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 old-economy stocks (energy, industrials, materials) will keep outperforming because of years of underinvestment. The author thinks energy prices will stay high for longer than expected, inflation risk is underestimated, and the US may already be in recession. Key holdings: mining stocks like Anglo American and Freeport McMoRan benefit from supply shortages and the energy transition; shipping stocks like Maersk are bought in a cluster because the industry looks good but no single winner is clear; Costco is cited as a high-quality company with a strong moat (hard for rivals to copy its advantages).
One-sentence summary: The author believes the long-term outperformance of old economy stocks will persist, with high energy prices and inflation risks being underestimated by the market, and a recession already imminent. [Optimistic on old economy, cautious on macro]
Over the past 6-9 months, Hosking's portfolio has been overweight energy, industrials, and materials by approximately 10 percentage points, all of which have contributed positive returns, validating the earlier thesis on the long-term performance of old economy stocks. In November 2021, the author argued that due to chronic underinvestment and barriers to capacity expansion, the mean reversion of returns in these sectors would be slow, with a promising outlook ahead. In retrospect, this judgment is "largely correct, especially in relative terms." Performance comparison: energy, industrials, and materials have all posted positive returns over the 6-9 month horizon.
The Russia-Ukraine war, inflation approaching double digits, and the energy crisis are not coincidences but a chain reaction triggered by historical underinvestment. The author notes that Putin's decision to launch the war was predicated on Europe's dependence on cheap Russian energy, while the energy crisis itself is the result of the previously identified "historic underinvestment." The energy crisis has further fueled inflation. The author emphasizes that understanding these phenomena requires "broadly understanding supply dynamics rather than narrowly focusing on demand"—Europe's singular energy supply gave Putin an opportunity, and the supply-side bottlenecks in energy, labor, and logistics are the root cause of current inflation.
Energy prices are likely to persist longer than most expect, and the risk of inflation becoming entrenched is higher than market-implied expectations. The author believes that the global energy gap—the difference between the energy required for positive GDP growth and available supply—is widening and difficult to bridge. Therefore, the rise in energy prices is likely to be "persistent for longer than many think likely," and the risk of inflation becoming embedded is "higher than the market's forward inflation expectation rates suggest." The author's original statement: "The rise in energy prices is therefore likely to be persistent for longer than many think likely, and the risk of inflation becoming embedded is higher than the market's forward inflation expectation rates suggest."
Faced with supply-driven inflation, traditional tools such as central bank rate cuts or quantitative easing have become ineffective, and a recession appears unavoidable. The author points out that the U.S. has recorded two consecutive quarters of negative GDP growth, meeting the NBER's formal definition of a recession; even if not, the next quarter will reach this milestone. The most obvious policy option for authorities is to raise interest rates to curb demand, but with inflation near double digits and interest rates still negative in real terms, this contradiction leaves investors facing "cognitive dissonance." The author quotes Zoltan Pozsar: "it’s easy to print money, but impossible to print gas and oil to fuel industry, transport goods, or heat homes, or to print wheat to eat." Market participants are grappling with events that have never occurred in their careers; only the oldest investors recall the era before Volcker curbed inflation in the early 1980s. "The end of history has ended."
Hosking's portfolio, with its long-term capital cycle strategy across hundreds of stocks and contrarian spirit, is well positioned to withstand shocks and seize new opportunities. The author emphasizes that in a context where old assumptions no longer hold and the world is changing rapidly, the portfolio is "well placed to withstand the shock of shifting conditions and to take advantage of the new opportunities that are thrown up." However, the author also cautions that this is not self-congratulation but a reaffirmation of the portfolio's positioning logic.
The author argues that the current market agenda is dominated by geopolitical and real economic events, rather than abstract monetary policy. The author cites former British Prime Minister Harold Macmillan's famous quote, "Events, dear boy, events," to underscore this point. The resignation of Sri Lanka's president due to the country's depletion of foreign exchange and fuel is seen as a cautionary tale of the consequences of currency depreciation and rising energy prices. The author further envisions a hypothetical scenario: Iran might exploit the West's energy vulnerability following the Ukraine war to disrupt production at Qatar's North Field (which supplies 4% of the world's natural gas and is a key LNG source for Europe to replace Russian pipeline gas). This field shares a maritime border with Iran's South Pars field, and the two countries are effectively competing for the same resource, making such an outcome "potentially highly predictable in hindsight."
Hosking Partners' portfolio benefits from broad exposure to discounted sectors that offer a margin of safety and anti-fragility due to deep supply imbalances. The author emphasizes that as a global generalist investor, the portfolio has a longer investment horizon than most funds and focuses on supply-side analysis. Specific holdings include:
These sectors all benefit from historical underinvestment identified through capital cycle analysis. The author notes that this group of stocks hedges against both a rise in supply-driven inflation and the accompanying geopolitical strategic turmoil. Additionally, mining companies will benefit long-term from the energy transition—the conflict between local ESG (increased regulatory hurdles for new mines) and global ESG (growing demand for renewable energy) strengthens both the supply and demand sides of the investment thesis for miners.
Hosking Partners' portfolio holds over 400 stocks, making it an extreme outlier among peers, aiming to be "roughly right" rather than "precisely wrong." The author emphasizes that as capital cycle investors, they avoid overconfidence, and the portfolio consists of a large number of bets with "rough confidence" rather than a few concentrated wagers with "extreme confidence." The portfolio's size allows them to engage in positions that competitors might avoid due to individual stock risks (such as size, liquidity, geopolitics, or information quality), as long as the overall logic is compelling enough for these risks to be diversified across the broad portfolio. The shipping sector is a typical example: the author has confidence in the industry's overall dynamics but is uncertain which company will be the absolute winner, so they hold a cluster of positions, each varying in fleet age, market exposure, capital allocation, and management quality. The author states: "we are truly unconstrained in terms of style: we like high-quality, growthy companies which enjoy barriers to the entry of new capacity... and we like more cyclical companies whose low returns have discouraged new capacity" (meaning: we are truly unconstrained in style: we like high-quality, growth-oriented companies with barriers to new capacity entry... and we also like cyclical companies whose low returns have deterred new capacity, making their return recovery potentially earlier than market valuations suggest). Costco is cited as a prime example of a high-quality growth company. The author concludes that the inevitable result of this unconstrained approach is contrarian investing.
The report argues that the true purpose of diversification is not to eliminate risk, but to allow a portfolio to withstand judgment errors. The author quotes Howard Marks, stating that diversification enables them to "dare to be wrong." Active Share is the core metric for tracking the portfolio, ensuring it fully leverages the opportunities it creates. The author uses mathematics to refute the misconception that a diversified portfolio is merely a benchmark proxy or index tracker: assuming there are 40,000 listed stocks globally and a portfolio holds 400, the number of possible portfolios is 40,000! ÷ (400! × 39,600!), far exceeding the number of atoms in the universe (approximately 10^80). Therefore, a large number of holdings in a portfolio does not necessarily lead to performance tracking the market.
The report borrows three traits necessary for survival and prosperity from Buddhism to analogize the three advantages of the Hosking portfolio. These three traits were proposed by the author of the cricket-themed Moneyball:
The author's original words: "In the changing market environment we find ourselves in today, such a combination of resilience, adaptability and idiosyncrasy should be particularly valuable." This means: "In today's changing market environment, this combination of resilience, adaptability, and idiosyncrasy should be especially valuable." The author judges that under the current market environment, this combination of traits will be particularly valuable.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Anglo American | Hold & Watch | A mining company benefiting from historical underinvestment and the supply-demand conflict driven by the energy transition | Position not disclosed |
| Freeport McMoRan | Hold & Watch | Same as above, a core holding in the mining sector | Position not disclosed |
| First Quantum | Hold & Watch | Same as above | Position not disclosed |
| Sibanye Stillwater | Hold & Watch | Same as above | Position not disclosed |
| Alcoa | Hold & Watch | Same as above | Position not disclosed |
| Rio | Hold & Watch | Same as above | Position not disclosed |
| Pacific Basin | Hold & Watch | A cluster holding in the shipping sector; the author is confident in the industry overall but uncertain about the absolute winner | Position not disclosed |
| Maersk | Hold & Watch | Same as above | Position not disclosed |
| Diana Shipping | Hold & Watch | Same as above | Position not disclosed |
| Scorpio Tankers | Hold & Watch | Same as above | Position not disclosed |
| DHT | Hold & Watch | Same as above | Position not disclosed |
| Hafnia | Hold & Watch | Same as above | Position not disclosed |
| Golar LNG | Hold & Watch | Same as above | Position not disclosed |
| Flex LNG | Hold & Watch | Same as above | Position not disclosed |
| Marathon Petroleum | Hold & Watch | Refiner benefiting from supply imbalances | Position not disclosed |
| Motor Oil | Hold & Watch | Same as above | Position not disclosed |
| ConocoPhillips | Hold & Watch | Energy company, benefiting to a lesser extent | Position not disclosed |
| Petrobras | Hold & Watch | Same as above | Position not disclosed |
| Peabody | Hold & Watch | Same as above | Position not disclosed |
| Costco | Hold & Watch | A model high-quality growth company with barriers to new capacity entry | Position not disclosed |