Tencent Music Entertainment Group (TME) Slid on Rising Competition and Margin Dilution

Core Insights - The fourth quarter of 2025 saw a divergence in market performance, with AI beneficiaries and cyclical sectors leading, while quality growth strategies faced challenges [1] - The SGA Emerging Markets Growth Strategy portfolio returned 0.8% (Gross) and 0.6% (Net) in Q4 2025, underperforming against the MSCI EM Net TR Index return of 4.7% and the MSCI EM Growth Net TR Index return of 3.3% [1] - For the full year 2025, the portfolio achieved returns of 23.8% (Gross) and 22.8% (Net), lagging behind the indexes which returned 33.6% and 34.3% respectively [1] - The portfolio anticipates annual revenue growth of 13% and earnings growth of 16% over the next three years [1] Company-Specific Insights - Tencent Music Entertainment Group (NYSE:TME) was identified as a notable detractor in the fourth quarter of 2025 due to rising competition and margin dilution concerns, despite strong financial results [2][3] - As of February 11, 2026, Tencent Music's stock closed at $16.94 per share, with a one-month return of 2.05% and a twelve-month increase of 32.76% [2] - Tencent Music has a market capitalization of $28.53 billion [2] - The company is facing competitive pressures from Soda Music, which is backed by Douyin's traffic, raising concerns about long-term competitive dynamics, especially in lower market segments [3] - Investments in new verticals like concerts and merchandise are expected to pressure gross margins but are viewed as strategically valuable for long-term growth and differentiation [3] - The company continues to be seen as having strong long-term growth prospects due to its differentiated content ecosystem and brand strength, although the position was trimmed to below-average weight based on relative valuation after strong performance in the first half of 2025 [3]