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' Q1 2022 investment review. They admit misjudging the Russia-Ukraine war risk, which caused their Russian assets (like Tinkoff Credit Systems) to be written down to nearly zero, hurting the portfolio. However, gains from resource, energy, and shipping stocks (e.g., Anglo American, Peabody, Petrobras) due to rising commodity prices partially offset the loss. The fund is positioned for inflation, overweighting materials, finance, and energy, and added to Shell, Cool Co, and Alibaba while trimming winners like Tenaris and Alcoa. They worry high oil prices may hurt demand but see a widening energy supply gap, so they keep these holdings.
One-sentence summary: The author acknowledges misjudging the Russia-Ukraine conflict risk, with Russian assets written down to near zero dragging the portfolio, but positive returns from resource and energy stocks under the capital cycle strategy partially offset losses. The portfolio has shifted toward inflation-benefiting sectors and taken profits on some winners. [Cautious]
The primary cause of the portfolio's quarterly decline was the write-down of Russian assets to near zero. Russian equities accounted for 4.2% of the portfolio at the start of the period, covering 25 positions (resources, financials, consumer discretionary), with the largest holding being Tinkoff Credit Systems (TCS) (approximately one-third of Russian assets). The author acknowledges a misjudgment of geopolitical risk: "our base case was that this was a form of coercive diplomacy… we envisaged that this would be a surgical territorial conquest rather than the chaotic tragedy that we are now witnessing." During the quarter, the author actually added to TCS and select resource stocks, offering an apology and condemning Russia's actions.
The remainder of the portfolio benefited from rising commodity prices due to the capital cycle strategy, standing in stark contrast to Russian equities. The author notes that sanctions and disruptions to Ukrainian output accelerated pre-existing supply tightening trends. Performance comparison: Resource stocks (Anglo American, First Quantum, Freeport-McMoRan), energy stocks (Peabody, Petrobras, ConocoPhillips), and shipping stocks (Pacific Basin, Diana Shipping, Golar LNG) all contributed positive returns. Detractors included Epam (a Ukrainian IT outsourcer) and Paypal (a pandemic beneficiary undergoing a pullback), as well as an underweight position in Apple (partially hedged by Berkshire Hathaway) and underweights in Exxon and Chevron (hedged by other energy holdings).
The author took profits on recent winners while using geopolitical events to add positions. Profit-taking targets: Tenaris (oil and gas pipelines), Anglo American, Ferroglobe (silicon producer), Alcoa, AP Møller-Maersk, Teck Resources, and Wells Fargo. New positions/additions: Prairie Sky (royalty company), Shell, Cool Co (LNG transporter) to compensate for lost Russian energy exposure; added to Alibaba (taking advantage of weakness caused by regulatory noise).
The author remains cautious about the persistence of inflation, but the portfolio is positioned accordingly. U.S. February CPI stood at 7.9%, Eurozone at 5.9%, with the near-term consequence being monetary tightening. The portfolio's overweight in Bank of America and Wells Fargo will benefit from this. However, the author worries that high commodity prices could lead to demand destruction, and the profit-taking during the quarter was a prudent move. Brent crude closed the quarter at $107/barrel, well below the $140 peak; if the EU imposes an embargo on Russian pipeline gas, energy prices could replicate the 1970s shock and trigger a recession.
Over half of the portfolio's holdings are concentrated in materials, financials, industrials, energy, and real estate (approximately 58% vs. benchmark ~36%), capital-intensive sectors that typically benefit in an inflationary environment. The author emphasizes that these positions are the result of years of accumulation, derived from bottom-up capital cycle analysis rather than macro bets, thus providing a deep margin of safety. The portfolio is underweight information technology (approximately -12.0%) and healthcare (approximately -8.8%), avoiding stocks that rely on discounted future cash flows, which are most vulnerable to the Fed's anti-inflation efforts.
The author believes global energy production is failing to keep pace with demand, and the gap will only widen. Reasons include: restricted capital access for energy companies, ESG pressures curbing traditional energy investment, and insufficient renewable energy investment. Citing Charlie Munger's principle of "invert, always invert" — "you cannot print oil to heat or wheat to eat." The portfolio's overweight in commodities and shipping provides some protection in this new environment. The author acknowledges an inability to predict events but argues that the advantage lies in deducing the second- and third-order consequences of known events, consistently applying capital cycle analysis to build a resilient portfolio.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Tinkoff Credit Systems (TCS) | Written down to zero | Misjudged geopolitical risk, Russian assets reduced to zero, author apologizes | ~1/3 of Russian assets, 4.2% of initial portfolio |
| Anglo American | Profit-taking | Recent winner, take profits to lock in gains | Positive return from resource stocks |
| Tenaris | Profit-taking | Winner in oil & gas pipelines, take profits | Action within the quarter |
| Alcoa | Profit-taking | Recent winner, take profits | Action within the quarter |
| Ferroglobe | Profit-taking | Silicon producer, take profits | Action within the quarter |
| AP Møller-Maersk | Profit-taking | Shipping winner, take profits | Action within the quarter |
| Teck Resources | Profit-taking | Resource stock, take profits | Action within the quarter |
| Wells Fargo | Profit-taking | Financial stock, take profits | Action within the quarter |
| Shell | Increased position | Compensate for losses from Russian energy exposure | Newly established/increased position |
| Cool Co | Increased position | LNG transporter, compensate for losses from Russian energy exposure | Newly established/increased position |
| Prairie Sky | New position | Royalty company, compensate for losses from Russian energy exposure | Newly established/increased position |
| Alibaba | Increased position | Take advantage of weakness caused by regulatory noise | Action within the quarter |
| Bank of America | Hold and observe | Overweight US financial stocks, benefiting from monetary tightening | Overweight in portfolio |
| First Quantum | Hold and observe | Positive return from resource stocks | Contributed positive returns |
| Freeport-McMoRan | Hold and observe | Positive return from resource stocks | Contributed positive returns |
| Peabody | Hold and observe | Positive return from energy stocks | Contributed positive returns |
| Petrobras | Hold and observe | Positive return from energy stocks | Contributed positive returns |
| ConocoPhillips | Hold and observe | Positive return from energy stocks | Contributed positive returns |
| Pacific Basin | Hold and observe | Positive return from shipping stocks | Contributed positive returns |
| Diana Shipping | Hold and observe | Positive return from shipping stocks | Contributed positive returns |
| Golar LNG | Hold and observe | Positive return from shipping stocks | Contributed positive returns |
| Epam | Hold and observe | Ukrainian IT outsourcer, a drag | Dragged down during the quarter |
| Paypal | Hold and observe | Pandemic beneficiary stock pullback, a drag | Dragged down during the quarter |
| Apple | Hold and observe | Underweight, partially hedged by Berkshire Hathaway | Underweight |
| Berkshire Hathaway | Hold and observe | Partially hedges the underweight in Apple | Hedging tool |
| Exxon | Hold and observe | Underweight, hedged by other energy holdings | Underweight |
| Chevron | Hold and observe | Underweight, hedged by other energy holdings | Underweight |