| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| -3.08% | 0.67% | - |
The Wasatch-Hoisington U.S. Treasury Fund returned 0.67% in Q2 2026, matching the Bloomberg US Aggregate Bond Index. The managers sharply reduced the Fund's duration to less than one year, reflecting their view that the U.S. is transitioning from the disinflationary era of globalization (1990-2020) to a structurally higher inflation regime. They argue that equilibrium inflation is migrating from roughly 1.5%-3.5% toward 3.5%-4.5%, with significant risk of episodes above 5%, driven by supply-chain fragmentation, labor scarcity, capital-intensive industrial policy, and the reversal of globalization's cost efficiencies. The shift from just-in-time to just-in-case production, strategic rivalry with China, and massive investment requirements for AI infrastructure, semiconductors, energy grids, and defense are all structurally inflationary. While new Fed Chairman Kevin Warsh's balance-sheet restraint may eventually suppress inflation, the near-term outlook is for higher term premiums, rising real rates, and greater interest-rate volatility. The managers expect long-term Treasury yields to trend upward absent a sustained recession or prolonged monetary restraint, creating a challenging environment for long-duration bonds.
The disinflationary architecture of globalization (1990-2020) is eroding, replaced by a structurally higher inflation regime driven by supply-chain fragmentation, labor scarcity, capital-intensive industrial policy, and the reversal of globalization's cost efficiencies, which will likely push long-term Treasury yields higher and create a more volatile interest-rate environment.
The managers expect the structural inflation outlook to remain elevated, with equilibrium inflation migrating from roughly 1.5%-3.5% toward 3.5%-4.5%, and significant risk of episodes above 5%. They anticipate a more volatile interest-rate regime, with near-term upward pressure on term premiums and real yields as markets absorb greater Treasury supply without Fed support. Over the longer term, if tighter monetary conditions successfully suppress inflation, the inflation component of nominal yields could fall, partially or fully offsetting the earlier rise in real rates and term premiums. However, absent a sustained recession, favorable supply-side shock, or prolonged monetary restraint, they expect both inflation and long-term Treasury yields to trend upward. The tone is cautious and defensive, with the managers positioning for a structurally more challenging environment for long-duration Treasury securities.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 22 2026 | 2026 Q2 | - | AI, Defense Spending, Energy Transition, Industrial Policy, inflation, liquidity, rates, Trade Policy | - | The Fund sharply reduced duration to under one year as managers position for a structural shift to higher inflation. Globalization's disinflationary era is over, replaced by supply-chain fragmentation, labor scarcity, and capital-intensive industrial policy that will push equilibrium inflation from 1.5%-3.5% toward 3.5%-4.5%. Long-term Treasury yields face upward pressure from rising real rates, higher term premiums, and greater volatility. |
| 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 Q2 |
InflationThe structural backdrop for U.S. inflation is migrating from roughly 1.5%-3.5% toward 3.5%-4.5%, with significant risk of episodes above 5%. The disinflationary architecture that dominated 1990-2020 is eroding due to supply-chain fragmentation, labor scarcity, and capital-intensive industrial policy. Service inflation is fundamentally wage-driven and cannot be meaningfully offshored or automated. |
Inflation Disinflation Wages Service Inflation Price Levels |
Industrial PolicyThe United States is emphasizing resilience, redundancy, and national security rather than pure economic efficiency. Domestic semiconductor fabrication, energy-grid expansion, electrification, and defense manufacturing require massive investment spending, large quantities of industrial commodities, and highly skilled labor, all of which are already in relatively short supply. These policies are capital-intensive and structurally inflationary. |
Industrial Policy Semiconductors National Security Resilience Capital Intensity | |
Trade PolicyStrategic rivalry with China, tariffs, friend-shoring, semiconductor localization, and supply-chain redundancy are replacing the lowest-cost producer model with a secure and resilient producer model. The shift from just-in-time to just-in-case production structurally raises costs across manufacturing, logistics, and inventory management. Globalization's disinflationary era is reversing. |
Tariffs Friend-shoring Supply Chain China Globalization | |
AIWhile artificial intelligence may ultimately generate meaningful productivity gains, those benefits may not fully offset the structural inflationary forces now emerging. AI is extraordinarily capital and energy-intensive, requiring massive investment in data centers, semiconductors, electrical transmission infrastructure, cooling systems, and high-performance computing hardware. Large-scale AI deployment is expected to require enormous increases in power generation capacity at a time when the U.S. grid is already under strain. |
AI Data Centers Energy Demand Infrastructure Productivity | |
RatesThe structural shift toward a higher inflation environment has important implications for long-term interest rates. If equilibrium inflation is shifting from roughly 1.5%-3.5% toward 3.5%-4.5%, then the inflation component embedded in Treasury yields would tend to rise. Real interest rates may also face upward pressure from rising capital demands. The post-globalization interest-rate environment is likely to be less stable and more volatile than the one that prevailed from 1990 to 2020. |
Interest Rates Treasury Yields Real Rates Term Premium Volatility | |
LiquiditySubstantial liquidity injection occurred from mid-December 2025 through June 2026. The Fed purchased approximately $290 billion of Treasury securities, igniting a torrid surge in bank deposits and loans. Other deposit liabilities rose at a blistering 10.5% annualized rate in the first five months of 2026—more than 1.8 times faster than its 10-year compounded growth rate. This Fed-driven liquidity event, along with the recovery in velocity, may explain the sharp February reacceleration in inflation. |
Liquidity Fed Balance Sheet Money Supply Velocity Bank Deposits | |
Energy TransitionLarge-scale AI deployment and electrification trends are expected to require enormous increases in power generation capacity at a time when the U.S. grid is already under strain from aging infrastructure and underinvestment in baseload generation. The resulting increase in electricity demand may place sustained upward pressure on utility costs and infrastructure spending. |
Electricity Demand Grid Capacity Power Generation Utilities Infrastructure | |
Defense SpendingDefense manufacturing is part of the broader industrial policy shift emphasizing resilience and national security. It requires massive investment spending, large quantities of industrial commodities, and highly skilled labor, all of which are already in relatively short supply. This is capital-intensive and structurally inflationary. |
Defense National Security Manufacturing Capital Intensity | |
| 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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