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 covers Hosking Partners' Q3 2022 performance. The manager is optimistic, believing value investing will recover in 2023 despite current gloom. Key holdings include Peabody Energy and ConocoPhillips, which benefited from high energy prices. They also bought about 10 Japanese companies, betting on better shareholder returns, as some have near-zero or negative enterprise value (meaning cash and assets exceed market value). Ryanair and Saga underperformed due to travel sector weakness, but management remains confident in demand.
One-sentence summary of the author's market outlook: Through the current fog, value strategy will see a recovery in 2023, with a stance of [optimistic].
Performance Comparison: In Q3 2022, the portfolio declined 6.2%, while the benchmark fell 6.8% (both in USD terms), resulting in a relative outperformance of 0.6 percentage points. Over the past 12 months, the return was -26.4%, lagging the benchmark's -20.7%. This includes the "write-down" of Russian investments — the author believes a substantial recovery is likely over the long term. The author attributes the underperformance to: a strong U.S. dollar (the portfolio is underweight USD assets), zero holdings in benchmark mega-cap stocks (Apple, Tesla, Exxon Mobil), and companies dragged down by recession fears (Samsung, Alcoa, Moller Maersk).
Performance Comparison: The relative excess returns this quarter came primarily from the energy sector. Peabody Energy, Montauk Renewables, ConocoPhillips, and Marathon Petroleum were the main contributors. By quarter-end, the portfolio's energy allocation was approximately 9.4%, compared to the benchmark's roughly 5%. The author argues that the prevalence of ESG awareness in developed economies has led to tight fossil fuel supply, creating a favorable capital cycle: commodity prices are supported, and corporate free cash flow benefits from reduced capital expenditure. The author stated, "Prices for oil and gas which are higher than would otherwise have been expected are likely to be with us for some time," meaning that oil and gas prices, which would not have been this high otherwise, are likely to persist for a while.
Performance Comparison: In the financial sector (nearly 22% of the portfolio), despite valuations as low as 50% of tangible book value and rising interest rates benefiting net interest margins, investors shifted focus to concerns about the impact of a recession on credit quality. The materials sector (the portfolio is double-weighted) also declined due to changing expectations, but this was offset by gains in the energy sector. Samsung (semiconductors), Alcoa (aluminum), and Moller Maersk (container shipping) were negative contributors as investors worried about an economic downturn.
Performance Comparison: The travel, leisure, and hospitality sectors continued to deliver disappointing news. Ryanair (low-cost airline), JD Wetherspoon (pubs), and Saga (cruise holidays) were major drags on relative performance. The author notes that despite significant post-pandemic business recovery in these areas, concerns about the cost of living and insufficient consumer spending often overshadow signs of recovery. The author adds that in meetings with travel and hospitality companies, demand still appears robust, and management remains confident about the business outlook.
Position Moves: Portfolio turnover remained low this quarter. Approximately seven small tail positions were liquidated, and about ten new positions were initiated. Most of the new positions are in Japanese companies, which the author expects to benefit from increasingly shareholder-oriented capital returns. The author points out that after accounting for cash and non-core assets, many of these companies have an enterprise value close to zero or even negative. Additionally, the depreciation of the yen provides a significant cost competitiveness advantage, which is positive for the profit outlook of Japanese companies.
Market/Macro Judgment: The author's stance is [Optimistic]. The author reviews long-term trends: the past decade was dominated by mega-cap tech stocks, interest rates continued to decline, and the COVID-19 pandemic accelerated digital trends. The portfolio adopted a contrarian strategy — favoring overlooked value areas (banks, energy, materials, transportation). The author believes that while recession expectations currently weigh on value stock sentiment, the good news is that recession predictions are already widespread, and there are clear offsetting factors in the economy: a robust banking system, negative real interest rates in most major markets, and an inevitable post-pandemic recovery in economic activity ("revenge spending"). The author stated, "we find it relatively easy to imagine a 'glass half full' scenario just visible through the fog of current circumstances," meaning that through the current fog, it is relatively easy to envision a "glass half full" scenario. The author expects growth in 2023 could easily exceed expectations (as the bar is low), inflationary pressures should ease with improved supply chains, and an end to the Ukraine war would be a further positive.
| Ticker | Action | Direction | Key Data/Rationale |
|---|---|---|---|
| Peabody Energy | Hold & Observe | Not Specified | Contributor in energy sector |
| Montauk Renewables | Hold & Observe | Not Specified | Contributor in energy sector |
| ConocoPhillips | Hold & Observe | Not Specified | Contributor in energy sector |
| Marathon Petroleum | Hold & Observe | Not Specified | Contributor in energy sector |
| Apple | Zero Position | Not Specified | Benchmark mega-cap stock, negative contributor |
| Tesla | Zero Position | Not Specified | Benchmark mega-cap stock, negative contributor |
| Exxon Mobil | Zero Position | Not Specified | Benchmark mega-cap stock, negative contributor |
| Samsung | Hold & Observe | Not Specified | Semiconductors, dragged by recession fears |
| Alcoa | Hold & Observe | Not Specified | Aluminum, dragged by recession fears |
| Moller Maersk | Hold & Observe | Not Specified | Container shipping, dragged by recession fears |
| Ryanair | Hold & Observe | Not Specified | Low-cost airline, drag from travel sector |
| JD Wetherspoon | Hold & Observe | Not Specified | Pubs, drag from travel sector |
| Saga | Hold & Observe | Not Specified | Cruise holidays, drag from travel sector |
| Japanese Companies (approx. 10) | New Position | New Position | Benefiting from improved shareholder returns, enterprise value near zero or negative |
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Peabody Energy | Hold & Observe | Major contributor in the energy sector | Portfolio energy weight 9.4%, benchmark 5% |
| Montauk Renewables | Hold & Observe | Major contributor in the energy sector | Portfolio energy weight 9.4%, benchmark 5% |
| ConocoPhillips | Hold & Observe | Major contributor in the energy sector | Portfolio energy weight 9.4%, benchmark 5% |
| Marathon Petroleum | Hold & Observe | Major contributor in the energy sector | Portfolio energy weight 9.4%, benchmark 5% |
| Samsung | Hold & Observe | Semiconductor company dragged by recession fears | Negative contribution |
| Alcoa | Hold & Observe | Aluminum company dragged by recession fears | Negative contribution |
| Moller Maersk | Hold & Observe | Container shipping company dragged by recession fears | Negative contribution |
| Ryanair | Hold & Observe | Dragged by sluggish travel sector | Demand remains strong, management confident |
| JD Wetherspoon | Hold & Observe | Dragged by sluggish travel sector | Demand remains strong, management confident |
| Saga | Hold & Observe | Dragged by sluggish travel sector | Demand remains strong, management confident |
| Japanese companies (approx. 10) | Newly established | Betting on improved shareholder returns, enterprise value near zero or negative | Yen depreciation benefits profit outlook |