In the third quarter of 2025, international small-cap equity markets experienced a continued period of strong performance, largely fueled by a strengthening economic landscape across Europe. While value-oriented strategies generally showed a slight edge over growth strategies, our portfolio's returns did not keep pace with either the broader MSCI World ex-U.S. Small Cap index or its value-focused sub-index. This period saw a notable addition to our holdings with the inclusion of Barry Callebaut, the world's foremost independent chocolate supplier. Despite the considerable gains observed throughout the year, international small-cap equities still present valuations that are historically compelling, indicating potential for future upside.
The robust performance of international small-cap markets in the third quarter underscores a positive shift in global economic sentiment, particularly within the European region. This improved outlook has created a favorable environment for smaller companies, which often exhibit higher growth potential during economic recoveries. Our analysis of the market dynamics revealed that companies demonstrating intrinsic value, often characterized by lower price-to-earnings ratios and strong fundamentals, generally performed better than their growth-oriented counterparts. This trend, however, did not fully translate into outperformance for our specific portfolio, prompting a closer examination of our investment selections and strategy.
A key strategic move during this quarter was the integration of Barry Callebaut into our portfolio. This company stands as a dominant force in the global chocolate market, providing cocoa and chocolate products to a vast array of food manufacturers worldwide. Our decision to invest in Barry Callebaut aligns with our core philosophy of identifying fundamentally sound businesses that may be temporarily undervalued by the market. We believe that its strong market position, coupled with resilient demand for its products, offers significant long-term value. This acquisition reflects our ongoing commitment to disciplined value investing, seeking out enterprises with solid foundations and attractive long-term prospects.
Looking ahead, the current market conditions remain highly conducive for value investors. Despite the impressive appreciation in international small-cap valuations year-to-date, these assets continue to trade at levels that are considered historically attractive. This scenario is particularly beneficial for those who employ a disciplined value investment approach, as it allows for the identification and acquisition of high-quality businesses that might be temporarily out of favor or undergoing a period of transition. Such a backdrop historically provides fertile ground for uncovering opportunities that can generate substantial returns over time, rewarding patience and meticulous research.
Overall, the third quarter of 2025 highlighted the resilience and potential of international small-cap markets, particularly in light of Europe's economic resurgence. While our portfolio experienced some relative underperformance against its benchmarks, strategic adjustments, including the addition of industry leaders like Barry Callebaut, reflect our steadfast commitment to our value-oriented investment principles. The prevailing market environment, characterized by compelling valuations despite strong gains, continues to offer a rich hunting ground for identifying high-quality businesses poised for long-term growth, reinforcing the efficacy of a disciplined value investing strategy.