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| # | Fund | Strategy | Style | Geography | AUM | Latest Letter |
|---|---|---|---|---|---|---|
As of Oct 15, 2026
Distillate Capital's International Fundamental Stability & Value Strategy recorded a net of fees return of 8.57% year-to-date through the third quarter of 2026, lagging the MSCI ACWI Ex-US benchmark's gain of 13.85%. Since its January 31, 2019 inception, the strategy has generated an annualized net return of 9.96%, outpacing the benchmark's 9.88%. The portfolio maintains an attractive valuation profile with a next-twelve-month free cash flow yield to market capitalization of 9.7% compared to 5.6% for the index. Risk controls remain exceptionally rigorous, reflected in a conservative portfolio leverage ratio of 0.6x versus 1.1x for the benchmark and zero exposure to companies with negative free cash flow. The manager's macroeconomic framework highlights severe valuation distortions and concentration risks across global equity markets. Parallels are drawn to the late-1990s technology bubble, noting that over the past three years the Russell 1000's market capitalization expanded by $32 trillion against just $400 billion in incremental forward free cash flows, with the top 20 AI companies accounting for $20 trillion of that increase despite flat collective cash generation. Compounding these equity market risks is a secular reversal in global fixed income, where persistent inflation, elevated sovereign debt, and massive corporate debt issuance from AI infrastructure builders have pushed bond yields higher, posing acute multiple contraction risk for extended equities. Portfolio activity within the international strategy focused on systematic quarterly rebalancing into high-quality, cash-generative companies. Recent portfolio additions and initiated stakes include America Movil (2.0%), British American Tobacco (2.0%), China Coal Energy (1.3%), Geely Automobile (1.3%), and LG Electronics (1.1%), while positions in HD Hyundai, NEC Corporation, and LPP S.A. were completely liquidated. Distillate deliberately limits volatile semiconductor and cyclical banking allocations to just 3.0% of the portfolio, sharply diverging from the ACWI Ex-US benchmark's nearly 40% concentration in those two sectors.
Compounding long-term wealth is best achieved by owning fundamentally stable businesses with low financial leverage and robust free cash flow yields while systematically avoiding overvalued, debt-laden, or hyper-cyclical market concentrations.
Distillate expects global equity markets to face substantial downside risk as rising bond yields and waning AI enthusiasm potentially force equity multiples to retether to historical averages. The manager anticipates that the distribution of profits from AI will follow past technological revolutions, where consumers and end-users in traditional industries like healthcare and industrials capture the economic benefits while infrastructure financiers suffer disappointing returns. Consequently, the firm remains committed to its quantitative value discipline, rotating out of multiple-expanded securities into fundamentally stable businesses trading at high free cash flow yields with low leverage.
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