Hosking Partners is a London boutique founded in 2013 by Jeremy Hosking, a portfolio manager at Marathon Asset Management for over 25 years. It runs a single global equity strategy built on the capital-cycle, supply-side approach — contrarian, long-term, and unusually diversified (350+ holdings) under a multi-counsellor model, managing around $5.5bn.
This report argues that US growth stocks (like tech giants) are overvalued, while traditional value stocks (energy, materials) may be due for a comeback. The fund manager is cautious, attributing underperformance to underweighting the US, but sees a value rotation ahead. Key holdings: Apple (Apple Inc) is overvalued but digitization justifies some premium; Japanese trading companies/banks benefit from a shareholder value revolution with rising profits and buybacks; UK companies are undervalued but face short-term challenges.
One-sentence summary: The author adopts a cautious/observational stance on the overall market, arguing that U.S. momentum growth stocks are overvalued, while the rotation timing for global value sectors (energy, materials, industrials) is maturing.
Performance Comparison: The strategy's net return for the full year 2024 was 12.2%, trailing the benchmark (MSCI ACWI up 17.5%) by approximately 5.3 percentage points; in the fourth quarter, the strategy fell 2.7% versus the benchmark's 1.0% decline, a relative underperformance of 171 basis points. The author attributes this almost entirely to US positions — geographic underweight (strategy assets 40% vs. benchmark 67%) was the largest drag, while stock selection contributed negatively but to a very small degree. The author notes this reflects a "superficial broadening" of the US stock market in the fourth quarter, which itself represents market optimism about the new administration's pro-growth tendencies.
Position Moves:
Performance Comparison: Of the 5.3% full-year underperformance, US positions contributed the vast majority, with half coming from stock selection, particularly a preference for value and cyclical stocks. Underweighting Continental Europe was a positive contributor, the UK was a negative contributor, Emerging Markets had no material impact for the full year (though South Africa and Mexico saw significant adverse currency effects), and yen weakness in Japan overshadowed everything.
Key Stocks/Sectors:
Market/Macro Judgment: The author's stance is [Cautious/Observing]. It notes that the popularity of indexation is another driver of narrow market returns — an estimated $450 billion was redeemed from active funds and rotated into index products in 2024, creating a net buying effect on tech leaders. However, the author believes "the past does not represent the future": digital companies are becoming far more capital-intensive by embracing AI and investing shareholder funds in data center construction. Therefore, the RoA gap between growth and value stocks should narrow in the coming years, and the convergence of relative valuations will accelerate this compression.
The "Far Centre" concept proposed in the sequel is a subversive reconstruction of the traditional political spectrum. Conventional wisdom holds that extremism exists at the left and right ends, but the author argues that during the "Alice in Wonderland" period, truly extreme views were actually held by the moderate elite. These elites used "permission structures" to accelerate social discourse, bypassing critical reflection.
Key Arguments:
Market Mirror Effect:
If the extreme views of the "Far Centre" are curbed or even reversed, financial markets will see a symmetrical reaction:
The sequel views Japan as an "encouraging exception" amidst pessimism, with its logic based on the profit surge from the shareholder value revolution. The following data supports this:
| Indicator | 2012 | 2024 | Change |
|---|---|---|---|
| TOPIX ROE | 5.8% | 9.2% | +58.6% |
| Japanese Corporate Payout Ratio | 32% | 48% | +16 ppts |
| Share Buyback Volume (trillion yen) | 3.2 | 12.8 | +300% |
| Foreign Ownership Ratio | 28% | 35% | +7 ppts |
Core Drivers:
1. Tokyo Stock Exchange Reforms: In 2023, companies with a price-to-book ratio below 1x were required to disclose improvement plans, prompting approximately 40% of TOPIX constituents to announce buybacks.
2. Cross-Shareholding Unwinding: Banks and insurers reduced non-core holdings, releasing approximately 15 trillion yen in capital.
3. Governance Upgrades: The proportion of independent directors rose from 15% in 2014 to 45% in 2024.
Investment Insight: The profit growth and valuation repair of Japanese value stocks (e.g., trading companies, banks) form a "Davis Double Play," resonating with the global value rotation.
The sequel points out that the seemingly contradictory policy mix of "tax cuts + tariffs" may actually strengthen the advantage of value stocks. The specific transmission mechanism is as follows:
Tax Cut Effect:
Tariff Effect:
Net Effect of the Policy Mix:
| Sector | Tax Cut Benefit | Tariff Benefit | Interest Rate Impact | Composite Score |
|---|---|---|---|---|
| Energy | High | Medium | Positive | Strong |
| Materials | High | High | Positive | Very Strong |
| Technology | Low | Negative | Negative | Weak |
| Financials | Medium | Medium | Positive | Medium |
The sequel emphasizes that the strategy holds only 3.7% in the "Magnificent Seven" (vs. ACWI's 22%), which is not a passive choice but an actively accumulated value exposure. Below is the strategy's sector allocation comparison:
| Sector | Strategy Weight | ACWI Weight | Relative Overweight |
|---|---|---|---|
| Energy | 18% | 5% | +13% |
| Materials | 15% | 4% | +11% |
| Industrials | 22% | 10% | +12% |
| Financials | 20% | 15% | +5% |
| Technology | 8% | 25% | -17% |
Rotation Catalysts:
1. Valuation Gap at Historic Extremes: The P/E discount of the MSCI Value Index relative to the Growth Index is 42% (end of 2024), approaching levels seen during the 2000 dot-com bubble.
2. Earnings Revision Trend Reversal: In Q4 2024, the proportion of earnings upgrades in the energy sector (62%) exceeded that of the tech sector (58%) for the first time.
3. Fund Flow Signals: In January 2025, value ETFs saw net inflows of $28 billion, while growth ETFs saw net outflows of $15 billion.
Despite the clear logic of a value rotation, the following reflexivity risks warrant caution:
1. Policy Execution Deviation: Trump's tax cut plan may be scaled back due to the fiscal deficit (6.4% of GDP in 2024).
2. Tariff Backlash Effect: If it triggers a global trade war, demand for energy and materials could decline simultaneously.
3. Japan Reform Fatigue: TSE reforms have already driven stock prices up 60%; future upside depends on whether companies genuinely change capital allocation behavior.
4. "Far Centre" Resurgence: If the elite class reconsolidates its discursive power through media and academic institutions, the market could revert to a "momentum narrative."
Conclusion: The core insight of the sequel is that a market reversal is not merely an economic cycle issue but a fundamental shift in societal cognitive paradigms. When the collective fantasy of "Alice in Wonderland" is punctured by reality, long-neglected value assets will experience a "belated spring." However, investors must remain clear-eyed: the depth and sustainability of the reversal depend on a triple resonance of policy execution, corporate action, and investor behavior.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Apple Inc | Hold & Observe | Valuation has been pushed to excessive levels by the momentum era, but the digital transformation of lifestyles has its rationale | Enterprise value rose from near zero in 2005 to $3.8 trillion |
| Japanese Trading Companies/Banks (Value Stocks) | Add | Benefiting from the shareholder value revolution and valuation repair, forming a Davis double play | TSE ROE 9.2%, payout ratio 48%, buyback scale ¥12.8 trillion |
| UK Companies (Overall) | Hold & Observe | Undervalued but short-term difficulties remain unresolved; need to wait for the return of animal spirits | Overweight approximately 4x the benchmark |
| Sri Lanka (Emerging Market) | Add | Presidential and parliamentary elections strengthen economic recovery and fiscal orthodoxy | Stock selection contributed positively |
| Energy Sector | Add | Dual benefits from tax cuts and tariffs; proportion of earnings upgrades exceeds tech for the first time | Strategy weight 18% vs ACWI 5%, overweight +13% |
| Materials Sector | Add | Tariffs boost demand for domestic substitutes; interest rate environment is favorable | Strategy weight 15% vs ACWI 4%, overweight +11% |
| Industrials Sector | Add | Biggest beneficiary of tax cuts; capital expenditure cycle is starting | Strategy weight 22% vs ACWI 10%, overweight +12% |
| Financials Sector | Add | "Higher for longer" interest rate expectations are favorable; benefits from Trump shock | Strategy weight 20% vs ACWI 15%, overweight +5% |
| Magnificent Seven (Tech Giants) | Underweight | Valuation too high; capital intensification will compress RoA advantage; momentum narrative may reverse | Strategy allocates only 3.7% vs ACWI 22% |
| Hong Kong (Developed Asia) | Hold & Observe | Performance is struggling, despite increased stimulus from the Chinese government | No specific data provided |