Personal Finance•20 days ago•🕑 3 min read•👁 15 views

Global Fund's 150% Gain Without US Stocks; Why It's Changing Course

A fund manager recently pulled off an impressive feat, achieving a 150% return for investors over five years with Ranmore Funds. What makes this particularly notable is that they did it while actively holding fewer U.S. stocks than most global benchmarks. Now, despite that success, their Chief Investment Officer is starting to shift gears, eyeing opportunities in the "beaten-down" U.S. software sector.

The "Underweight US" Anomaly

"Underweight U.S. stocks" is investment jargon for intentionally holding a smaller percentage of U.S. companies than a typical global market index. Most global funds have a large chunk of their portfolio in U.S. stocks because the U.S. market is so big. So, to outperform while actively reducing that exposure is counter-intuitive to many. The Ranmore CIO’s rationale for this strategy was simple: they weren’t keen on U.S. valuations. In plain English, they felt U.S. company stocks were generally too expensive compared to their actual earnings or growth potential.

This approach highlights a key principle: you don't always have to follow the herd to make money. While many investors piled into the U.S. market, especially tech giants, Ranmore’s strategy suggests they found value elsewhere around the globe. This isn't about patriotic investing; it's about smart investing, seeking out companies that are trading at a reasonable price relative to their worth. Their 150% five-year return is a strong argument for looking beyond the most popular playgrounds.

Valuations and the Shifting Tide

The CIO's concern about "U.S. valuations at present" is a common theme among value-oriented investors. When stock prices climb significantly faster than a company's underlying business growth, the stock becomes "expensive." It means you're paying a premium, and future returns might be limited because there's less room for the price to grow based on fundamentals. This isn't necessarily a judgment on the companies themselves, but on the price tag investors are willing to pay for them.

So, why the shift back towards the U.S., specifically the software sector? The term "beaten-down" is the clue. Sectors can become "beaten-down" for various reasons – maybe interest rate hikes hurt growth stocks, maybe economic uncertainty caused a general sell-off, or perhaps past hype led to a correction. Whatever the reason, it often means that company stock prices have fallen significantly, potentially making them more attractive to a value investor like Ranmore's CIO. It's the classic strategy of buying when others are selling, hoping to pick up quality assets at a discount.

What This Means for Your Portfolio

This fund's story offers several valuable lessons for everyday investors. First, don't assume that the biggest or most talked-about market is always where you need to be. Diversification beyond your home country, or even beyond the largest components of global markets, can unearth opportunities and provide resilience. There's a whole world of companies out there.

Second, chasing trends can be dangerous. While it's easy to get swept up in the excitement of a booming sector or market, Ranmore's success came from an independent assessment of value, even if it meant taking a contrarian stance. Focusing on the underlying business fundamentals, rather than just stock price momentum, is a more sustainable long-term strategy.

Finally, adaptability is key. Even experienced investors, like Ranmore's CIO, don't stick to a rigid strategy forever. When market conditions or valuations change, it makes sense to reassess and pivot. This isn't flip-flopping; it's intelligent adjustment. Being open to changing your mind based on new information or evolving market dynamics is a sign of a disciplined investor, not a fickle one.

The Ranmore Funds story isn't just about impressive returns; it's a masterclass in independent thinking and active management. It reminds us that blindly following the crowd or assuming past performance will dictate future results is a risky game. True investment success often comes from diligently seeking value wherever it may lie, and having the courage to act on that conviction, even when it means going against the grain.