Inside Softgate Capital's Record-Breaking 2025

Emily Carter

Hi everyone, and welcome back to another episode of Global Equity Research. I’m Emily Carter, and we’re recording this in early 2026—so first, happy new year to all our listeners! We hope you’re starting the year energized, maybe with a strong espresso or something stronger, depending on how your portfolio did last quarter.

David Mitchell

Hey folks, it’s David Mitchell here. Today’s episode is a little special. Instead of our usual deep-dive into single stocks or macro trends, we’re actually putting the spotlight on Softgate Capital’s 2025 results. If you like big numbers and, you know, puncturing a bit of Wall Street’s ego, you’re in for a treat—2025 was a record-breaking year for the fund and we’ll get into the nitty-gritty.

Emily Carter

Right—so for anyone a bit newer to the series, or just tuning in, Softgate Capital is a global investment fund with this super focused mandate: find undervalued assets for long-term growth, make risk mitigation structural, and keep the clients’ interests above everything else. They’re really transparent in their process, and actually, the portfolio manager invests a significant amount of his own capital in the fund, so… major skin in the game.

David Mitchell

Yeah, and that long-term orientation’s not just some mission statement fluff—to date, the fund’s averaged north of 21% annual returns with, get this, well below-average volatility compared to the S&P 500. In 2025, though, they posted a staggering 40.57% annual return. We’ll break down how they did it, what drove performance, and lessons you might apply to your own approach. Interested in digging deeper? There’s more info and a way to connect with their team in our show notes—just email office[at]softgatecapital.com to learn more.

Emily Carter

So, let’s set the stage: 2025 was kind of wild in the markets, even by recent standards. We had policy and trade shocks, rate volatility, and a lot of investors—it felt like—just kind of flailing. But in that chaos, Softgate Capital managed to not just survive, but honestly outshine the broader market in a way we haven’t seen in years. David, can you walk us through the executive summary here?

David Mitchell

Absolutely. 2025 was one of those years where volatility wasn’t just a number—the whole market regime was changing. The US had a new administration set on tariffs and dialing up what you might call “mercantilist” trade policies. That left everyone, especially outside of tech, on pretty shaky ground. Meanwhile, inflation just stuck around and rate cuts that pretty much everyone expected… well, they didn’t really materialize. So instead, we got a lot of policy uncertainty, and Softgate’s approach seemed tailor-made for that environment. Their result: more than double the S&P 500’s return—with the risk profile staying pretty conservative.

Emily Carter

Yeah, and not to get too technical right out of the gate, but those risk-adjusted returns stood out: a Sharpe ratio over 2, a Beta well under the market, and, crucially, a really high Jensen’s Alpha. We’ll dig into the numbers later, but it’s safe to say, this wasn’t just riding a bull market. There was a lot of skill in how they put this together this year.

David Mitchell

Alright, so first, before we zoom in on trades or holdings, let’s talk context. The macro picture really shaped everything in 2025. The new US administration took a totally different approach: throw up tariffs and sort of exit the free trade era we’d gotten comfortable with. Tariffs started showing up everywhere.

Emily Carter

Which was such a shift, right? Suddenly, you’re looking at supply chain friction, corporates scrambling, and even the old notion that tech was insulated started looking iffy—at least index-wide. Industrials really took it on the chin. For investors, those tariffs meant higher input costs, margin pressures, and slower forward guidance. The one sector that kind of sidestepped it all? Tech—their global supply chain exposure actually played to their favor.

David Mitchell

Exactly. And then you toss in inflation: sticky at about 3%, which is above what anyone wanted to see. Tariffs dropped in and kept that inflation higher for longer. That led to the Fed staying cautious, rate cuts getting pushed out, and just, overall, nobody really felt surefooted about making big portfolio bets. For a lot of funds, it was about playing defense—or just holding on.

Emily Carter

But for Softgate, they used that volatility, more like a sail than an anchor. And it wasn’t luck. More on that as we go deeper.

Emily Carter

So, let’s talk deal risk. Event-driven investors—especially in the US—were hit by something kind of new: executive branch intervention. Political headlines actually moved the likelihood of mergers closing, which isn’t quite what we’re used to seeing, right?

David Mitchell

Not at all. Normally, merger arbitrage risk is about regulators and maybe some antitrust court games. But in 2025, it went straight to the top, with the administration weighing in on headline deals. Like, Paramount-Skydance and then the Netflix–Warner Brothers tie-up—those weren’t being held up on regular regulatory grounds, but political ones. It really widened spreads and made outcomes way less predictable.

Emily Carter

It forced funds to do more than just legal analysis. Suddenly, you needed scenario work for every possible political twist. I mean, position sizing became crucial—because, honestly, the distribution of possible returns grew so much wider almost overnight. Not a market where you could just “set it and forget it.”

David Mitchell

That was the lesson. And while Softgate isn’t a pure event-driven fund, their conservative sizing and political due diligence probably saved them from a few headaches.

Emily Carter

Switching gears a bit—one sector we’ve covered before was rare earths. In 2025, policy drove opportunity there. The US and, a little less aggressively, Europe ramped up efforts to de-risk their supply chains. It was all about losing reliance on—well, let’s say less reliable sources, like China.

David Mitchell

Yeah, rare earths came out of the shadows, partially because domestic supply suddenly had long-term government tailwinds. We actually talked about this in our episode on the US rare earth race. The policy continuity mattered though—these investments need years and major capital, so Softgate treaded carefully. The real challenge here, as noted in the annual report, is that the sector’s long lead times and permitting headaches can derail things if governments lose focus. But as a theme? It definitely created some outsized single-name opportunities this past year.

Emily Carter

Right, and the takeaway seemed to be: if the policy tailwinds persist, and funding is there, certain rare earths and supply chain investments could continue to benefit. But there’s no free lunch—the complexity and execution risk isn’t to be underestimated.

Emily Carter

Now, there’s one sector I wanted to highlight that’s honestly impossible to ignore—European defence. Building on structural trends, defence stocks in Europe were some of the best performers globally. It was partly the US shifting toward domestic priorities, right David?

David Mitchell

Exactly. With the US getting more insular about its own defence spending, European governments stepped up—big budgets, new EU-wide programs, strategic autonomy in focus. Suddenly, European contractors saw massive orderbooks, better contract visibility, and, yeah, powerful multi-year re-ratings. The report even points to a few standouts like Rheinmetall and SAAB… both up over 130% or more!

Emily Carter

It was pretty remarkable. The sector’s long R&D cycles and execution risks are real, but for 2025, you could almost point to European defence as the “breakout sector” of the year—at least in terms of performance and visibility.

David Mitchell

Let’s dig into those numbers. Softgate’s 2025 total return was 40.57%. Put that next to the S&P 500’s total return of about 17.4%, and the spread is pretty amazing—over 20 percentage points. The real kicker: most of that outperformance was driven by concentrated stock selection, not just broad market gains.

Emily Carter

They had a low Beta, just 0.41—so the correlation to market swings was limited. Risk-adjusted stats? A Sharpe ratio up at 2.44 and Sortino over 8. Huge. That means they weren’t just swinging for the fences in a risky way, but pulling out actual alpha. You see it in Jensen’s Alpha too, which clocked in at over 28!

David Mitchell

And if you look closer, it was a handful of big winners doing the heavy lifting: Rheinmetall up 152%, SAAB… over 130%, Hensoldt, DB, and Rolls-Royce up around 100% or more. Tech and financials, mostly. But the risk there is real—a portfolio with so many concentrated names has to be managed very carefully, or you can give those excess returns right back in a drawdown.

Emily Carter

That risk came up in their own commentary, too—monitoring liquidity, keeping sizing in check, and taking some chips off the table even if you love your thesis.

Emily Carter

Let’s talk geographies, because a lot of Softgate’s 2025 alpha came from an active move away from the US and into Europe. Their allocation to Germany, Italy, and France saw big increases—while the US went down to just about 38% of the book.

David Mitchell

Which wasn’t just about market diversification—for them, it was about dodging policy bullets. US regulatory and tariff risk spiked, so they reallocated into European names with more transparent risk. But there’s another angle: the FX component. As the euro strengthened against the dollar—by, I think, something like low double digits over the year—Softgate’s European gains looked even bigger when translated back to USD. They let some USD exposure run in spots where they expected euro strength to persist, and tactically hedged where earnings sensitivity looked high.

Emily Carter

So performance wasn’t just about picking the right European stocks—it was about the translation kick from FX. Which, by the way, can cut both ways, but 2025’s setup helped them in a big way.

David Mitchell

Smart risk controls mattered here. They used FX hedging selectively and kept a close eye on regional sensitivities. Key lesson: sometimes the “alpha” is in your asset allocation and currency calls as much as specific stock picking.

David Mitchell

Now, sector allocation—Softgate went big on Electronic Technology, about 33%, and Finance around 25%. Rounding things out: technology services, producer manufacturing, and smaller slices in industrials, transport, and retail. The heavy tilt toward tech and cyclical financials was pretty much spot-on for 2025’s market leadership.

Emily Carter

We saw something similar in our previous episode on NVIDIA, right? Markets rewarded concentrated tech bets, especially high-growth names with robust fundamentals. But Softgate didn’t ignore risk. They used sector hedges and maintained enough cash—almost 6%—to stay flexible.

David Mitchell

Yep. The thing to watch, though—and they address this directly—is that so much of 2025’s performance came from single-name outliers. That’s great in a banner year, but in terms of long-run governance, you need mechanisms for profit-taking, rebalancing, and keeping liquidity risk in check. Otherwise, all those gains can be wiped out quickly if those winners stumble.

Emily Carter

So for anyone managing a portfolio: big sector tilts can drive real alpha, but there’s no substitute for disciplined management on the back end.

Emily Carter

Alright, let’s wrap up with some closing lessons. 2025, by any measure, validated an active and conviction-driven approach—but also showed the critical need for governance. Softgate’s emphasis for 2026? Systematic rebalancing, targeted hedging, and tough risk controls to protect those realized gains. They’re not expecting another 40% year by default… and neither should any of us.

David Mitchell

Exactly. The portfolio manager actually says it outright—now’s the time to preserve those wins through discipline, not just chase more upside. If you want to see the full annual report, hit up the description or softgatecapital.com. Next episode, we’ll be back to our usual—probably less eye-popping but equally important—stock and sector research. And as always, quick legal reminder: this discussion is for information, not investment advice, and Softgate Capital carries their own full legal disclaimer, which we’ve included at the end of today’s show.

Emily Carter

Thanks so much for joining us. This was a fun one! David, always great to dig in with you—

David Mitchell

Yeah, you too, Emily. Appreciate all of you tuning in. Be well, and we’ll catch you next time on Global Equity Research. Bye now!

Emily Carter

Goodbye everyone—have a great start to your year!