailwinds. The most important are the cuts in taxes and the deregulation of various economic sectors in the USA, the effects of the stimulus plans in Europe, Japan and China and, lastly, the possible movements of central banks. This environment is positive for equities.

As regards our funds, there are even better perspectives. We are convinced that investment success is not based on the ability to anticipate twists and turns in tariff policy and swings in investor confidence. On the contrary, it depends on the detailed analysis of each company, the quality of their business and the good price we pay for them. And, in this regard, after having put our theses to the test during the quarter, we think that the current value of the portfolios exceeds what they were worth barely six months ago.

After having completed the first half of the year, our funds continue to have a large valuation discount against the leading indices. In addition, we expect our companies to continue growing above average, expanding their profit margins and buying back treasury shares at very high rates. In conclusion, the portfolios are well positioned to continue generating the high returns we seek at BESTINVER.

I thank you once again for placing your trust in us and wish you a happy summer.
Yours sincerely,

Mark Giacopazzi.

 

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