| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 13.45% | -1.41% | -1.41% |
Distillate Capital's Q1 2026 letter focuses on how market volatility creates opportunities through systematic rebalancing. Despite modest market declines, wide individual stock dispersion allowed the firm to rotate from appreciated, expensive names into cheaper alternatives, increasing underlying free cash flows. The manager demonstrates that fundamentals, not valuation changes, drive long-term returns, citing historical analysis showing cheapest quintile stocks significantly outperforming through superior fundamental growth. Their U.S. FSV strategy now trades at its cheapest level ever after rebalancing benefits. The firm sees significant opportunities in small-cap and international markets but emphasizes selectivity given quality concerns. Key risks include rich market valuations, technological uncertainty, budget deficit inflation, and geopolitical turmoil. However, the manager remains confident in their approach of owning diversified, less expensive companies with low debt and stable cash flows. Salesforce exemplifies their opportunity set, trading at attractive valuations despite strong fundamentals. The strategy continues focusing on fundamental improvement through disciplined rebalancing rather than passive market exposure.
Fundamentals drive long-term returns, and systematic rebalancing from expensive to cheaper stocks can improve underlying free cash flows at the portfolio level, leading to superior performance over time.
The manager expects fundamentals to continue driving returns over the long term, despite short-term valuation volatility. They plan to continue systematic rebalancing to improve underlying fundamentals and believe their diversified portfolio of less expensive, higher quality stocks with better fundamental growth provides attractive positioning amid current market risks.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 13 2026 | 2026 Q1 | CRM, MSFT | free cash flow, fundamentals, Quality, rebalancing, small caps, value | - | Distillate Capital demonstrates how market volatility creates rebalancing opportunities, systematically rotating from expensive to cheaper stocks to improve underlying fundamentals. Their value-focused approach now trades at record-cheap levels while maintaining quality standards. Despite macro risks including rich valuations and geopolitical uncertainty, the firm sees attractive opportunities through disciplined stock selection and fundamental-driven investing. |
| Jan 18 2026 | 2025 Q4 | BMY, CAH, CSCO, ELV, FFIV, FI, GPS, HCA, JBHT, JNJ, LOW, MO, MPC, MRK, REGN, TDC, TEL, TMUS, UBER, VST | free cash flow, fundamentals, international, Quality, rebalancing, small caps, valuation, value | - | Distillate Capital maintains valuation discipline in historically expensive markets, with their U.S. strategy trading at double the S&P 500's free cash flow yield. While lagging 2025's valuation-driven rally, their systematic approach of rotating from expensive to cheap stocks has generated superior fundamental growth, positioning them well for potential valuation normalization ahead. |
| Oct 16 2025 | 2025 Q3 | AAPL, ABBV, ACN, ADBE, ADP, ALGN, CMCSA, COST, CRM, EPAM, FIX, IT, JNJ, LRCX, MSFT, UNH, UNP, VST, VTRS, WMT | Benchmarks, Concentration, large cap, Quality, technology, valuation, value | - | Distillate warns that equity benchmarks are dangerously expensive and concentrated, with the S&P 500 at TMT bubble-like valuations. Their systematic value strategy trades at half the valuation of benchmarks while growing fundamentals faster through disciplined rebalancing. Recent underperformance reflects quality bias headwinds, but the approach should outperform long-term while avoiding current market risks. |
| Jun 30 2025 | 2025 Q2 | AMGN, CRM, FERG, GMED, HCA, ICLR, JBL, JNJ, KLAC, LRCX, MSFT, PEP, REGN, TMUS, UNH, VST, VTRS, WMT | free cash flow, momentum, Quality, rebalancing, small caps, valuation, value | - | Distillate's value strategy lagged in H1 2025 as the S&P 500 continued valuation expansion to tech bubble levels. The firm's systematic rebalancing has generated superior free cash flow growth while trading at the widest valuation discount to the S&P 500 since inception. Valuation risk is concentrated in the largest stocks, creating opportunities in cheaper, higher-quality names. |
| Mar 31 2025 | 2025 Q1 | BGC, BKRIF, BMWKY, CMP, DFIN, FPH, MBGYY, NVDA, QCOM, ROKU | Autos, Buybacks, earnings, real estate, value, volatility |
DFIN FPH BMWKY MBGYY CMP |
Manager capitalizes on extreme market volatility where earnings misses trigger disproportionate selloffs, creating mispricings between temporary setbacks and permanent impairments. Strategy emphasizes flexible position sizing and partnering with strong management teams. Key positions include undervalued auto manufacturers BMW and Mercedes-Benz, recovering real estate play Five Point Holdings, and technology holdings with covered call income generation. |
| Dec 31 2024 | 2024 Q4 | AAPL, AMZN, AVGO, BMY, COST, CSCO, CVS, DKS, GDDY, KO, META, MO, MSFT, NFLX, NVDA, ORCL, TMUS, TSLA, WMT, WSM | AI, Concentration, large cap, Quality, technology, valuation, value | - | Distillate warns of extreme valuation risk concentrated in 15 mega-cap stocks that dominate market returns despite minimal fundamental improvement. Their disciplined value strategy trails in 2024 but maintains record valuation advantage over expensive markets. Manager draws parallels to late 1990s bubble and expects patient capital focused on quality companies at attractive prices to be rewarded when fundamentals matter again. |
| Oct 20 2024 | 2024 Q3 | ABBV, ABNB, AMAT, AVGO, BMY, CSCO, CVS, ETSY, FDX, FISV, HD, HUM, LMT, MCK, PH, QCOM, TMUS, TOL, UNH, WSM | large cap, Quality, risk management, small cap, valuation, value | - | Distillate Capital warns of extreme valuation risk with 40% of S&P 500 trading above 30x P/E ratios, similar to 2000 bubble conditions. Their quality-focused strategies avoid expensive megacaps while maintaining superior free cash flow yields. July's rotation provided a glimpse of potential outperformance during valuation normalization, positioning portfolios for eventual mean reversion. |
| Jul 25 2024 | 2024 Q2 | AAPL, AMZN, AVGO, BMY, COST, CVS, DKS, ETSY, GOOGL, HD, LLY, META, MSFT, NTAP, NVDA, ORCL, QCOM, TSLA, WMT, WSM | AI, Concentration, large cap, Quality, small cap, valuation, value | - | Distillate lagged significantly in H1 2024 as AI-driven concentration dominated markets, with just 7 stocks accounting for two-thirds of S&P 500 gains. Despite underperformance, the strategy's fundamentals improved more than the broader market, creating record valuation spreads. Management maintains strict valuation discipline, viewing current concentration as reminiscent of late 1990s bubble dynamics. |
| Apr 15 2024 | 2024 Q1 | AAPL, AMAT, AMZN, BABA, CSCO, DBX, DKS, ETSY, FANG, GOOGL, HUM, META, MSFT, MSTR, NVDA, RHI, SMCI, TOL, UNH, WSM | AI, China, free cash flow, international, large cap, Quality, valuation, value | - | Distillate Capital delivered 9.57% net returns in Q1 despite a 2.6% NVIDIA headwind, maintaining record valuation spreads with their quality-focused value approach. While NVIDIA dominates with AI-driven gains reminiscent of Cisco's tech bubble peak, the manager finds compelling opportunities in overlooked stocks with strong cash generation and attractive valuations. |
| Jan 24 2024 | 2023 Q4 | AAPL, AMGN, AMZN, AVGO, BMY, CSCO, GDDY, GOOGL, HRL, JBL, LRCX, META, MSFT, NVDA, OC, PG, QCOM, TSLA, V, WSM | Concentration, free cash flow, large cap, Quality, selectivity, valuation, value | - | Distillate delivered strong absolute returns while underperforming the concentration-driven S&P 500 in 2023. Their value-focused approach achieves a 6.9% free cash flow yield versus 4.5% for the index while maintaining superior quality metrics. The firm sees attractive opportunities in international markets and small-caps, avoiding richly valued mega-caps that dominated 2023 performance through passive concentration effects. |
| Nov 10 2023 | 2023 Q3 | 005930.KS, 036570.KS, 6857.T, AAP, AMGN, AMP, AN, AON, AVGO, AVY, BABA, BLDR, CF, CSX, CVS, DHR, ETSY, GOOGL, IPG, ITX.MC, JBL, LKQ, MC.PA, MPC, OC, OMC, PCAR, PRIO3.SA, PYPL, ROG.SW, SMCI, TEP.PA, VSCO | free cash flow, large cap, Leverage, Quality, selectivity, small cap, value | - | Distillate Capital maintains selective equity exposure, avoiding expensive mega-cap stocks and highly leveraged small-caps while achieving attractive 7.3% free cash flow yields. The strategy outperformed value benchmarks despite headwinds from concentrated market gains in six large stocks. Focus remains on quality companies with stable fundamentals and low leverage for long-term resilience. |
| Jul 13 2023 | 2023 Q2 | AAP, AAPL, ABBV, AMZN, AN, APA, AVGO, BLDR, CVS, FTNT, GOOGL, HIBB, JBL, META, MSFT, NVDA, OC, SMCI, TOL, TSLA, VSCO | Concentration, large cap, Quality, stability, valuation, value | - | Distillate's value strategy lagged in Q2 as seven mega-cap stocks drove 74% of market gains while trading at 40x free cash flow. The firm avoids these expensive names, focusing instead on quality companies with 6.9% free cash yields versus the market's 4.5%. Historical precedent suggests rich valuations create poor risk/reward despite business success. |
| Apr 14 2023 | 2023 Q1 | AAPL, ADBE, AMZN, CI, CVS, FIS, FTNT, GOOGL, JBL, JNJ, META, MO, MSFT, NVDA, PM, SWKS, TMUS, TSLA, UNH, V | Banking, Concentration, Leverage, Quality, rates, technology, value | - | Distillate's value-focused strategy faced headwinds from concentrated mega-cap outperformance but benefited from avoiding collapsed regional banks. The fund maintains attractive valuations with 7.0% free cash flow yield versus 4.8% market average while emphasizing low-debt, cash-generative companies. Despite recession risks and banking sector stress, management sees compelling opportunities in quality names trading at attractive valuations. |
| Jan 30 2023 | 2022 Q4 | - | - | - | |
| Oct 10 2022 | 2022 Q3 | - | - | - | |
| Jul 30 2022 | 2022 Q2 | - | - | - | |
| Apr 30 2022 | 2022 Q1 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
ValueThe letter extensively discusses value investing through free cash flow-based strategies, emphasizing systematic rebalancing from expensive to cheaper stocks. The manager demonstrates how their value approach has outperformed by focusing on fundamentals rather than valuation expansion, with detailed analysis showing cheapest quintile stocks significantly outperforming over time. |
Free Cash Flow Valuation Rebalancing Fundamentals |
QualityQuality is emphasized as a key component of the investment strategy, particularly in small-cap investing where selectivity is critical. The manager focuses on companies with low debt levels, stable cash flows, and avoids unprofitable companies, especially highlighting the risks of lower quality stocks internationally and in small-cap markets. |
Cash Flow Stability Low Debt Selectivity Profitability | |
Small CapsThe letter discusses significant opportunities in small and mid-sized US stocks while emphasizing the critical importance of selectivity due to many unprofitable and heavily indebted companies. The manager shows how quality small-cap strategies have historically outperformed but notes recent underperformance as lower quality stocks outperformed. |
Selectivity Quality Leverage Profitability | |
| 2025 Q4 |
AIAI investment cycle is driving productivity gains and revenue per employee growth at large companies. The fund sees AI as supporting economic growth and market gains, though debates on AI's impact are beyond the scope of their commentary. They view the AI investment cycle as not out of line with past tech expansions. |
Artificial Intelligence Productivity Investment Cycle Technology Data Centers |
Small CapsSmall caps are expected to grow at a better pace than large caps in 2026. The fund believes small caps are positioned to end their very long period of underperformance relative to large caps, supported by easing monetary conditions and a more constructive fiscal backdrop. |
Russell 2000 Outperformance Valuation Growth Recovery | |
SemiconductorsThe semiconductor industry is undergoing high growth meeting normal demand and AI buildout demand. The fund highlights companies like PDF Solutions and SiTime that benefit from semiconductor supply chain buildout and precision timing solutions for AI data centers. |
Chips Supply Chain Manufacturing Technology Growth | |
HealthcareHealthcare showed strong performance with the sector rising 18.5% in Q4. The fund believes many high-quality healthcare businesses serve as 'picks & shovels' of the industry. After several years of below-trend performance, they believe healthcare is positioned for catch-up growth. |
Biotechnology Medical Devices Life Sciences Recovery Growth | |
AerospaceThe aerospace industry is experiencing a shortage of engine capacity leading to sustained multi-year pricing power. The fund notes long-life platforms and highly regulated maintenance schedules translate into highly visible revenue growth and margin optimization opportunities. |
Defense Commercial Aviation Materials Pricing Power Margins | |
InflationInflation reports have been very important to markets. The last two inflation reports showed inflation moving lower, with supporting factors including weaker labor markets, weak rents, and low energy costs resulting in lowest gasoline prices since 2001. |
CPI Deflation Energy Labor Market Fed Policy | |
| 2025 Q3 |
ValueManager emphasizes systematic value investing approach focused on free cash flow valuation rather than book value. Strategy trades at 6.1% FCF yield versus 3.9% for Russell 1000 Value and 3.1% for S&P 500. Systematic quarterly rebalancing allows proceeds from expensive stocks to flow into cheaper names with higher underlying cash flows. |
Free Cash Flow Valuation Rebalancing Book Value Enterprise Value |
QualityFocus on stable businesses with consistent cash flow generation and low debt levels. Strategy emphasizes fundamental stability as measured by through-cycle cash flow consistency. Quality bias has created headwinds recently as negative free cash flow stocks outperformed, but manager believes quality focus will be accretive longer-term. |
Cash Flow Stability Debt Levels Fundamental Stability Business Quality Through-Cycle | |
Risk AppetiteManager expresses caution about current market conditions, noting S&P 500 is more expensive than any time other than TMT bubble and more concentrated than ever in data going back to 1870s. Strategy positioned defensively with better valuations and diversification to sidestep significant valuation and concentration risks in benchmarks. |
Market Risk Concentration Risk Defensive Positioning Valuation Risk Capital Preservation | |
| 2025 Q2 |
ValuationThe S&P 500 is richly valued with a trailing free cash flow yield of 2.9% well below the 4.3% long-term median, having only been more expensive during the tech bubble. The 20 most expensive stocks account for 40% of S&P 500 capitalization and trade at multiples 106% above the rest of the market. Valuation expansion has contributed 4.6 percentage points to S&P 500 returns since 2017 but could become a headwind going forward. |
Free Cash Flow Multiples Rich Expensive Bubble |
ValueDistillate's strategy focuses on systematic value investing through rebalancing out of expensive names into cheaper stocks. The strategy trades at a 2.7% free cash flow yield spread over the S&P 500, the widest since inception. However, the Russell 1000 Value benchmark is only modestly more attractive than the S&P 500 despite broader market richness. |
Systematic Rebalancing Cheap Spread Russell | |
QualityQuality has been a drag on performance recently as unprofitable and lower quality stocks have outperformed. The Russell 2000 is chronically weighed down by negative free cash flow stocks, and excluding these would have substantially benefited long-term returns. Distillate's strategies focus on quality by eliminating negative free cash stocks and companies with significant leverage. |
Unprofitable Negative Leverage Stability Cash Flow | |
MomentumMomentum has been the dominant force in the market rally and the lone investment factor standout over the past 10 years. Momentum can be powerful in the short-term driven by behavioral forces but generates risk of disconnecting prices from fundamentals and has led to painful reversals in the past. The defining characteristic dominating equity markets appears to be momentum. |
Behavioral Reversals Disconnect Fundamentals Rally | |
Small CapsAttractive valuations in small/mid cap stocks offer an important opportunity to guard against valuation risk in the large cap market. Small stocks did not look compelling versus large stocks until recent years. The S&P 600 has significantly outperformed the Russell 2000 since 1994 due to higher quality, though quality has been a headwind recently. |
Opportunity Guard Compelling Outperformed Recent | |
| 2025 Q1 |
VolatilityMarket volatility has significantly increased with earnings reactions exceeding historical norms. Stocks beating expectations outperformed by 248bps vs historical 148bps, while misses underperformed by 362bps vs historical 245bps. Realized volatility now occasionally surpasses implied volatility, indicating markets may be underpricing risk. |
Earnings Risk Appetite Market Data |
BuybacksCompanies with strong balance sheets should capitalize on market overreactions through opportunistic share repurchases during temporary dislocations. Management teams need discipline and timing, avoiding buybacks at peak valuations while maintaining flexibility for attractive levels. |
Capital Markets Risk Appetite | |
AutosInitiated positions in BMW and Mercedes-Benz, both facing headwinds from heightened competition leading to softer demand. However, they trade at highly attractive valuations with low leverage, positioning them well to navigate near-term challenges while offering robust dividend yields. |
Value Dividends | |
| 2024 Q4 |
ValuationThe S&P 500 has experienced significant valuation expansion with prices rising 43% while free cash flows increased only 9.6%. The most expensive 15 mega-cap stocks trade at an 83% premium to the rest of the market and account for nearly 40% of total market cap. Distillate's strategy offers a 5.8% free cash flow yield versus the S&P 500's 3.5%, representing a record premium. |
Free Cash Flow Enterprise Value Premium Discount Multiple |
ConcentrationMarket concentration has reached extreme levels with just 15 mega-cap stocks accounting for almost 40% of the S&P 500's total market capitalization. This concentration among expensive stocks creates significant risk, as valuation expansion has been the primary driver of returns rather than fundamental improvements. |
Mega Cap Market Share Dominance Weight Index | |
AINVIDIA experienced extraordinary growth driven by AI chip demand following ChatGPT's launch, contributing nearly 6% of the market's 25% total return in 2024. However, the company faces sustainability concerns as record profits attract competitors and margins may prove unsustainable in a more competitive environment. |
Artificial Intelligence Chips Demand Competition Margins | |
QualityDistillate focuses on high-quality companies with stable cash flows and low leverage. The strategy's cash flow stability score of 0.85 significantly exceeds the S&P 500's 0.69, while maintaining lower leverage ratios. This quality focus is designed to provide downside protection during market stress. |
Cash Flow Stability Leverage Fundamentals Downside Protection Risk | |
| 2024 Q3 |
ValuationThe market shows extreme valuation risk with the S&P 500 trading at just the 13th percentile of historical free cash flow yields. Over 40% of the S&P 500 trades at NTM P/E ratios above 30x, similar to 2000 bubble conditions. The most expensive 15 megacap stocks account for 40% of market cap while trading at a 72% premium to the rest of the market. |
Free Cash Flow P/E Ratios Enterprise Value Market Cap Premium |
QualityThe firm emphasizes quality metrics including cash flow stability, low leverage, and fundamental strength. Their portfolios maintain significantly better quality characteristics than benchmarks, with lower debt levels and higher free cash flow yields. Quality becomes crucial when navigating valuation extremes and market concentration risks. |
Cash Flow Stability Leverage Debt Fundamentals Risk Profile | |
Small CapsSmall cap indexes include many unprofitable and highly leveraged stocks, making aggregate valuations unattractive despite the July rotation. The firm's small/mid cap strategy focuses on profitable companies with low debt, achieving 2.5x the free cash flow yield of the Russell 2000 benchmark while avoiding quality sacrifices. |
Russell 2000 Leverage Profitability Dispersion Selectivity | |
| 2024 Q2 |
AIAI enthusiasm has driven extraordinary concentration in market returns, with just 7 stocks accounting for two-thirds of the S&P 500's gains. The manager draws parallels to the late 1990s internet bubble, noting that while AI could be transformational like the internet, business models must develop to support the capital deployed and share prices. |
Artificial Intelligence Technology Valuation Concentration Bubble |
ValueThe strategy maintains strict valuation discipline while the broader market experiences significant valuation expansion. Distillate's free cash flow yield is at a record high relative to the S&P 500, with the strategy seeing fundamental improvements that exceeded the overall market despite lagging performance. |
Free Cash Flow Valuation Discipline Yield Fundamentals | |
QualityThe firm emphasizes quality characteristics including cash flow stability and low leverage across all strategies. The approach seeks companies with stable cash generation and disciplined capital structures, particularly important in small cap investing where debt burdens are typically higher. |
Cash Flow Stability Leverage Balance Sheet Fundamentals Risk Management | |
| 2024 Q1 |
AINVIDIA has become the dominant AI story with market cap rising to nearly $2.5 trillion from $350 billion. The manager compares NVIDIA's valuation to Cisco during the tech bubble, noting similar price-to-sales ratios but acknowledging NVIDIA's extraordinary growth in AI demand and pricing power. |
NVIDIA Semiconductors Growth Valuation |
ValueThe strategy maintains a record valuation spread over the S&P 500 with a 6.6% free cash flow yield versus 4.1% for the index. The manager emphasizes finding attractive combinations of value and quality while avoiding richly valued mega-cap tech stocks. |
Free Cash Flow Valuation Quality Margin of Safety | |
ChinaThe international strategy has exposure to Chinese companies like Alibaba and JD.com through Hong Kong shares, focusing on consumer-oriented businesses with attractive valuations and large net cash positions despite broader economic concerns. |
Alibaba Consumer Valuation Cash | |
| 2023 Q4 |
ValueThe manager emphasizes finding attractive value opportunities beneath the surface of expensive markets, with their U.S. FSV strategy achieving a 6.9% free cash flow yield versus 4.5% for the S&P 500. They focus on avoiding richly valued mega-cap stocks while maintaining quality standards through low debt levels and stable cash generation profiles. |
Valuation Free Cash Flow Quality Selectivity Concentration |
QualityThe strategy emphasizes fundamental stability and low leverage as key quality metrics. Their portfolios maintain considerably more stable cash generation profiles and lower debt levels than broader benchmarks, with their small-cap strategy having negligible debt compared to the Russell 2000's significant leverage issues. |
Stability Leverage Cash Flow Debt Fundamentals | |
| 2023 Q3 |
ValueManager emphasizes selective value investing by avoiding expensive mega-cap stocks and focusing on quality companies with attractive free cash flow yields. The strategy achieves a 7.3% FCF yield versus 4.9% for the S&P 500, comparable to post-financial crisis levels. |
Free Cash Flow Valuation Selectivity Quality Yield |
QualityStrategy emphasizes fundamental stability and low leverage as key quality metrics. Portfolio companies have higher cash flow stability scores and lower debt-to-EBITDA ratios compared to benchmarks, particularly important in rising rate environment. |
Fundamental Stability Low Leverage Cash Flow Balance Sheet Debt | |
Small CapsManager identifies significant risks in small-cap space due to elevated debt levels combining with higher interest rates. SMID strategy avoids highly leveraged situations and unprofitable companies, achieving superior risk-adjusted returns. |
Leverage Debt Interest Rates Selectivity Risk Management | |
| 2023 Q2 |
ConcentrationThe S&P 500 has reached extraordinary concentration levels with the top 5 stocks comprising over 24% of the index, the highest since 1980. Seven largest stocks contributed 74% of the market's H1 gains while the other 493 stocks averaged just 7% returns. This concentration creates diversification risks and exposes investors to company-specific risks. |
Concentration Diversification Market Cap Index Risk |
ValuationThe mega-cap six stocks now trade at 40x expected free cash flow with a 2.5% free cash yield, well below the S&P 500's 4.5%. Despite strong business performance, rich valuations create problematic risk/reward profiles. The remainder of the market (S&P 494) offers more attractive 5.1% free cash yields. |
Valuation Free Cash Flow Multiples Yield Premium | |
AIMarket enthusiasm for Artificial Intelligence has driven strong rallies in the largest stocks, similar to internet excitement in the late 1990s. While AI will likely have enormous economic impacts, it's difficult to predict consequences in early stages. Technological disruption historically has been more headwind than tailwind to incumbent firms. |
AI Technology Innovation Disruption Bubble | |
| 2023 Q1 |
ValueThe fund focuses on investing in diversified portfolios of stocks that are attractively valued on free cash flows. The strategy achieved a 7.0% free cash flow yield compared to 4.8% for the S&P 500, with significant valuation advantages across all strategies versus their benchmarks. |
Free Cash Flow Valuation Yield Selectivity Dispersion |
QualityThe investment approach emphasizes companies with little debt and consistently generate cash flows, focusing on fundamental stability. The strategies maintain significantly lower leverage ratios and higher cash flow stability scores than their benchmarks. |
Leverage Debt Stability Cash Flow Balance Sheet | |
Regional BanksSilicon Valley Bank and Signature Bank collapsed due to maturity mismatches and deposit flight, while Credit Suisse was forced into a UBS sale. The fund benefited from avoiding banking stocks where high leverage creates unfavorable risk/reward dynamics. |
Bank Failures Deposit Flight Leverage Credit Risk Contagion | |
RatesThe Federal Reserve sharply raised interest rates to combat elevated inflation, with current 10-year yields looking reasonable in historical context. Higher rates may reverberate through leveraged parts of the economy but are not expected to significantly impede long-term equity returns. |
Federal Reserve Interest Rates Inflation Monetary Policy Bond Yields |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Apr 25, 2025 | Fund Letters | Distillate Capital Fundamental Stability & Value | DFIN | Donnelley Financial Solutions | Commercial & Professional Services | Commercial Printing | Bull | NYSE | Capital markets, contrarian, Earnings miss, financial technology, mispricing, recurring revenue, software solutions, Value | Login |
| Apr 25, 2025 | Fund Letters | Distillate Capital Fundamental Stability & Value | FPH | Five Point Holdings | Real Estate | Real Estate Development | Bull | NYSE | California, Candlestick Park, Free Cash Flow, net cash, property development, real estate development, turnaround, undervalued | Login |
| Apr 25, 2025 | Fund Letters | Distillate Capital Fundamental Stability & Value | BMWKY | BMW Group | Consumer Discretionary | Automobile Manufacturers | Bull | OTC | attractive valuation, automotive, Competition, contrarian, dividend yield, German, low leverage, share repurchase | Login |
| Apr 25, 2025 | Fund Letters | Distillate Capital Fundamental Stability & Value | MBGYY | Mercedes-Benz Group | Consumer Discretionary | Automobile Manufacturers | Bull | OTC | attractive valuation, automotive, dividend yield, German, low leverage, Luxury Vehicles, premium, share repurchase | Login |
| Apr 25, 2025 | Fund Letters | Distillate Capital Fundamental Stability & Value | CMP | Compass Minerals International | Materials | Specialty Chemicals | Bull | NYSE | defensive, new management, Non-Discretionary, Normalized Earnings, Road Salt, specialty chemicals, turnaround, Weather Dependent | Login |
| TICKER | COMMENTARY |
|---|---|
| CRM | Salesforce was the largest added-to position in the quarter and typifies the type of opportunity we are seeing. While the company has previously traded at levels we consider very expensive, 40-50x NTM FCF, that multiple has now dropped to around 11x while underlying free cash per share has grown solidly. The stock fell amid worries about how AI might impact it in the longer term even though fundamentals remain strong. While we do not know what the future holds, the company is trading at a valuation at which it can buy back nearly 10% of its stock each year. If fundamentals keep growing even modestly, the company will in theory be able to buy back all its equity in just a few years. This is reminiscent of Microsoft 15 years ago when fears of competition from free Google products and management concerns rendered it similarly cheap. It proved to be a significant opportunity at the time to buy a well entrenched technology player with annuity characteristics, and Salesforce today has many of the same attributes. |
| MSFT | This is reminiscent of Microsoft 15 years ago when fears of competition from free Google products and management concerns rendered it similarly cheap. It proved to be a significant opportunity at the time to buy a well entrenched technology player with annuity characteristics, and Salesforce today has many of the same attributes. |
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