Please refer to our disclaimers, which can be found in the footnote of this page and here.
1Q 2025 performance was -0.4% gross / -1.6% net (vs. the MSCI ACWI at -1.3%). Since inception (1 Jan 2019), the portfolio has compounded at +18.0% gross / +15.1% net (vs. the MSCI ACWI at +11.9%), representing +6.1% gross (+3.2% net) annualised outperformance. The top contributors in the quarter were Alibaba, Pinduoduo, Visa, Okta, and cash. The top detractors were Alphabet, Salesforce, and Block. We started the quarter with 14% cash and ended with 13%.
As usual, there were only a handful of trades this quarter. We sold circa half the Alibaba position (at ~$148) and made some incremental additions to Microsoft, Alphabet, Salesforce, and Block. The Alibaba position was driven by a material change in the risk-reward given the strong share price performance. It is too early to tell if our thesis on the core eCommerce business is playing out (although there are positive indications). Instead, it was AI-hype that drove the stock price.
Post quarter-end, there was a material downturn in the market as President Trump laid out his tariff plans. We will not attempt to offer any insight here as we have none. Not only can we not predict the tariff outcomes, even if we could, we cannot predict what is already priced in. Instead, we are focused on the next decade with companies that should be able to perform irrespective of the short-term tariff outcomes.
Through 7 Apr 2025, YTD performance was -7.6% gross / -8.8% net (vs. the MSCI ACWI at -11.0%). During the sell-off, we added to Salesforce, Alphabet, Meta, Microsoft, and Block. As of 7 Apr 2025, cash was 7%. To note, during this period, there was very substantial volatility, particularly in the overnight trading markets. The overnight markets are extremely illiquid during such times with very wide bid-ask spreads. Because of our small size, we were able to buy some positions at 4-9% discounts overnight relative to the next day close. For example, Alphabet at ~$139 (vs. $149 close), Salesforce ~$228 (vs. $244 close), Microsoft ~$344 (vs. $358 close), and Block ~$47 (vs. $50 close). We are grateful for the capital additions we received during the market weakness.
Returns Summary and Portfolio Statistics
(all returns are annualised in USD)
Block is a business that we have followed for a long time, but our interest peaked on the back of a deep dive into the payments industry in 2020, where we sought to understand the duration of the secular tailwinds and how the power in the value chain was evolving.
Alongside the card networks (see our note on Visa), we were drawn to next-generation merchant acquirers and payment facilitators that could integrate broader value-added services to achieve product differentiation (such as Square, Adyen, Stripe, and Toast), as well as companies with strong consumer relationships (like Apple Pay). Among the next-generation merchant acquirers, we favoured those focusing on SME customers (Square/Stripe) over those serving larger enterprises (Adyen). This preference stemmed from competition in the SME segment being less price-oriented. While larger enterprises are price-sensitive and have the scale to use multiple payment providers, even routing transactions in real time to optimize costs, SME customers typically depend more on their acquirer and prefer one-stop-shop solutions with value-added services. We were also attracted to solutions offering horizontal and holistic omni-channel capabilities built on modern, well-integrated architecture. This contrasts with many legacy incumbents who grew through acquisitions, resulting in disparate back-end systems that couldn't fully capture economies of scale. Block stood out because it possessed these desirable characteristics while also maintaining strong consumer relationships through Cash App. The potential to merge its consumer and merchant ecosystems could create a structural advantage. Without this potential, Block likely wouldn't pass our quality filter (as exemplified by Toast).
Our initial analysis of Block in 2021 concluded that the stock was significantly overvalued. We made our first investment in early 2022 after the share price had fallen considerably. Since then, Block's stock has been highly volatile with dramatic swings in valuation. While we don't typically trade actively around our positions, these substantial price movements have led us to both add to and reduce our holding at various times.
In retrospect, our investment has not been successful. As of quarter-end, the current investment multiple is only 1.04x (1.3x for our clients since starting the business). More significantly, we've been wrong about several key aspects. Management has stumbled in executing both the core Square product strategy and the Afterpay integration. Additionally, the merger of the Square and Cash App ecosystems has progressed more slowly than expected. While we maintain our position at the current valuation, we need to see specific proof points in the coming quarters — Block is on the chopping block.
Block operates two core businesses: Square and Cash App. Square serves as a next-generation, vertically integrated payments platform that combines value-added software services for retail business management into a comprehensive one-stop solution. Cash App functions as a neobank, delivering consumer payments, banking, and other financial services.