Having closed out 2025 with solid performance for our Brandes International Equity Strategy, we’ve been encouraged to see how our disciplined value investing approach has helped clients pursue their long-term goals. At the same time, we would be remiss not to acknowledge the cyclicality of markets and the reality that periods of underperformance are an inevitable part of any manager’s journey. Assessing a manager’s ability to generate attractive long-term returns solely on short term outcome, whether it be positive or negative, may lead to flawed conclusions. Markets tend to move in cycles, and even long-tenured, process-driven managers will experience stretches where results lag. Viewed through a long-term lens, these temporary challenges often reflect consistency in philosophy rather than any breakdown in process.

The Rocky Road to Outperformance

Our analysis examines several actively managed non-U.S. strategies in the eVestment database applying various investing styles (e.g., value, core, growth). Each of them has a track record of at least 20 years—on its own a notable achievement amid the rising popularity of passive investing. Since their respective inception, these strategies have outperformed the MSCI EAFE Index by what we consider impressive multiples.

Returns Since Inception

Annualized Returns vs. MSCI EAFE Since Product Inception

Yet, the journey has been far from linear. Each strategy experienced periods of lagging the MSCI EAFE Index. In fact, they underperformed the index 30-45% of the time based on one-year rolling returns since inception (observed quarterly), with streaks lasting up to 13 consecutive quarters. Even on a three-year rolling basis, the pattern persists: underperformance is often a part of achieving long-term investment success. 

The Long Game: Underperformance Is Often Part of Long-Term Performance Success

% of Time Underperforming MSCI EAFE Since Inception

Markets ebb and flow, and with them, performance leadership shifts. Over the past 10 calendar years, none of these strategies, each applying a distinct investing style, consistently ranked in top quartile across all periods. This reinforces our belief that a bumpy road does not necessarily reflect a manager’s ability to generate attractive long-term results.

Markets Cycle, and So Does Performance Leadership

Quartile Ranking (compared to eVestment ACWI ex-US Large Cap Equity universe)*

Perspective Matters 

In our view, evaluating a strategy solely on annual or even three-year returns can be misleading. Instead, investors should assess whether a strategy has fulfilled its intended role within the overall portfolio. For example, a value-oriented strategy should have the tendency to do well during value-driven cycles, while growth strategies should be able to deliver alpha in growth-led periods. 

At Brandes, we take pride in our disciplined approach to value investing. Our firm is purpose-built to support this philosophy—from being 100% employee-owned and having team-based decision-making to our research process, which is grounded in the long-term “business owner’s perspective.” As a result, our Brandes International Equity Strategy has generated stronger alpha (vs. the MSCI EAFE Index) compared to most value peers (represented by eVestment International Large Cap Value universe) during value-led cycles. While this consistency has led to periods of underperformance, clients can be confident that we remain true to our mandate: providing an authentic value exposure within a diversified portfolio. 

Brandes International Equity Tended to Do Well in Value-Led Periods

10-Yr Average Monthly Annualized Alpha (vs. MSCI EAFE)

We believe that looking beyond short-term performance and focusing on longer-term return potential and patterns, as well as the firm’s process and people, can help investors select strategies best suited for their long-term objectives. 

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