Geopolitical tensions re-emerged in Q1, contributing to a broad deceleration in global economic activity. Major economies—including the United States, the United Kingdom, China, and key emerging markets —showed signs of weakening. The U.S. administration swiftly implemented a series of executive orders addressing global trade, immigration, and geopolitics, injecting heightened uncertainty and volatility into the markets as they absorbed these sweeping policy shifts. Unsurprisingly, this instability has weighed on global growth. In the U.S., consumer confidence has slipped, personal spending has remained sluggish, and first-quarter GDP projections have been sharply downgraded, triggering ripple effects across the global economy.

Our approach to international equities is rooted in deep insights from the domestic equity universe, enabling us to seek to identify trends and catalysts that drive growth beyond U.S. borders. Since the inception of our strategy, this framework has effectively guided our research and company engagements. As with our U.S. portfolios, we rely on markets rewarding companies with improving fundamentals and earnings growth that exceed expectations—an inefficiency that has been particularly pronounced in international markets. However, this quarter saw a sharp breakdown in the relationship between fundamentals and stock price behavior. Rising uncertainty surrounding U.S. policy led to heightened correlations between U.S. news flow and international equities that were perceived as beneficiaries of U.S. trade, infrastructure needs, or customer demand. These stocks experienced significant sell-offs, impacting our relative return profile.

At the end of the first quarter, the Hood River International Opportunity Fund Institutional Share Class trailed its MSCI All Country World ex USA Small Cap index by -11.67%, posting a total return of -11.03% compared to the benchmark’s +0.64%. Typically, stock selection plays a pivotal role in our outperformance, however, this quarter it was the primary detractor – negating -1,088 basis points (“bps”) to relative returns for the quarter. Outperformance was limited from a sector standpoint – positive contribution was confined to consumer discretionary (+0.93%), and health care (+0.40%). While top sectors detracting from relative performance this quarter included; information technology (-5.12%), industrials (-1.88%), and financials (-1.79%). Negative contribution from both developed and emerging markets was an additional drag on relative performance, with developed countries accounting for -890bps and emerging markets detracting -410bps.

For the past three years, our research has consistently highlighted AI and its supporting infrastructure as a key beneficiary of numerous global tailwinds, and today makes up a significant portion of our technology and industrial exposure. Historically, our stock selection in this segment has been a strong source of alpha. However, this quarter, nearly all AI-related names faced heightened uncertainty. Investor concerns centered on infrastructure scalability and the capital expenditures required to support hyperscale demand. A pivotal moment came with the release of China’s Deepseek, which sparked skepticism over the immense costs associated with training AI models, leading to a sell-off in related stocks. Additionally, reports of potential spending cuts by major industry players fueled further concerns, raising doubts about the true growth potential in this space.

Despite this turbulence, our direct conversations with management teams reaffirmed a positive trajectory, with spending outlooks remaining intact. Rather than curbing development, the Deepseek release has, in fact, accelerated infrastructure expansion plans. While the market currently anticipates capital expenditures around 8%, we believe the actual figure will likely be closer to 20% on a broad basis.

Canada has been repositioned to a neutral weight in our portfolio after previously being overweight by a few percentage points. The country faces mounting uncertainty due to negative tariff-related headlines, an upcoming election, and questions surrounding its trade relationship with the U.S., making stock selection particularly challenging. Our primary exposure remains in uranium, a resource abundant in the region and a key long-term solution to global power demand.

In Europe, equities posted their strongest quarterly performance in decades, outperforming the S&P 500® Index by 14.77% in dollar terms—the largest margin in over 30 years. This rally defied expectations despite Mario Draghi’s concerns about Europe’s competitive landscape. A shift in investor preference toward defensive, value-oriented sectors—amid slowing U.S. economic and corporate profit growth—has propelled European markets, while fading enthusiasm for high-momentum Magnificent 7 stocks further contributed. Additionally, Germany’s pivot to aggressive fiscal expansion, including a €500 billion infrastructure investment fund and defense spending exemptions, has fueled optimism.

Despite recent gains, structural challenges persist in Europe, including fragmented capital markets, regulatory hurdles, and unproven earnings growth, all of which raise concerns about sustainability. Europe’s reliance on Chinese demand remains a key risk, making broader geographical diversification essential. Beyond Europe, India presents a compelling opportunity with its $4 trillion market capitalization and strong sectoral diversification. Additionally, in our opinion, Japan offers a relative safe haven, benefiting from insulation against tariff impacts and strong corporate governance. Both countries provide attractive valuations with ample room for long-term earnings growth, strengthening their appeal within the international landscape.

Market volatility remains elevated due to inconsistent macroeconomic signals, a challenge familiar to those who have managed small and mid-cap portfolios over the years. History shows that uncertainty unsettles markets, but it also creates opportunities. Our experience navigating such environments reinforces our confidence that these turbulent periods may precede more favorable conditions. By maintaining discipline in our investment approach, we continue to construct a portfolio centered on earnings momentum, trusting that companies that we believe have strong fundamentals will ultimately be rewarded by the broader market.

As we move through 2025, we remain agile, balancing opportunity with prudent risk management. Analyst estimates tend to become overly conservative in times of uncertainty, creating wider information gaps that we seek to capitalize on. By leveraging our experience and strategic insights, we believe we are well-positioned to navigate the evolving market landscape while staying focused on long-term growth.

Rohan Kumar, Lance Cannon, Brian Smoluch & David Swank

 

International Opportunity Fund Performance as of 3/31/25	1 Year	3 Year	Since Inception
HR International Opportunity Fund (Inst)	-0.61%	5.59%	1.69%
MSCI All Country World ex US Small Cap Index	1.87%	0.99%	-1.04%
Institutional Share Class inception date: 9/28/21

 

Performance quoted represents past performance for the Fund’s institutional class shares and there is no guarantee of future results.  The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost.  Current performance may be higher or lower than the performance data quoted above.  Please call 800-497-2960 to obtain current and the most recent month-end performance data.  The gross expense ratio:  5.49%; net expense ratio (contractual through 11/30/25): 1.23%.  Performance for periods over one year are annualized.  Performance would have been lower without limitations in effect.

Investment Considerations:

All investing includes risk, including the loss of principal.  The Fund invests in small-cap securities which present a greater risk of loss than large-cap securities, and in growth companies which can be more sensitive to the company’s earnings and more volatile than the stock market in general.  The Fund also invests in foreign securities which are subject to risks including currency fluctuations, economic and political change and differing accounting standards.  The Fund may invest in derivatives and IPOs, which are highly volatile.  Additional risk information may be found in the prospectus.

Earnings growth is not representative of the fund’s future performance.  Basis point is defined as a unit of measurement used to describe a percentage change in a financial instrument’s value or rate.  GDP (gross domestic product) is defined as the total value of goods produced and services provided in a country during one year.  Alpha is defined as the excess return an investment generates compared to a benchmark index, indicating how well an investment outperforms or underperforms the market, adjusted for risk. Tariff is defined as a tax or duty to be paid on a particular class of imports or exports. All information in this report is as of March 31, 2025 unless otherwise indicated.  The benchmark is the MSCI ACWI ex US Small-Cap Index, defined as a stock market index comprising of non-U.S. stocks from 22 of 23 developed markets and 26 emerging markets. The MSCI ACWI Ex-U.S. index is made up of 2,361 constituents, which is 85% of the global equity market aside from the U.S.  Investors cannot directly invest in an index.

Investors should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing.  For a prospectus, which contains this and other important information about the Fund, please call 800-497-2960.  Please read the prospectus carefully before investing or sending money.

The Hood River International Opportunity Fund is distributed by Quasar Distributors, LLC.  Hood River Capital Management LLC serves as the advisor to the Hood River International Opportunity Fund.       

NOT FDIC INSURED-NO BANK GUARANTEE-MAY LOSE VALUE