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 is Hosking Partners' Q4 2023 commentary. They are optimistic about value stocks (cheaper companies) and think the risk of a 'hard landing' (severe recession) is already priced in. Key holdings: Apple (AAPL) is flagged as overvalued—its enterprise value is $2.8 trillion, and adding 10% would require $38 billion in extra sales, a tough task; UBS and Capital One benefited from easing credit loss fears. The fund underperformed due to low exposure to US tech giants, but rebounded strongly in the second half.
One-sentence summary: The author is [optimistic] about the outlook for value stocks, believing that the "hard landing" risk has largely been priced in, but the underweight in US tech giants has caused a significant relative drag.
Performance Comparison: In the fourth quarter of 2023, the benchmark index rose 11%, led by the U.S., as investor expectations for a soft landing improved significantly. The portfolio underperformed the benchmark for the full year but staged a strong rebound in the second half. Regional allocation (underweight U.S., overweight Japan/UK/Emerging Markets) was a negative contributor, largely offset by strong stock selection.
Market Assessment: The author argues that the improvement in value stock performance is unsurprising as investor expectations for the economic outlook turned more favorable—their valuations had been repeatedly pressured over the past two years by recession fears. Growth stocks also performed well, as slowing inflation reduced expectations for rate hikes. The author's original statement, "growth investors had the better returns in the US, but a value approach more than held its own elsewhere," means that growth investors achieved better returns in the U.S., but the value strategy held its ground in other regions. Stance: The author is [optimistic] about the outlook for value stocks, believing that the risk of a "hard landing" has largely been priced in.
Position Moves:
Portfolio Structure Changes: Annual turnover was approximately 20%, below industry standards but above Hosking Partners' historical levels, reflecting the transition to a three-manager advisory model. The number of holdings decreased, but active investment intensity increased: overweight positions in Japan and energy grew, active share rose to approximately 86%, average market cap declined, and non-benchmark securities accounted for about 37% of the portfolio. The author believes this transition has enhanced the portfolio's value characteristics and expects it to pay off in the coming years.
Key Stocks: The author uses Apple as an example to illustrate valuation headwinds—an enterprise value of $2.8 trillion, annual sales of $380 billion, and an EV/sales multiple of approximately 7x. If Apple's market cap were to rise another 10% (i.e., $280 billion), it would need to increase annual sales by $38 billion at current valuations. The author's original statement, "This is a tall order for any firm, let alone for one with a mature product line as the iPhone 15 product label inadvertently signals," means this is a daunting task for any company, let alone one with a mature product line, as inadvertently signaled by the iPhone 15 label. For comparison, it took Tesla 20 years to reach $80 billion in annual sales. Risk: The author acknowledges that the combined underweight in giants like Nvidia, Apple, Microsoft, Meta, Tesla, and Amazon in 2023 may have caused a relative drag of 460 basis points, but this was offset by recoveries in other sectors.
Outlook: The author believes the Japanese market (with few exceptions) is broadly undervalued, with government mandates to improve shareholder returns providing a tailwind. Orthodox monetary policy (positive real interest rates) supports a rotation into value, and sectors with chronic underinvestment—such as banks, energy, shipping, and mining—are favorable for improving returns on capital. A reassessment of the ESG agenda will also aid the value factor while curbing the "fantasy appeal" of some growth investments. The author concludes with a quote from Through the Looking-Glass: "One can't believe impossible things," whether it's Apple adding $38 billion in annual revenue or the global economy relying entirely on solar and wind power. Risk Warning: The author acknowledges that sticking to a value bias requires "Stoic" resilience and cites the "Stockdale Paradox"—confronting the brutal facts while maintaining unwavering faith in eventual success.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| UBS | Hold for Observation | Benefiting from easing credit loss concerns, entered the top 20 individual stock contributors | Significant contribution from financial sector overweight |
| AMEX | Hold for Observation | Benefiting from easing credit loss concerns, entered the top 20 individual stock contributors | Significant contribution from financial sector overweight |
| Capital One | Hold for Observation | Benefiting from easing credit loss concerns, entered the top 20 individual stock contributors | Significant contribution from financial sector overweight |
| 3i Group | Hold for Observation | Its subsidiary Action (pan-European hard discount retailer) continues to perform well | No specific data provided |
| MBIA | Hold for Observation | Announced a special dividend equivalent to its entire market capitalization | Special dividend amount equals total market cap |
| Hokuetsu Paper | Add Position | As part of a broad strategy to benefit from Japanese companies improving shareholder returns | Continued adding positions in 2023, entered the top individual stock contributors |
| Apple | Not Disclosed | Warns of valuation risk: EV/sales ~7x, generating $38 billion in annual revenue growth is a daunting task | EV $2.8 trillion, annual sales $380 billion |
| Nvidia | Not Disclosed | Underweight caused relative drag | Combined underweight may cause 460 bps relative drag |
| Microsoft | Not Disclosed | Underweight caused relative drag | Combined underweight may cause 460 bps relative drag |
| Meta | Not Disclosed | Underweight caused relative drag | Combined underweight may cause 460 bps relative drag |
| Tesla | Not Disclosed | Underweight caused relative drag | Combined underweight may cause 460 bps relative drag |
| Amazon | Not Disclosed | Underweight caused relative drag | Combined underweight may cause 460 bps relative drag |