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 markets are shifting from years of under-investment in energy and materials, which is good for the fund. Key holdings: JD.com and Alibaba were added to because Alibaba's stock fell 90% from its peak then rebounded over 70%, making it cheap. Cosmos Pharmaceutical, a Japanese drugstore chain, was bought for its low valuation and growth potential.
One-sentence summary: The author believes the market is emerging from years of underinvestment and overly simplistic ESG policies, entering a multi-year capital reallocation process that benefits Hosking’s sector-tilted and capital-cycle-based portfolio strategy [Bullish].
Performance Comparison: In the quarter ending June 2022, nearly all asset classes recorded negative real returns, setting a historic record. Deutsche Bank estimates this was the worst first-half performance for U.S. Treasuries since 1788 and the worst first-half for equities in the MSCI ACWI Index since its inception in 1990. With inflation at a 40-year high and the Federal Reserve raising interest rates at the fastest pace since the early 1990s, the market is adapting to a new regime: sharply higher discount rates, persistent shortages in energy and commodities, and the risk of a central bank-induced recession. The author states, "market participants are understandably as bearish as at any time in the last decade," meaning current levels of bearishness among market participants are as high as any point in the past decade, which is understandable.
Market/Macro View [Bullish]: The author argues that events such as the Russia-Ukraine conflict are unlikely to alter trends but will instead reinforce existing dynamics—puncturing the bubbles of the previous cycle and accelerating the new regime. The key opportunity lies in sector capital cycles: "Big Tech" like FAANG spent over $140 billion on capital expenditures in 2021, while capital spending in the resources and energy sectors is near historic lows (measured by capex per unit of output). The author notes that increasing environmental and social constraints on miners and energy producers in recent years, combined with capital discipline imposed by shareholders, have compressed commodity supply to the point where prices clearly indicate actual shortages—especially in the energy sector. The author states, "Could it be that policy makers and asset allocators will look back on the past decade as an era characterised by a degree of naivety?" meaning policymakers and asset allocators may look back on the past decade and wonder if it was an era marked by a certain degree of naivety.
Performance Comparison: An approximately 7% exposure to the energy sector contributed roughly 40 basis points of relative gains. However, high oil prices and Fed tightening weighed on economically sensitive areas: the financial sector, as the largest overweight, dragged performance by about 70 basis points; the materials sector, with an approximately 11% allocation, dragged performance by about 180 basis points, as copper, nickel, and zinc fell 20-25% during the quarter. The author believes that while short-term price volatility is difficult to predict, supply constraints, the energy transition, and net-zero commitments will support the pricing environment for these metals. China accounts for 50% of global commodity demand, and after two years of subdued economic activity, a reopening is unlikely to push commodity prices lower. Materials companies are trading at historically low valuations—an average of 6 times next year's earnings, with Glencore offering a spot free cash flow yield of 30%.
Key Stocks: The fund's China holdings delivered positive absolute returns during the quarter. JD.com (Held/Observe): Attractive through a long-term mental model lens, outperforming the broader market after reporting sustained growth. Alibaba (Added): Its EV/sales multiple has contracted 90% since its listing, rebounding over 70% from its lows. The author believes "concerns over slowing growth and a regulatory crackdown put the shares into deep value territory." The fund took advantage of low prices during the quarter to add to both stocks.
Position Moves:
Japan's allocation rose from 3.2% at the end of March to 4.3%. The fund's period-end cash weighting was approximately 4%, which the author states will provide opportunities to "be greedy when others are fearful."
| Position | Action | Key Data/Rationale |
|---|---|---|
| Cosmos Pharmaceutical | New Position | 0.6x EV/sales, early stage of Japan expansion |
| Bank of Kyoto | New Position | Low valuation, activist investor involvement |
| Aichi Bank | New Position | Low valuation, activist investor involvement |
| Komatsu | New Position | Activist investor involvement |
| JD.com | Added | Sustained growth, mental model perspective |
| Alibaba | Added | Rebound 70%+ from lows, deep value |
| BIMAS | Reduced | Up 10% in USD terms year-to-date |
| Ford Motor Company | Exited | Free up capital for Japan investment |
| Willis Towers Watson | Reduced | Partially trimmed |
| Liberty Global | Reduced | Partially trimmed |
| CBRE | Reduced | Partially trimmed |
| Berkshire Hathaway | Reduced | Partially trimmed |
| TSMC | Reduced | Partially trimmed |
The report argues that the market is emerging from years of underinvestment and overly simplistic ESG policies, entering a multi-year process of capital reallocation that benefits Hosking's sector-skewed, capital cycle-led portfolio strategy. While the portfolio is sensitive to discounted changes in short-term demand expectations, long-term supply deficits in many areas are creating increasingly attractive positioning opportunities, and investors who stay the course will be rewarded.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Cosmos Pharmaceutical | New Position | A long-term "brand fade" investment, early in Japan expansion, value not yet reflected | 0.6x EV/Sales |
| Bank of Kyoto | New Position | Low-valuation Japanese financial stock with activist investor involvement | Not disclosed |
| Aichi Bank | New Position | Low-valuation Japanese financial stock with activist investor involvement | Not disclosed |
| Komatsu | New Position | Construction machinery manufacturer with activist investor involvement | Not disclosed |
| JD.com | Added | Attractive through a long-term mental model lens, outperforming the broader market | Sustained growth |
| Alibaba | Added | Concerns over slowing growth and regulatory crackdowns have pushed it into deep value territory | EV/Sales down 90% post-IPO, rebounded over 70% from lows |
| BIMAS | Reduced | Up 10% in USD terms year-to-date, reduced to invest in Japanese peers | Up 10% in USD terms year-to-date |
| Ford Motor Company | Exited | Exited to recycle capital into Japan | Not disclosed |
| Willis Towers Watson | Reduced | Partially trimmed | Not disclosed |
| Liberty Global | Reduced | Partially trimmed | Not disclosed |
| CBRE | Reduced | Partially trimmed | Not disclosed |
| Berkshire Hathaway | Reduced | Partially trimmed | Not disclosed |
| TSMC | Reduced | Partially trimmed | Not disclosed |