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 says a long-awaited shift toward value stocks has begun, and the fund beat the market last quarter. They are optimistic but warn of more bumps ahead. Key holdings: Apple and Tesla (zero ownership, but their price drops helped the fund); new buys in an Indonesian financial firm and an Indian gold lender (emerging market bets); and more copper miners (AI data centers need lots of copper).
One-sentence summary: The author believes the long-awaited momentum reversal has entered the "beginning of the beginning" phase, with the portfolio outperforming the benchmark this quarter, but warns that a "cold night" still lies ahead. [Optimistic]
The portfolio continued its strong performance this quarter, delivering a total return of 20.9% over the past three quarters, outperforming the MSCI ACWI's 16.0% (in USD terms). The report argues that this marks "the long-awaited momentum unwind has entered the 'beginning of the beginning' phase." Although an underweight of approximately 20% in North America was a drag, contributions from Japan and emerging markets fully offset this impact. The author states, "It would appear we are now at ‘the beginning of the beginning’ of the long-awaited momentum unwind."
Zero positions in Apple and Tesla were the largest individual stock contributors this quarter, highlighting the impact of index concentration unwinding. The report notes that the divergence in shareholder returns among large-cap US tech stocks provided support for the portfolio. Apple (zero position): The largest individual stock contributor for the second consecutive quarter. Tesla (zero position): The second-largest individual stock contributor. The author believes "it is possible that Tesla has peaked in share price terms at the exact moment when the massively over-capitalised Chinese EV industry has started to export its glut of surplus vehicles." Stellantis' CEO described this competitive landscape as a "bloodbath."
The Magnificent Seven's share of capital expenditure is staggering, and returns face pressure as they pivot to cloud, data centers, and AI. The report cites Empirical Partners data: in 2023, these seven companies accounted for 50% of S&P 500 capital expenditure, while the remaining 493 companies accounted for the other 50%. The author argues "the Magnificent Seven are increasingly not ‘capital light’ businesses." As they compete in cloud, data centers, and AI, returns may come under pressure. Large Chinese tech companies are already competing head-on in areas like cloud, and their valuations have fallen significantly.
The recovery in Japanese equities continues, with the MSCI Japan rising 11% in USD terms while the yen fell 6.8%. Over 50 Japanese stocks in the portfolio contributed value, with notable corporate activity among several small-cap and activist investment targets. The pace of buying in Japan slowed this quarter, with only two new stocks added. The author believes "we see significant latent value in our holdings particularly as industrial consolidation – a key part of the Japan value release puzzle – becomes a reality." By sector, financials contributed the most, while memory semiconductors performed well within the IT underweight.
The portfolio's nine Sri Lankan stocks rose approximately 17% in USD terms this quarter. Sri Lanka's economy grew 4.5% in Q4 2023, its first positive growth since the pandemic-era economic crisis and the IMF program. Tourism is recovering month by month, while foreign institutional investors remain largely absent. The report notes "Hosking Partners was the largest institutional participant in the Sri Lankan stock exchange during 2023."
The main drags came from an underweight in US growth stocks and the mining sector. The mining sector was under pressure for most of the quarter, amid ongoing debates about China's economy and the property bubble deflation. The author emphasizes "our mining investments are predicated on supply curtailment and not speculation regarding China demand."
Quarterly turnover was approximately 2.8%, with primary buying in emerging markets and mining. New positions include: Indonesian financial company (new position), Indian gold loan company (new position), Turkish warehouse operator (new position, discovered by Django Davidson and Omar Malik during an October 2023 research trip to Istanbul). In mining, the copper basket was increased. The author believes the capital cycle logic of supply constraints is playing out. The report notes "we recognise a clear benefit for copper should some of the more aggressive AI demand forecasts materialise." JP Morgan estimates that each 1 MW of data center power capacity requires 20-40 tons of copper, potentially generating up to 5 million tons of additional copper demand by 2030, nearly one-fifth of annual primary copper supply.
The portfolio's long-term trend is shifting from mature cyclical opportunities to future opportunities, geographically from expensive US markets to undervalued emerging markets, Japan, and Europe. This process has been ongoing for a decade. The portfolio's P/E ratio relative to the index has halved. The author argues "we have avoided (or perhaps more accurately not participated in!) the major market excesses of the past decade." The normalization process may take several more years. The author compares the portfolio's initial outperformance to "the arrival of spring for long-term capital cycle investors," while cautioning "There will still be the occasional cold night ahead."
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Apple | Liquidated (zero position) | Long-term zero position became the largest individual contributor this quarter, highlighting the breakdown of index concentration | Second consecutive quarter as the largest individual contributor |
| Tesla | Liquidated (zero position) | Share price may have peaked, coinciding with the start of China's EV industry exporting surplus vehicles | Second-largest individual contributor |
| Indonesian Financial Company | New position | Emerging market opportunity, new position added this quarter | Specific data not disclosed |
| Indian Gold Loan Company | New position | Emerging market opportunity, new position added this quarter | Specific data not disclosed |
| Turkish Warehouse Operator | New position | Discovered by the fund manager during an Istanbul research trip in October 2023 | Specific data not disclosed |
| Copper Basket (Mining) | Increased position | The supply-constrained capital cycle thesis is playing out, with AI demand potentially adding incremental demand | JP Morgan estimates AI data centers could generate up to 5 million tonnes of additional copper demand by 2030 |
| Sri Lanka Small-Cap Portfolio (9 stocks) | Hold and observe | Economy recovering, foreign capital still absent; the portfolio is the largest institutional participant locally | Up approximately 17% in USD terms this quarter |
| Japan Small-Cap/Activist Targets (over 50 stocks) | Hold and observe | Industry consolidation is becoming a reality, with significant latent value in the holdings | Japan's stock market rose 11% in USD terms this quarter, while the yen depreciated 6.8% |