| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
Castlebay's UK equity fund delivered flat returns in 2025 while the broader UK market gained over 22%, with half the underperformance attributed to UK banks, Shell, Rolls Royce and BAE Systems. Despite this divergence, the fund's quality metrics remain superior with 35% return on equity versus 14% for the market, 24% operating margins versus 16%, and 97% cash conversion. The fund trades at a compelling 5.5% free cashflow yield compared to 4.6% for the market. Portfolio activity increased with turnover reaching 20%, driven by new positions in Greggs and AJ Bell while reducing Admiral, NEXT and Compass Group exposure and exiting AutoZone entirely. The manager draws parallels to Nelson's victory at Trafalgar, emphasizing that long-term success comes from preparation and discipline rather than reaction to market volatility. With quality companies now trading at discounted valuations, the probability of performance reversal is viewed as very high, making the current positioning compelling for 2026.
Castlebay focuses on owning high-quality UK companies with superior returns on equity, operating margins, and cash conversion that trade at attractive valuations, believing that preparation and discipline will ultimately be rewarded when market conditions favor quality over momentum.
The expected return for the fund can never be guaranteed. However, given to where the valuation of the fund has reached in relation to the market, the probability of a reversal in performance is very high. Greater returns on equity, higher more stable profitability and less debt, all for a more attractive valuation, remains a compelling proposition as we move into 2026.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 9 2026 | 2025 Q4 | ADM.L, AJB.L, AZO, BATS.L, CPG.L, DGE.L, GRG.L, NXT.L | brands, Cornered Resource, Quality, regulation, United Kingdom, value | - | The fund focuses on high-quality companies with superior returns on equity (35% vs market 14%), higher operating profit margins (24% vs market 16%), and strong cash conversion (97%). These quality metrics remain intact despite recent underperformance, with the fund trading at attractive valuations with a 5.5% free cashflow yield versus 4.6% for the market. The fund has become increasingly attractive from a valuation perspective, with a 5.5% free cashflow yield compared to 4.6% for the market. Despite operational outperformance, share price performance has diverged materially from underlying fundamentals, creating compelling value opportunities as quality companies trade at discounted valuations. BAT represents a cornered resource through the intersection of brands, regulation and distribution. Regulatory barriers, licensing regimes and advertising restrictions create extraordinary barriers for new entrants, while incumbents retain rights to distribute, price and innovate within defined boundaries, transforming brand equity into a scarce economic asset. Diageo exemplifies brands crystallizing into cornered resources through production realities competitors cannot accelerate, including long-dated aging inventories and protected geographic distribution areas. Recent demand has softened following Covid-led surge, particularly in South America, requiring cost discipline under new leadership. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AlcoholDiageo exemplifies brands crystallizing into cornered resources through production realities competitors cannot accelerate, including long-dated aging inventories and protected geographic distribution areas. Recent demand has softened following Covid-led surge, particularly in South America, requiring cost discipline under new leadership. |
Brands Production Geographic Demand Leadership |
QualityThe company emphasizes investing in businesses with excellent economics, durable competitive advantages, and high-integrity management. This quality focus is evident in concentrated equity holdings and operating business acquisitions. |
Durable Advantages Management Quality Economic Moats Competitive Position | |
TobaccoBAT represents a cornered resource through the intersection of brands, regulation and distribution. Regulatory barriers, licensing regimes and advertising restrictions create extraordinary barriers for new entrants, while incumbents retain rights to distribute, price and innovate within defined boundaries, transforming brand equity into a scarce economic asset. |
Regulation Barriers Distribution Brands Licensing | |
ValueManager emphasizes investing in controlled companies trading at significant discounts to NAV, with European holding companies showing discounts of 30-68%. The strategy focuses on securities mispricing where real value exists, contrasting with overvalued technology stocks. |
Discounts NAV Mispricing Undervalued Controlled |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| No Elevator Pitches found | ||||||||||
| TICKER | COMMENTARY |
|---|---|
| ADM.L | During October and December we reduced our Admiral exposure in the fund. Over time we have talked about the contra-cyclical nature of Admiral's business model. Its relationship with its reinsurers allows it to take risk off its balance sheet, thereby elevating its returns on capital. Companies like Munich Re pay back to Admiral a profit commission when the combined ratio is below 100% - i.e. Munich Re make an underwriting profit. This encourages good long term behaviour, that Admiral has shown over many years, creates value for its shareholders. However, in the shorter term, this underwriting/capital discipline means that from time to time Admiral takes a step back from pursuing growth at any cost in the UK market. The subsequent reduction in revenue growth, is normally taken negatively by the equity market. As the valuation graph shows, over the last couple of years, there has been a cyclical upturn in Admiral's profits, accompanied by a strong share price recovery. Consequently, we have reduced our exposure by 2% (from 6% to 4% of the fund), as we are trying to take advantage of the short term nature of markets—by reallocating some of Admiral's position within the fund. |
| AJB.L | We initiated two new positions during the year—Greggs and AJ Bell, whilst reducing our exposure to NEXT and Compass Group; and selling out of AutoZone entirely during September. |
| AZO | We initiated two new positions during the year—Greggs and AJ Bell, whilst reducing our exposure to NEXT and Compass Group; and selling out of AutoZone entirely during September. |
| BATS.L | BAT's cornered resource is rooted in the intersection of brands, regulation and distribution. While tobacco branding is often dismissed as a legacy advantage, in reality BAT's global brand portfolio operates within one of the most tightly controlled consumer markets in the world. Regulatory barriers, licensing regimes and advertising restrictions make it extraordinarily difficult for new entrants to emerge, while incumbents retain the right to distribute, price and innovate within defined boundaries. Over time, these constraints have transformed brand equity from a marketing asset into a scarce economic one. The result is a market structure where share is defended less by spend and more by structural exclusion, giving BAT a cornered resource that continues to support cash generation well beyond the industry's tobacco volume peak. |
| CPG.L | Compass Group demonstrates that cornered resources need not be physical or brand-led to be powerful. Its advantage stems from exclusive, long-term contracts embedded within complex institutional environments such as hospitals, schools and large corporate campuses. Once established, these relationships are difficult to replicate due to operational scale, compliance requirements and switching action for the client. While Compass also benefits from scale efficiencies, the cornered resource emerges through contract-based exclusivity that effectively removes competitive access for extended periods. This turns client relationships into scarce assets, supporting predictable cashflows and reinforcing Compass's position as a structurally advantaged operator rather than a commoditised service provider. This is all evidenced well by their industry-leading 'client contract retention rate' of over 96%, annually. |
| DGE.L | Diageo represents one of the clearest examples of brands crystallising into cornered resources. Its leading spirits brands are reinforced by production realities that competitors cannot accelerate, most notably long-dated ageing inventories and protected geographic areas of distribution. A rival can copy a label, but it cannot replicate decades of maturing whisky stock or compress centuries of brand heritage into a marketing cycle. This combination of time-based scarcity and cultural embeddedness gives Diageo durable pricing power that is unusually resilient through economic cycles. In Helmer's terms, the brand ceases to be merely persuasive and instead becomes an independently owned, scarce asset that underpins long-term returns on capital. That said, recent demand following a Covid-led surge has softened, particularly in South America. It will be the job of Sir Dave Lewis—the former Tesco turnaround CEO, to reintroduce a greater cost discipline across the business and ensure their leading global brands are well positioned for the evolving landscape of consumer tastes. |
| GRG.L | We initiated two new positions during the year—Greggs and AJ Bell, whilst reducing our exposure to NEXT and Compass Group; and selling out of AutoZone entirely during September. |
| NXT.L | We initiated two new positions during the year—Greggs and AJ Bell, whilst reducing our exposure to NEXT and Compass Group; and selling out of AutoZone entirely during September. |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
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| No Recent Buys Data | |||||
| Ticker | Put/Call | Amount Sold | Shares Sold | % Change | Weight % | Status |
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| Industry | Prev Quarter % | Current Quarter % | Change |
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