| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| -2.42% | -1.54% | -1.54% |
The Wasatch-Hoisington U.S. Treasury Fund declined 1.54% in Q1 2026 as oil prices surged due to the Iran War, causing sharp rises in long-term Treasury yields. The managers analyze how this oil shock is hitting a U.S. economy already weakened by slowing employment growth, rising loan delinquencies, and structural imbalances from pandemic-era stimulus policies. They draw parallels to historical oil shocks that triggered supply-side recessions, where rising production costs simultaneously fuel inflation and economic contraction. The Federal Reserve faces a policy dilemma but is expected to hold rates steady rather than risk deepening the downturn. Financial stress is mounting across consumer credit, corporate lending, and alternative investment vehicles, creating contagion risks. While the U.S. benefits from energy self-sufficiency and tax refunds that could buffer the impact, the managers expect long-term Treasury yields to remain volatile as recession and inflation dynamics play out amid ongoing Middle East tensions.
The current oil shock from the Iran War is striking a U.S. economy already burdened by financial distress and structural imbalances from pandemic-era policies, creating conditions for a supply-side recession where rising production costs lead to both inflation and economic contraction.
Oil shocks hitting economies already grappling with weak demand and strained balance sheets are especially damaging. The Fed is unlikely to raise interest rates against temporary supply-driven inflation and should tolerate a brief inflation spike while letting recessionary forces cool prices. Long-term Treasury yields are expected to rise as news of recession and inflation play off each other amid Iran-related developments.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 25 2026 | 2026 Q1 | - | Credit Stress, Fed policy, inflation, oil, Recession, Treasury | - | Oil shock from Iran War hits already distressed U.S. economy with rising credit stress and structural imbalances from pandemic policies. Historical parallels suggest supply-side recession ahead where production costs drive both inflation and contraction. Fed likely to hold rates steady. Fund reduced duration after quarter-end as long-term Treasury yields expected to rise despite economic weakness. |
| Jan 22 2026 | 2025 Q4 | - | Bonds, Disinflation, Fed, inflation, liquidity, Monetary, rates, Treasury | - | Eight disinflationary forces including weakened labor markets, restrictive credit conditions, and global stagnation will persist in 2026. Unit labor cost growth of 1.2% and declining inflation expectations support long-term Treasury bonds. The fund maintains positioning in long-duration Treasuries as yields appear increasingly favorable under the Fisher equation framework. |
| Oct 24 2025 | 2025 Q3 | - | AI, Bonds, Capacity, Deflation, duration, liquidity, tariffs, Treasury | - | Hoisington maintains long-duration Treasury strategy based on convergent deflationary forces. AI automation, declining global capacity utilization, Fed monetary restraint, and tariff-induced liquidity drains will drive yields lower. Real economic weakness masked by GDP statistics supports thesis that Treasury bonds will outperform despite widespread market pessimism. |
| Jul 21 2025 | 2025 Q2 | - | AI, Bonds, Capacity, Deflation, duration, liquidity, tariffs, Treasury | - | Hoisington maintains long-duration Treasury strategy despite recent underperformance, betting on deflationary forces from global capacity underutilization, AI's labor-displacing effects, restrictive Fed policy, and tariff-induced liquidity contraction. With 20-year duration positioning, they expect these macro headwinds to drive yields lower and generate outperformance for Treasury bonds. |
| Mar 31 2025 | 2025 Q1 | - | Bonds, Debt, demographics, fiscal policy, monetary policy, Recession, tariffs, Treasury | - | Five economic forces are converging to create recession risk above 50%: recessionary tariff effects, restrictive Fed policy, fiscal restraint, unprecedented 123.6% debt-to-GDP ratio, and reduced immigration. The fund maintains strategic long-term Treasury positioning to benefit from this uncertain environment and eventual Fed policy reversal needed for 2026 recovery. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
OilOil prices surged due to the Iran War, causing a sharp March rise in yields on long-term U.S. Treasury bonds. The manager analyzes how oil shocks historically trigger recessions by raising production costs across the economy, leading to layoffs and weaker economic activity. |
Oil Energy Iran Supply Shock |
InflationSupply shocks bring both increased price pressures and economic contraction. The manager discusses how oil price increases spread through the economy, initially spiking inflation before recessionary forces eventually cool prices as spending drops and unemployment rises. |
Inflation Prices Supply Costs Recession | |
Credit StressFinancial stress is rising with consumer and corporate loan delinquencies up, bankruptcies increasing, and over-leverage in real estate creating vulnerabilities. Business development companies face liquidity and portfolio risk from distressed borrowers, while private fixed-income funds struggle with losses. |
Credit Delinquencies Bankruptcies Leverage Risk | |
RatesThe Fed faces a dilemma when oil shocks occur - raising rates to curb inflation suppresses demand and deepens recession, while cutting rates risks fueling more inflation. The manager expects the Fed to hold rates steady and tolerate brief inflation spikes rather than worsen instability. |
Rates Fed Policy Dilemma Steady | |
| 2025 Q4 |
AIManager believes market's assessment of AI risk differs from their own, with approximately 60% of relative underperformance attributed to positions where AI impact concerns drove stock declines. Portfolio companies deemed AI-losers declined 15% despite 10% revenue growth and 15% EPS growth, representing valuation compression rather than fundamental deterioration. |
Artificial Intelligence Disruption Valuation Technology Software |
QualityFund exclusively invests in businesses with superior characteristics including high barriers to entry, sustainable competitive advantages, and durable growth prospects. Manager notes their focus on leading businesses in sectors has been foundation of strategy since inception, though this approach was out of favor in 2025 as investors sold higher-quality investments to buy riskier stocks. |
High Quality Competitive Advantages Margins Cash Flow Returns | |
Small CapsStrategy of owning competitively advantaged small and medium-sized businesses remained out of favor for most of the quarter. Fund observed improvement in early December as investors showed renewed enthusiasm for high-quality stocks that populate the portfolio, with significant outperformance potential when style comes back into favor. |
Small Cap Growth Style Outperformance Valuation | |
| 2025 Q3 |
AIAI is fundamentally different from prior innovations as it reduces rather than increases demand for labor, natural resources and capital. AI is rendering entire sections of the economy obsolete while decreasing labor demand by automating cognitive tasks across service sectors, creating disinflationary pressures. |
Automation Productivity Deflation Labor Innovation |
Trade PolicyTariffs and retaliation create a slow process that reduces liquidity through profit squeezes, falling demand, and reduced international capital flows. This results in sharp declines in liquidity similar to patterns seen in the 1920s and 1930s. |
Tariffs Retaliation Liquidity Trade International | |
InflationMultiple deflationary forces are converging including declining capacity utilization, AI's inherent deflationary power, monetary restraint, and tariff impacts. These forces will serve to impede economic growth and decrease inflation through the end of 2025 and beyond. |
Deflation Capacity Monetary Economic Growth | |
| 2025 Q2 |
AIAI is fundamentally different from prior innovations as it reduces rather than increases demand for labor, natural resources and capital. AI is rendering entire sections of the economy obsolete while decreasing labor demand by automating cognitive tasks across service sectors. This creates a disinflationary environment and shifts corporate income relative to household income. |
Automation Productivity Labor Deflation Innovation |
InflationThe combined effects of declining capacity utilization, AI's deflationary power, Federal Reserve monetary restraint, and tariffs will serve to impede economic growth and decrease inflation through the end of 2025 and beyond. Excess capacity prompts firms to engage in price-cutting, creating downward price pressures. |
Deflation Capacity Monetary Policy Economic Growth | |
Trade PolicyWhen a country raises tariffs and trading partners retaliate, it creates a slow process that reduces liquidity. This causes profit squeezes for those in international trade, reduces demand in micro markets, and leads to sharp declines in liquidity as producers cut demand for labor, natural resources and capital. |
Tariffs Retaliation Liquidity International Trade | |
| 2025 Q1 |
Trade PolicyTariffs are expected to have recessionary effects that will dominate inflationary ones, potentially leading to significant reduction in world trade and capital flows. Historical evidence from the 1920s-30s shows similar beggar-thy-neighbor practices contributed to deflation and severely suppressed world economic activity. Retaliations against U.S. tariffs have already started. |
Tariffs Trade Retaliation Deflation Protectionism |
RatesThe Fed's continued maintenance of highly restrictive monetary policy is significant and could have severe implications. A significant reversal in Federal Reserve policies this year is necessary for economic acceleration in 2026. Real money growth has turned negative, confirming lagged monetary restraint from 2022. |
Fed Monetary Policy Interest Rates Money Supply Restrictive | |
InflationThe fund expects subdued inflation as five converging economic forces align to depress growth. Decreasing regulation, increasing domestic energy production, and shifting to lower-cost fossil fuels are all disinflationary measures that help boost the standard of living. |
Disinflation Energy Regulation Growth |
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