Q2 2025 - Quarterly Report Commentary
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.
In plain words
This report explains how Hosking Partners navigated the tariff shock in Q2 2025 by investing in cheap, non-U.S. stocks (like Korean banks, Japanese tools, and platinum miners). They beat the market by avoiding big U.S. tech names (Nvidia, Microsoft) that may face risks from AI spending. For regular investors, the key takeaway is that diversifying globally and buying undervalued assets can protect your portfolio during uncertainty. Worth reading because it shows real examples of how to find opportunities others miss.
Hosking Partners delivered an alpha of 1.8% above the benchmark in Q2 2025, adding to the 0.3% alpha in Q1, bringing the relative performance over the past 12 months close to breakeven, despite the strategy's long-term underweight in the US and technology sectors (current underweight of 29%) while o
Theme and Background
This chapter opens Hosking Partners’ Q2 2025 investment commentary, summarizing the strategy’s performance and rebalancing rationale amid tariff policy shocks. The market backdrop centers on the U.S. announcement of a 10% baseline tariff and differentiated reciprocal tariffs on April 2, followed by a 90-day pause on reciprocal tariffs on April 9. During this period, the S&P 500 rebounded 25% from its April 8 low, rose 11% for the quarter, and the U.S. dollar depreciated by 7%.
Core Thesis
The author’s core investment argument is: the strategy’s diversification, deeply undervalued value holdings, and utilization of duration advantages enable it to consistently outperform the benchmark amid macro uncertainty. The report explicitly states that the market may severely underestimate the extent of "reordering of winners and losers" brought about by trade policy restructuring (implying a contrarian view: current market volatility and valuation levels fail to reflect actual risk).
Key Arguments and Data
1. Quarterly Performance: Q2 outperformed the benchmark by 1.8% (alpha), combined with Q1’s 0.3%, bringing relative performance near breakeven over the last 12 months. The strategy’s underweight in the U.S. and tech sector amounts to 29%, while overweighting energy and materials.
2. Policy Shock: After the "Liberation Day" tariff announcement on April 2, the strategy’s April turnover was only 2.4%, with trades shifting from defensives to cyclical stocks.
3. Individual Stock Contributions:
- Babcock (naval defense) benefited from upgraded medium-term targets driven by overseas and UK domestic demand.
- 3i’s discount retailer Action achieved same-store sales growth plus store expansion.
- SK Hynix, Coupang, and Shinhan Bank drove the overweight South Korean position to outperform Asian markets and the Korean benchmark.
- A basket of platinum miners (Impala Platinum, Sibanye Stillwater, Northam Platinum, Valterra Platinum, Sylvania Platinum) accounted for 2.5% of the strategy and contributed 0.5% of excess return.
4. Comparative Data:
| Metric | Hosking Strategy | MSCI ACWI Benchmark |
|---|---|---|
| Weighted Average Market Cap | US$146.3 bn | US$752.2 bn |
| Exposure Outside U.S. | 64% | 36% |
| Emerging Market Exposure | 15% | 10% |
5. Negative Factors: Underweight in Broadcom and zero positions in Nvidia/Microsoft/Meta were drags, partially offset by memory chip holdings in Micron and SK Hynix. The report notes that incremental free cash flow margins for hyperscale cloud providers have all turned negative since the start of the year, and the AI talent arms race suggests industry moats are not deep, undermining future returns on capital.
6. New Holdings: Techtronic Industries (power tools, battery pack compatibility + high R&D spending as a barrier), Sansan (Japanese enterprise SaaS, 85% market share in business card digitization), Lifenet (Japanese online life insurance, premiums 50% lower than traditional), Vista Energy (Argentina’s Vaca Muerta shale oil).
Companies/Assets Covered
- Babcock (defense company) — bullish, benefiting from upgraded defense demand.
- 3i (private equity) — bullish, Action’s continued growth.
- SK Hynix, Coupang, Shinhan Bank (South Korea long basket) — bullish, strongest Asian market.
- Platinum miner basket (Impala, Sibanye, Northam, Valterra, Sylvania) — bullish, deep valuation discount, platinum price up nearly 50%.
- Toyota Industries (Japanese heavy industry) — bullish, parent company’s premium buyout but still substantial discount (real estate + cross-shareholdings).
- Nvidia, Microsoft, Meta, Broadcom — bearish/underweight, due to poor AI capital return prospects.
- Micron (memory) — bullish, hedge against tech underweight.
- Ivanhoe Mines (copper, Kakula mine in DRC; shares fell a third after flooding) — bullish, added on panic.
- Wise (cross-border payments) — bullish, sharing economies of scale.
- Lanxess (chemicals, Europe) — bullish, below replacement cost.
- Altius Minerals (base metals + gold royalties) — bullish.
Investment Implications
- Strategy Level: Sticking with global diversification, low market-cap preference (weighted average market cap only 19% of the benchmark), and high non-U.S. exposure (64% vs. 36% benchmark) can serve as a core hedge against trade policy uncertainty.
- Sector Direction: Resource plays (platinum mining, copper), Japanese small/mid-cap value stocks, and discounted European chemicals may see continued catalysts; AI giants (especially high-capex Nvidia, Microsoft, Meta) face risks from deteriorating incremental free cash flow and moat concerns.
- Operational Advice: Monitor trade policy developments after the end of the 90-day tariff pause (July 9/August 1), as implied market volatility may be underestimated at that point.