Q1 2026 - 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 performed in early 2026 by focusing on industries where companies have cut back on spending and consolidated. For example, the memory chip industry went from over 30 players to just 3, making them more disciplined and profitable when AI demand surged. Energy stocks, beaten down after years of overinvestment, now benefit from limited competition. The key takeaway for regular investors: look for sectors where supply is shrinking and companies are being careful with spending—these can offer hidden opportunities. The report also suggests that the market is too pessimistic about energy, which might be a good time to buy.
In the first quarter of 2026, Hosking Partners' strategy posted a net return of 3.2%, versus a benchmark return of -3.2%; over the past twelve months, the net return was 39.1%, compared to the benchmark's 20.0%. The strategy overweighted beneficiaries of AI capital expenditure (such as memory compan
Theme and Background
This section primarily reviews Hosking Partners' investment performance and strategy execution in the first quarter of 2026. The market environment experienced a sharp divergence, from a strong rally driven by AI capital expenditure to an energy price shock triggered by geopolitical conflict (Iran bombing on February 28). The report aims to illustrate how the strategy achieved excess returns through capital cycle analysis across different market phases.
Core Views
The author believes that by systematically applying Capital Cycle Analysis, it is possible to simultaneously achieve the goal of "outperforming during market rises and controlling drawdowns during market declines" in different market environments. The core investment thesis is to seek structural opportunities in industries where capital discipline has improved (supply-side consolidation, underinvestment) and to hold contrarian positions in assets overlooked by the market (such as energy and memory). The report clearly points out the divergence between current market consensus and long-term structural logic.
Key Arguments and Data
- Performance:
- Q1 2026 strategy net return +3.2%, benchmark (-3.2%), excess return 6.4%.
- Past 12 months net return +39.1%, benchmark +20.0%.
- In the "stress test" of March, when the benchmark fell 7.2%, the strategy largely preserved relative returns.
- Capital Cycle Logic:
- DRAM consolidation: Over the past three decades, the number of DRAM players has shrunk from over 30 to 3 (SK hynix, Micron, Samsung). Result: The three survivors have more disciplined capital expenditure, and coupled with the AI demand explosion, this has generated strong returns.
- Energy underinvestment: The energy sector experienced a "crash" from excessive capital expenditure a decade ago, followed by sustained capital austerity, with high financing costs suppressing growth. This has instead created an environment for existing players to improve return on capital.
- Sector Allocation:
- Energy sector weight: Strategy 12.2% vs Benchmark 3.9%.
- IT sector overall underweight, but overweight in memory.
- India underweight, Japan overweight contributed to regional gains.
- US underweight (33.1% vs 63.2%), but stock selection performed strongly.
Comparison Data Table
| Indicator | Strategy (Net) | Benchmark |
|---|---|---|
| Q1 2026 Return | +3.2% | -3.2% |
| Past 12 Months Return | +39.1% | +20.0% |
| Energy Sector Weight | 12.2% | 3.9% |
| US Position Weight | 33.1% | 63.2% |
Companies/Assets Involved
- Bullish/Hold:
- Memory companies (SK hynix, Micron, Samsung Electronics): Winners from AI capital expenditure.
- Semiconductor equipment makers (Lam Research, Corning): Benefiting from data center fiber-optic connection demand.
- Energy/oil tankers (DHT, Hafnia, International Seaways, Noble, Tidewater, Japan Petroleum Exploration): Prices rose after the Iran conflict, showing strong performance.
- Refineries (Valero, Phillips 66, Marathon Petroleum, Motor Oil): New buys or increased positions early in Q1.
- Canadian energy royalty company (PrairieSky Royalty): Position increased.
- New Buys: Wise (bought on weakness, believing that sustained margin pressure is a source of long-term competitive advantage).
- Reduced/Took Profits:
- Memory: Micron, SK hynix, Lam Research, Seagate.
- Uranium (Cameco), Platinum Group Metals (platinum group metals basket).
- Bearish/Performance Drag:
- Financial sector: Synchrony Financial, Capital One, American Express (concerns over the US credit cycle); Jefferies (involvement in private credit funds); UBS (uncertainty over capital requirements after merger); 3i (market priced in slowing growth for its investee company Action in France).
- The author believes that the collective weakness in these financial stocks signals late-cycle fragility, but the holdings are driven by stock-specific judgments, not a macro view.
Investment Implications
- Focus on industries with supply-side consolidation: The capital cycle framework demonstrates strong predictive power. Investors should pay attention to industries that have undergone past capacity elimination and exhibit disciplined capital expenditure (e.g., the high-end memory sector, now with only three global players). Such industries offer significant profit elasticity when demand surges.
- Contrarian holding of energy stocks: The report explicitly notes that before the conflict, the energy sector was widely perceived by the market as facing a "cliff-like drop in demand" with returns that "could never recover." However, the author argues that history proves economic growth has a high correlation with energy consumption, and fossil fuels remain indispensable today — offering valuation-discounted buying opportunities for contrarian investors. High prices warrant caution, but low-valuation areas driven by low prices and bias (such as energy) may provide a margin of safety.
- Monitor tail risks and late-cycle signals: The collective pressure on the financial sector, liquidity/leverage issues in private credit, energy price shocks, and fiscal constraints form a compound risk. A highly diversified portfolio (over 400 stocks) serves as an effective buffer against these uncertainties.
- Capital discipline is at the core of stock selection: In industries where capital is scarce or constrained (such as energy), even previously mature businesses (oil tankers, oilfield services) may generate excess returns because competitors are unable to invest.