Are 3is better than one Costco?

Many actively managed funds focus on competitive advantage as a key part of their investment philosophy. However for WCM's Select Global Growth Equity Fund (WCM SGG), it doesn’t matter how wide a company’s competitive advantage is today. It’s how wide it is likely to be tomorrow that is of interest. For the Fund to invest in a company, its competitive advantage, its ‘economic moat’, must be improving over time. Or as WCM says, its "moat trajectory” must be expanding.

At times, sticking to this philosophy can be hard. According to the portfolio manager for WCM's SGG Fund, Sanjay Ayer, one of the most difficult decisions he has had to make was to sell out of Costco. While Costco had been a great investment for the fund and many other investors over the years, its price-to-earnings multiple had steadily expanded from around 20x to 30x, all the way up into the 40s and 50s¹. At these elevated valuations, the fund's investment team began to question whether it could achieve a better return elsewhere.

When benchmarking Costco against other investments, the investment team started looking at 3i Group, a UK-based private equity company that owns a majority stake in a rapidly growing European retailer named Action,².

Expanding moat trajectory in Action

Action started in the Netherlands in 1993 and CEO Hajir Hajji has led the company since 2022. Action’s success is built on a business model that employs large-scale product procurement, simplicity and optimal distribution. Action aims to sell good-quality products at the lowest price; two-thirds of its products sell for less than €2³. Its competitive advantage is based on its low-cost, low-price model which is backed by large-scale procurement, optimal distribution and a cost-conscious culture which is centralised and frugal with a flat hierarchy. It keeps costs down by doing business as simply as possible and using standardised processes across geographies, making its supply chain efficient and resilient.

From its base in the Netherlands Action has quickly expanded across Europe, adding 384 stores in 2025, including launching in Switzerland and Romania, to bring the firm’s total footprint to more than 3,300 outlets in 12 European countries at the end of 2025⁴. Sanjay calls Action: “Costco early days”, highlighting its low-cost, low-price retail concept and strong track record of success: “it’s worked in every geography they’ve entered, even areas like Germany where no global retailers have had major success, they've been able to crack that market. They'll probably end up in the US eventually as well.”

At the time the WCM SGG Fund's investment team was considering buying 3i Group it was trading at a much lower valuation than Costco with what they believed was a much longer runway for growth. As Sanjay puts it: “It’s trading at low 20 times earnings with higher growth than Costco…Costco at 50s versus 3i Group in the twenties. That seemed like a trade we should pull the trigger on.” In late 2023 Sanjay and the team started investing in 3i Group and had completely sold out of Costco by April 2024. The move paid off. Over the next year 3i Group’s share price grew quickly as other investors started to see what had attracted WCM.

Sanjay believes that part of the reason that Action was undervalued stems from the approach of many fund managers to employ specialist analysts. As 3i group is a financial company it was mostly examined by specialist financial analysts, who understand financial companies very well but generally don’t have the same level of understanding of retail companies. Whereas WCM’s generalist analysts were able to apply their retail framework to this ‘financial’ company and immediately saw the potential value on offer. While Action comprises around three quarters of 3i Group’s total portfolio value⁵, it also invests in other consumer-focused companies as well as mid-market companies headquartered in Europe and North America in sectors including IT services, transport and logistics, utilities and the broader industrials sector.

Following its peak in October 2025, 3i Group’s share price fell more than 30% as some investors started to doubt its dependence on Action. Action experienced a slight slowdown in its same-store sales growth, and some anaylsts questioned whether Action would be able to continue its rapid growth in a higher inflation environment and so justify its high valuation. However 3i Group’s 2026 annual result satisfied many critics, showing that Action is continuing to grow like-for-like sales at mid-single digits and maintain a strong balance sheet and profit margins⁶. Sanjay and the team remained firm in their conviction throughout this recent bout of volatility, believing that Action’s low-cost sourcing, high inventory turnover and unique treasure hunt format are likely to see it continue to grow its competitive advantage over the competition⁷. Sanjay believes its growth prospects across Europe remain strong, and it could ultimately grow to more than 10,000 stores, tripling its current footprint⁸.

How an expanding moat trajectory can lead to a point of “narrative inflection”

WCM Select Global Growth Equity Fund's investment in 3i underscores why it focuses on how a company’s competitive advantage is changing. Competitive advantages are not static. They evolve over time for a myriad of reasons. Sanjay and the team believe that shrinking competitive advantages can be value traps that lead investors to hold on for too long, clinging to companies’ past glories. However, companies with expanding competitive advantages can see explosive growth and share price appreciation.

For its WCM Select Global Growth Equity Fund, WCM seeks to invest in companies that are as early as possible in their growth lifecycle. Ideally the team wants to invest in companies that are at the cusp of a significant change in the way they are perceived by the market. All great growth companies go through a period of time where their merits are debated and contested, to a time where they are widely appreciated and accepted as market leaders. WCM calls these points of time “narrative inflections” and believes if it can invest in a company going through one of these periods, it can benefit from a disproportionate percentage of that company’s lifecycle growth.

Footnotes

¹ “The Discipline of Getting Better” Capital Allocators Podcast, Costco’s PE multiple moved over 40x in late 2023 and crossed 50x in mid 2024 (Bloomberg, Costco, Nasdaq)

² Action company website, accessed August 2026.

³ Action company website 2025/2026

⁴ 3i Group and Action websites, company filings

⁵ 3i Group 2026 Annual Report, March 2026

⁶ ibid

⁷ Source: WCM Select Global Growth Quarterly Commentary, March 2026

⁸ Source: WCM, 3i Group company filings