With the Fund finishing +0.8% 1 in December, +3.2% for the quarter and thus 2025 performance was a solid +17.5%. This means we are now +45.3% since April 2021 inception, a CAGR of 8.2% per annum, and as we are a low net fund we have achieved this with average net market exposure of only +15%. Significant 2025 contributors to Fund performance included gold mining stocks but also a wide range of idiosyncratic long positions which we discuss below. Also, in a volatile but ultimately strong market backdrop the short book remained well behaved and helped to buffer the fund performance in “down market months” plus reduce fund volatility.

At this early stage of the year we offer up our overall outlook. Economically speaking we think the US is likely to surge forward, with already robust consumer spending boosted by likely rate cuts and tax handouts, and while things don’t look as good economically in Europe and the UK, there are pockets of growth. Emerging markets have weathered the tariffs of 2025 well and should benefit from US interest rate cuts. Politically and macroeconomically we continue to be pretty dubious about the direction and surely it is only a matter of time before an obvious mistake by one or more global policymakers impacts the stock market. This is basically the same view we had for most of last year - except that near-term US economic conditions are looking genuinely better to us - but as the year progresses, will that still matter if global political norms are compromised to drive that growth?  

For us, we continue to remain focused on finding individual companies that are improving across a wide range of sectors and geographies. Significant sector longs for us are healthcare at c.15% of NAV (net), plus we retain around 6% of exposure on selected gold miners. Gross exposure is c.130% but in terms of net, while we ended the year at around 18% (β and 𝛿-adjusted) net we have in early January added to our put option portfolio plus shorts to result in a single digit positive net position (β and 𝛿-adjusted), and we are likely to retain this stance going forward. 
With a good year in the tank in 2025, we have a lot of new ideas plus some good existing stock ideas retained and so we remain optimistic about the prospects for the fund to make further returns progress in 2026 and are confident in our ability to deliver a portfolio resilient against macroeconomic pressures. 

2025 performance 

While December returns (at 0.8% as noted above) were positive for the Fund, it is probably more constructive to focus on calendar 2025 and the key drivers for the +17.5% overall fund return. 

Noting first that these returns were achieved with an average net exposure of only +14.5% (Notional, Beta and Delta adjusted) and a Gross Exposure of 119% (102% Beta-adj) for the year, let’s split performance up into the long book and the short book. Broadly speaking, the main source of the return came from the long ideas, which made approximately four times more money than the short book lost in 2025. This is as you would expect in a rallying market and we will focus on the performance of the long book first, but it is important to note that in a strong wider market the short book was pretty well behaved for us, only losing in aggregate around 4-5 percentage points of return in the year despite strong markets. Bearing in mind we are a low net fund, strict control of the short book is one of the reasons for a strong 2025. 

Looking thus at the longs, the top contributors to return were as follows: 

• Canadian listed gold mining stocks New Gold Resources, Equinox Gold and Agnico Eagle. As discussed through the year, these companies were very undervalued given their production growth prospects and in the event many things went right for these investments. First production recovered, then the gold price rallied strongly on geopolitical concerns, and finally both have been involved in combinatory M&A with a similarly sized partner. Recognising that any stock that more than doubles in a short space of time has been aided by good investment timing, going into 2026 we have scaled back but retain these positions as the stocks remain undervalued on fundamentals. 
• Defence operatives Saab, and UK-listed peer Babcock. Again the reasons for these stocks performing are obvious in hindsight. We exited Babcock in Q1 after its rally and more recently we have substantially scaled back Saab purely on valuation grounds through the year because the source of alpha of our fund is identifying companies that can re-rate. Or to put it another way we can see Saab continuing to go up but it is not clear to us how it can enjoy a further re-rating on fundamental grounds given it is now trading at 31x EBITDA. We have redeployed the funds into a UK listed company, Chemring, which while arguably less of a “waterfront” solution to a country’s defence challenges than Saab, it has a strong growth trajectory and a cheaper valuation. 
• Our positions in Financials also performed well in the year, specifically UK insurer Phoenix Group, European fund distributor Allfunds Group, and JP Morgan, all of which we discussed during 2025. On all these stocks we again exited on valuation grounds after strong share price performance and in general we have driven the portfolio away from UK/US/European financial exposure and towards what we believe could be an improving Asian market – as US rates fall. Thus, we have rotated into asset manager Ashmore and UK listed Asian insurance company Prudential during the year. However, in particular Phoenix and of course JP Morgan have been doing a very good job of trouncing competitors/returning to topline growth and we will continue to keep the stock and valuations under review in 2026. 
• French train manufacturer Alstom, after a quiet 2024, has begun to “work” in 2025 and we have gradually added to the position. Earnings downgrades are still a risk, but this is mainly due to FX exposure (as with many European stocks) rather than fundamentals and the orderbook is climbing, hardly surprising as after its merger with Bombardier, Alstom represents the only viable scale railway delivery partner for most governments. Thus, we have retained the position into 2026. 
• Finally, US car manufacturer General Motors helped portfolio returns in 2025 especially through the back half of the year. GM had a rough ride in H1 due to tariffs on its suppliers, but stability has been achieved and we continue to see signs that it is competing effectively in a US domestic market where consumers are now of course seeing high tariffs on overseas vehicles and an effective ban on Chinese vehicles entering the market. We have scaled back the position slightly into 2026, because near-term guidance expectations are always a risk with large US corporates in the early part of the year, but remain constructive on the margin and topline improvements that may continue through the year. 

Perhaps more importantly than the winners is a discussion of what went wrong in 2025. Looking at the top 5 losers in the long book some lessons are apparent: 

After a constructive 2024 we were very optimistic on Paypal coming into 2025, however the stock sold off in the period of initial presidential uncertainty early in the year and despite a regular drumbeat of earnings upgrades, it never recovered through the year. This was very disappointing to us because we had correctly foreseen earnings upgrades but in retrospect failed to understand the level of negativity in the wider Payments sector, where other stocks have been regularly halving through 2025. It has been a similar story with payments company “Square”. While we may have been a little bit “unlucky” given the scale of earnings upgrades, the clear lesson remains that it is not good enough to simply find a good house in a bad neighbourhood. The level of competition and volatility of profits mean there may be good reasons for wider investors to be cautious even when payments companies “make the numbers”. Having sold down the positions through the year we have opted to exit Paypal but are keeping Square, as momentum here seems to be turning more decisively.  

Two straight investment thesis errors were UK media company WPP; and US apparel company Lululemon (“Lulu”). In WPP we had at the start of 2025 felt – and had numbers to back this assertion – that the advertising environment for them was turning with a return to growth expected. However, the volatile Q1 in the US put their near-term guidance at risk – at which point we exited citing thesis violation – and throughout the year evidence mounted that competitors are eating their lunch. With Lulu we had not considered that the incoming President would initially tariff Vietnam even more than China and so when we went through the long book to exit “tariff risk stocks” in early January we felt Lulu’s Vietnam production would be unscathed which did not prove to be the case! However, we also failed to identify structurally growing competition and while we retain the stock we are being very cautious about rebuilding the position until we can see this easing. 

Finally, we lost money in ingredients supplier Kerry Group. This is another loss that somewhat mystified us as the core business is growing solidly with evidence of competition and indeed margin improvements. However, a company must be able to beat stock market expectations and the significant FX downgrade exposure ended up swamping the operational outperformance. Also, the extent of negative investor sentiment towards staples has not helped and it is true that activity for Kerry in the long term could be impacted if the food staples sector “cracks further” due to GLP weight loss drug uptake by end consumers. We have cut back but retain a position as losses have not been excessive and other than the share price we have been encouraged by margin progress at the company. 

Let’s briefly talk about the short book performance. As noted above, while we did lose money in absolute terms overall (around 4 percentage points of NAV), in a volatile bull market the short book was well behaved generally during the year, and we aim to continue this stability going forward.

At an individual stock level, we successfully anticipated a major earnings reset at a US biotech-focused real estate investment trust, which had been anticipating more growth in facilities but in the event had to reverse its growth strategy with a big earnings impact. We also correctly anticipated revenue/pricing pressures becoming apparent at a global clinical research outsourcing company, a European paper manufacturer and a European building products supplier, to name a few. 

On the other hand, we somewhat outstayed our welcome in a multiyear luxury goods short that did so well for us in 2024, the biggest loser in the portfolio in ‘25, with an obvious key learning point we have taken from this to not overstay the course in such positions going forward. We also had a loss from an incorrect investment thesis violation on a solar panel producer as we failed to estimate the level of US policy support for them to protect jobs. We are seeing signs of businesses under real pressure from the macroeconomic environment and if you combine this observation with the potential for the market perhaps turning more cautious in the second half of 2026, we see scope for further improving performance on the short book. We will also remain focused on risk management should the market continue to rally.  

To sum up, we hope the discussion above gives you full clarity on where our +17.5% return came from in 2025 and offers clear evidence that we are highly experienced at making money through successful stockpicking. Let’s move on to how we aim to sustain that performance going forward.  

 2026 outlook 

Let’s first outline our economic view, then discuss how this flows through to overall fund positioning and finally give you a flavour of the top longs and overall short positioning in the portfolio. 

Here is how we are thinking about the general economic outlook: 

• In the US consensus forecasts are for real GDP growth of only 2.1% in 2026. We think this number looks far too cautious as near-term data such as JP Morgan consumer spend trends suggests consumer spending is not slowing down and there are a number of obvious potential GDP growth accelerants coming: further rate cuts (driven perhaps by a somewhat conflicted Fed), further tax distributions to consumers by the US President, lapping of relatively easy “tariff uncertainty” comps in H1 2025, signs that the US housing market is bottoming and tentative productivity gains from AI. The oil price also typically supports the US economy as well. While one can debate how much of this growth is going to be “forced”, and certainly it is obvious the political drive is to force up growth by whatever means necessary, we have to accept the world for what it is not what we might wish it to be and from an economic perspective some of the growth accelerants such as low oil prices are inarguably positive for the US consumer. 

While growth seems fine in the short term, we have to be cautious that it is not priced into individual stock expectations and valuations. For example, clearly a lot of growth is expected by AI chip exposed stocks and so it would not make much sense for us as a valuation focused fund to search for opportunities in this sector. We are more focused on companies and industries where sentiment and expectations remain weak and the businesses are improving. This has led us to having our main cyclical exposure in US domestic autos and auto suppliers, and in US pharmaceuticals and related sectors. In both of these areas we do not think market expectations or positioning is especially extended. Other than that, we do not have a huge amount of cyclicality in the portfolio, for the valuation reasons above. 

• In Europe and the UK, the growth outlook remains fairly weak but not generally in recession and we don’t think these regions will go into recession. Some areas such as Ireland are growing pretty strongly which we think will continue. Low overall economic growth is arguably both a good thing and a bad thing. The good point is that investor sentiment is depressed plus we are finding that corporations are increasingly recognising that they cannot simply be bailed out by economic growth and must work hard, perhaps even cutting costs, to outperform in this environment. So, selected opportunities remain. For example, we have train manufacturer Alstom in the Fund which has a long-term margin and cashflow recovery programme underway. On the other hand though the limited economic growth is making these regions generally very vulnerable to any global policy missteps and we have to recognise this in our investment appraisal of any individual company: they have to either be doing something really special to overcome this risk, or they have to have a good degree of insulation to the risks out there.  
• We think that Emerging markets/Asia will continue to see improving economic growth. Regardless of what one thinks of their political policies, China and other regions such as Korea have navigated the early part of the Trump presidency well. While they are subject to tariffs, they are shortly going to comp the worst period for these risks and they have strong, or improving, domestic markets to help bolster consumption. The low oil price also helps these regions as well. We have somewhat increased the emerging market revenue exposure in the Fund in the second half of 2025, mainly around financials. Similar to what we did successfully in 2025 we think EM financials could benefit from a sector improvement in sentiment and own UK listed asset manager Ashmore and insurer Prudential, where their listings in the UK arguably reduce EM governance concerns.

Overall, we basically have not really changed our economic view from last year except that we think the early part of the year will be stronger in the US than we had previously expected. 

Although we are happy enough with the trends in the hard economic data, we like many others in the markets can see there are lots of obvious potential policy missteps and many of these could trigger a big change in the economic outlook. I am sure you have your own list and do not need me to discuss matters further. I personally must say that we had thought the list of potential problems would have somewhat cleared up now, 12 months into a new presidency but instead one can argue the list of risks is increasing. Strictly from the point of view of the capital markets, three that we are particularly concerned about are: the French elections; actions by the new Fed chairman; and what happens in and around US midterm elections. There are also innumerable longer term strategic “negatives” such as: turbulence in NATO, structure of any Ukraine peace deal, relationship with China, growth impact of deportations/limiting immigration, government deficit spending, and the potential further rise of power-grabbing populist governments. 

We believe the best approach with these growing risks is to remain heavily hedged because while it may cost us a little money in the short term we cannot predict when any of these problems will burst into the open. We have been maintaining a significant put option portfolio to seek to ensure the fund will be reasonably well hedged against a major market selloff and this has worked well in terms of protecting value, buffering volatility and reducing market correlation. We are continuing this policy through 2026. 

How does this flow through to fund positioning?  

In terms of fund gross exposure, we continue to operate in the 130-150% region which we have chosen partly as a function of the number of potential investment ideas but also because the realised volatility of the fund at that level of gross works pretty well in the current environment. Or to put another way, we are wary of the market suddenly going into a “spasm” and in that scenario we do not want to have a large gross position to manage. Overall portfolio returns at the 130-150% region, as 2025 demonstrates, are also well within our internal research objectives. 

Looking at fund net exposure, we are running at high single digit (c.10%) typically once the delta impact of put options hedging and stock beta is taken into account. As discussed above we are happy with the economic environment and the opportunity set and the benefit of the put option exposure is that the delta should expand should the market begin to sell off strongly as a result of a policy error.  

From a sector perspective, our largest net long exposure is healthcare with around +15% net exposure; as we have discussed in previous newsletters, we believe this is a defensive growth sector that looks undervalued and with a lot of corporate self-help in terms of margin improvement and new product releases. All other sector exposures are single digit either positive or negative with two of note being: Financials, where we have shifted exposure from US banks more towards emerging market financial stocks (Ashmore and Prudential as mentioned above); and Industrials where we have scaled back (on valuation grounds) but retain some degree of defence and gold mining exposure (c.3-4% and c.6% respectively) but with more sector hedging than in 2025. Overall, outside Pharma we are not seeking to have a particular sector bias and are instead looking for individual stocks. 

In terms of country exposure our main exposure remains the US, with around half of the portfolio both long and short, but taking into account shorts and our put options we are basically flat overall in terms of net exposure. We have a net positive long exposure in the UK but as discussed in previous newsletters we shifted positioning away from UK domestic stocks towards more global businesses listed in the UK and so we think our exposure to the UK domestic economy is reasonably light. 

Individual Stocks for 2026 

As we have discussed through 2025 our typical holding period for companies that are improving is three years and so we have focused on selectively selling down positions that have “worked” for us – but at the same time retaining those that we think are in the early stages of recovery – and redeploying this capital into “new ideas”. Therefore, we come into 2026 with a good level of portfolio refresh. Looking at selected top long positions in the portfolio, we have the following: 

• Three pharma companies (Bristol-Myers at over 5% of NAV, Biogen and Gilead at around 4% of NAV). We have extensively discussed the valuation opportunity in the Pharma sector in previous newsletters and adding other pharma companies to our long-term holding in Bristol was the most significant change we made to the portfolio in late Q3 and Q4 2025. 
• UK aerospace company Melrose Industries, which has returned to double digit growth but remains undervalued due to limited cashflow and where we think cashflow should improve in 2026. 
• French rail operator Alstom, where we think a long-term margin and cashflow recovery is beginning. 
• Irish bank AIB Group, which trades at around 1x book value following a protracted exit from government ownership and control. 
• UK listed insurance company Prudential, which is more of a “growth at reasonable price” name and where we think the topline could start to improve now that its end markets are more stable and investment in the business for growth is peaking. 
• Gold miners, principally Equinox Gold and New Gold Resources, where we have top sliced into sustained strength in 2025 but overall held on to the names as they have delivered on production ramp ups.  
• US domestic companies exposed to a potentially recovering consumer: Dollar Tree and General Motors. Both of these companies have had strong trading recoveries in the second half of 2025, forcing analysts to raise their expectations for what were previously considered challenged business models. 

As well as the above, we also have a large group of “smaller ideas” where we are gradually building up positions and quite a large slate of potential ideas waiting to get into the portfolio. This competition for ideas is the primary reason why we are constructive on the 2026 outlook. 

Looking at the short side of the book, in contrast to the longs we have opted less to rotate the book and been more biased to continue with the majority of shorts that have been successful for us, as in this market environment once problems develop with companies it can be challenging for the management to quickly steer them out of it. Individual ideas are much more stock rather than sector specific but in general we remain focused on seeking businesses where topline expectations are starting to falter; where inventories are high; and where there may be a problem with cashflow or profitability be it either self-inflicted (too much pricing previously or lack of product investment; or where competitors are starting to make their presence felt on the market). The majority of our short book resides in Industrials, Consumer Discretionary (more biased towards Europe) and Materials and with typical maximum short exposure at around 2% of NAV for an individual position. 

We look ahead to 2026 with some confidence on the portfolio. As discussed above we are in the fortunate position of having good competition for potential new ideas plus good fundamental conviction on our largest sector position. We also think the overall portfolio structure has proven resilient to the drumbeat of macroeconomic uncertainty in 2025, and we think it makes sense to continue in the same vein into 2026. As we have said before, the exciting thing about the Transformation Investing that we do is that stocks can re-rate in all business environments and so we have a successful niche. Therefore, as long as we get up early to stay on top of the “tweets”, use our well-established processes to understand investor positioning, and keep working hard to identify interesting companies, there is no reason why we can’t keep delivering in 2026.  
 
As ever, for any more information on the fund and performance, or simply to comment on newsletters or our investment process please don’t hesitate to drop us a line at info@iguanainvestments.com