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 the market is shifting away from US tech giants. The author is skeptical about the AI boom, having sold all Nvidia shares and cut positions in Broadcom and Applied Materials, arguing their valuations ignore industry cycles. They are bullish on Japan, calling it one of the best opportunities globally, and increased their Japan stake to about 15%. They also bought International Petroleum, a Canadian oil company with growth plans. Overall, they are cautious on the US, seeing rising uncertainty.
One-sentence summary: The author believes the market is undergoing a regime shift, moving away from U.S. mega-cap dominance, expressing skepticism toward the AI investment wave, and has already positioned in value stocks and Japan. [Cautious]
The author reiterates the core premise of the capital cycle theory: long-term stock prices are determined by returns on capital, not quarterly earnings changes. When stock prices exceed replacement costs, investment incentives strengthen, easily leading to oversupply; conversely, discounted trading encourages industry cost-cutting and consolidation, driving improved returns. The author argues that the current AI investment cycle resembles historical cycles such as the 1990s telecom bubble and the 2008 subprime crisis—hundreds of billions of dollars pouring into revolutionary technologies, new entrants disrupting markets, and management trapped in a prisoner's dilemma. The author states, "This makes us sceptical that today’s index-dominating incumbents will emerge unscathed," meaning: "This makes us doubt whether the current index-dominating incumbents can emerge from this cycle unscathed." Although these companies' earnings are still growing, intensifying competition and heavy investment burdens may depress future returns on capital. The author acknowledges, "We may have been early in positioning for a regime shift, but we believe we may now be at an inflection point for a new market regime."
Performance comparison: In the first quarter, the strategy benefited from a regional allocation reflecting the new environment. An underweight of 27.2% in the US (and widening) was the largest contributor to relative returns; an overweight of 10.0% in Japan and an overweight of 4.9% in emerging markets were also key drivers. The biggest drag was the relative underweight in developed Europe (ex-UK)—the best-performing region in the MSCI ACWI this quarter. At the sector level, an underweight in IT was the largest relative sector contributor, but an overweight in energy underperformed in both absolute and relative terms, and the lack of defensive sectors such as healthcare and utilities created a drag in an uncertain environment. The financial sector, after strong performance in 2024, reversed amid heightened inflation and recession fears, dragging down both absolute and relative returns. The author notes that this trend continued during the volatility following "Liberation Day."
Itemized breakdown:
The author is [optimistic] about Japan and [cautious] about the US. Japan is viewed as one of the most attractive investment opportunities globally. The author states, "most listed companies in Japan trade at <1.0 book value, generate sub-scale capital returns, operate with highly inefficient balance sheets, and are just beginning to reassess their business portfolios for the first time," meaning: "Most listed companies in Japan trade below 1.0 times book value, generate sub-scale capital returns, operate with highly inefficient balance sheets, and are just beginning to reassess their business portfolios for the first time." Over the past 12 months, the strategy's weight in Japan has increased by 2% to around 15%, and the author believes "the runway is long." In contrast, the US has high valuations, refined business models, and highly optimized balance sheets (the result of a decade of stock buybacks). The author argues that, just as Japan's former dominance once seemed unshakeable, the US now stands at a crossroads similar to Japan in the late 1980s—its "exceptionalism" is taken as a given, but the volatility in early April suggests this certainty is wavering.
Outlook and risk warnings: The scale of "Liberation Day" tariffs exceeded market expectations. If retaliatory tariffs persist and global supply chains are disrupted, the US could face a recession with slowing growth and accelerating inflation. The strategy's current holdings (13% materials, 11% energy) appear challenged—these positions were unduly penalized in the tariff reaction during the first week of April. The author acknowledges that during the 2009 financial crisis and the 2015-16 growth slowdown, these sectors experienced significant contractions or even bankruptcies. However, the author believes the current market reaction overlooks fundamentally different supply dynamics compared to past downturns, which should limit downside in these sectors over the medium term.
The author believes that capital expenditure relative to depreciation in developed-market metals & mining and energy sectors has fallen from over 2x during 2009-2016 to below 1.5x currently. Combined with inflationary factors, supply-demand balance will arrive faster than in previous cycles. The author notes that recent commodity price volatility may further reinforce capital discipline, creating opportunities to increase exposure. Performance comparison: Leverage ratios in both sectors have declined significantly, with strategy holdings showing even lower leverage—energy holdings have an average debt-to-equity ratio 7% below the industry, and metals & mining holdings 6% below.
The largest buy this quarter is Canadian upstream oil & gas companyInternational Petroleum Corporation (new position/add), operated by the Lundin family, which has demonstrated excellent capital allocation since its spin-off from Lundin Petroleum in 2017. The company plans to expand production by 50% by 2028 while aggressively reducing share count through buybacks. Another addition is offshore support vessel operatorTidewater (add), justified by its valuation significantly below replacement cost and net cash balance sheet. Reductions in Occidental, ConocoPhillips, and Valaris (reduce) funded these purchases, which the author describes as a result of reassessing risk-reward within each basket.
The author believes market uncertainty is rising exponentially, but one trend is becoming increasingly clear: the market is undergoing a regime shift, moving away from the dominance of US mega-cap stocks over the past decade. Citing historical patterns, the author states that "what worked in the preceding decade rarely works in the next" and notes that the market is obsessed with parsing news item by item, but the endgame is a significant change in the global order. The author's original quote: "What worked in the preceding decade rarely works in the next." The author says the strategy has been positioned for this environment over the past five years.
The author cites conclusions from Capital Account, arguing that amid the current disorderly market sell-off, value enterprises offer more compelling opportunities due to fundamentally different supply dynamics. The author's original quote: "The boom carries within itself the seeds of its destruction." The author states they are using this early stage of a long-term shift to sift through the wreckage of global markets for the best long-term opportunities. The strategy is nearly fully invested, but high-quality compounders that performed well over the past decade may serve as a reasonable source of capital to fund positioning for the next phase.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| NVIDIA | Liquidated | Valuation no longer reflects the industry's inherent cyclicality | Fully exited in March |
| Broadcom | Reduced | Same logic as NVIDIA; AI-related stocks are overvalued | Not specified |
| Applied Materials | Reduced | Same logic as NVIDIA; AI-related stocks are overvalued | Not specified |
| Magnificent Seven | Reduced | Strategic weight reduced to ~3%, benchmark at ~19% | Weight reduced to ~3% |
| IT Sector | Reduced | Underweight increased to 17%, the lowest since inception | Underweight increased to 17% |
| International Petroleum Corporation | New/Increased | Operated by the Lundin family, with excellent capital allocation | Plans to expand production by 50% by 2028 |
| Tidewater | Increased | Valuation significantly below replacement cost, net cash balance sheet | Not specified |
| Babcock | Hold/Observe/Increase | Restructuring nearly complete, European defense spending growth becomes a tailwind | Position built in 2023 at below replacement cost |
| Hikari Tsushin | Hold/Observe/Increase | Benefits from a strong Japanese stock market, holds equity in 600 local small and micro enterprises | Bought since 2017 using cheap yen-denominated debt |
| Impala Platinum | Hold/Observe | Trades at roughly one-third of replacement cost | Owns one of the industry's two major smelting assets |
| Jefferies | Reduced/Drag | Economically sensitive U.S. financial stock, worst performer this quarter | Not specified |
| Synchrony | Reduced/Drag | Economically sensitive U.S. financial stock, worst performer this quarter | Not specified |
| American Airlines | Reduced/Drag | Cyclical business, worst performer this quarter | Not specified |
| Peabody Energy | Reduced/Drag | Cyclical business, worst performer this quarter | Not specified |
| Hafnia | Reduced/Drag | Cyclical business, worst performer this quarter | Not specified |
| Occidental | Reduced | To fund purchases of International Petroleum and Tidewater | Not specified |
| ConocoPhillips | Reduced | To fund purchases of International Petroleum and Tidewater | Not specified |
| Valaris | Reduced | To fund purchases of International Petroleum and Tidewater | Not specified |