| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 10.43% | - | 3.89% |
Distillate Capital's International FSV strategy returned 3.89% YTD net of fees in Q2 2026, lagging the MSCI ACWI Ex-US benchmark's 14.69% gain, driven primarily by the strategy's underweight to semiconductors and banks which dominated international returns. AI enthusiasm drove massive market moves with AI-related names gaining over $25 trillion in value since early 2023, yet next-twelve-month free cash flow estimates rose by only $300 billion, meaning share prices moved over 80x fundamental improvement. Momentum dominated with the S&P 500 Momentum index outperforming equal weight by a record 30 percentage points, reminiscent of the tech bubble. The manager is not bearish on AI as technology but worries profit generation needed to satisfy current valuations will be difficult in an extremely competitive industry. Outside of AI and mega-caps, tremendous value opportunities remain with numerous high-quality stocks trading at double-digit FCF yields. The strategy's 8.5% FCF/EV yield versus the benchmark's 4.6% represents the widest valuation advantage since inception. The manager focuses on fundamentals over sentiment, rotating into cheaper stocks where each dollar buys more underlying free cash flow, believing this approach will prevail as it did post-2000 when cheaper stocks significantly outperformed despite initial underperformance during the bubble.
Distillate Capital focuses on distilling large universes of stocks into only those where quality and value overlap using proprietary free cash flow-based definitions, seeking superior compounded long-term returns by limiting downside in periods of market stress while providing strong performance in up markets.
The manager believes fundamentals are the only real driver of returns in the long-term and expects that focusing on consistency of cash generation while rotating out of stocks whose valuations have increased will continue to grow underlying free cash flow at rates well above benchmarks. While the overall market looks expensive due to a small handful of very large and rich stocks, much of the rest of the market looks quite attractive with several high-quality names appearing extremely appealing. The manager sees tremendous opportunity ahead even despite the broader market's richness and concentration, both domestically and abroad. The tone is cautiously optimistic, with conviction that cheaper stocks on normalized free cash flow will outperform significantly when market multiples contract or hold flat, as fundamentals and accounting ultimately matter and will come to bear again.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 15 2026 | 2026 Q2 | ACN, ADBE, AMZN, AVGO, CRM, CTSH, EPAM, FDX, FFIV, GOOGL, ICE, INTU, JBL, META, MPC, MRK, MSFT, NVDA, ON, ORCL | AI, free cash flow, international, momentum, Quality, semiconductors, small caps, value | - | Distillate's International FSV strategy lagged in Q2 2026 as AI-driven momentum and semiconductor concentration dominated returns, but the manager sees this as opportunity. AI names gained $25 trillion in value on just $300 billion of FCF growth, creating extreme valuation bifurcation. The strategy trades at 8.5% FCF/EV yield versus 4.6% for the benchmark, the widest discount since inception, positioning for outperformance when fundamentals reassert themselves as they did post-2000. |
| Apr 13 2026 | 2026 Q1 | CRM | free cash flow, fundamentals, international, Quality, rebalancing, value | - | Distillate Capital demonstrates how market volatility creates rebalancing opportunities to improve portfolio fundamentals. Their systematic value approach rotates from expensive to cheaper stocks, increasing underlying free cash flows. Historical analysis confirms fundamentals drive long-term returns. Current positioning shows strategies at historically attractive valuations despite market risks including rich valuations and geopolitical uncertainty. |
| Jan 18 2026 | 2025 Q4 | 005930.KS, 066570.KS, 1024.HK, 2319.HK, 2618.HK, 267270.KS, 601600.SS, 6594.T, 9618.HK, AEM, AUTO.L, BATS.L, CX, FMX, GIB.TO, MC.PA, RHHBY, RIO.AX | cash flow, fundamentals, international, Quality, valuation, value | - | Distillate's international strategy delivered 41.53% returns in 2025, significantly outperforming benchmarks as international stocks rebounded. The strategy's systematic focus on quality and value provides compelling opportunities outside expensive U.S. markets. Strong fundamental metrics and disciplined rebalancing position the portfolio well for sustainable returns driven by cash flow growth rather than valuation expansion. |
| 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 | AI, Benchmarks, Concentration, Quality, valuation, value | CMCL LN | AI bubble drives S&P 500 to extreme valuations and concentration levels exceeding TMT bubble. Traditional value benchmarks fail due to antiquated book value metrics. Distillate's systematic rebalancing approach delivers superior free cash flow growth at half the valuation of benchmarks, positioning for long-term outperformance despite near-term underperformance during valuation expansion. |
| Jun 30 2025 | 2025 Q2 | AMGN, CRM, FERG, GMED, HCA, HII, ICLR, JBL, JNJ, KLAC, LRCX, MOS, PEP, REGN, STRL, TMUS, TPG, UNH, VST, VTRS | free cash flow, large cap, momentum, Quality, rebalancing, small caps, valuation, value | - | Distillate's value strategy lagged in H1 2025 as momentum-driven valuation expansion dominated markets. The S&P 500 trades at bubble-like valuations with significant forward return risks. The firm's systematic rebalancing approach has generated superior free cash flow growth and trades attractively relative to expensive benchmarks, positioning for potential valuation compression ahead. |
| Mar 31 2025 | 2025 Q1 | 000660.KS, 1898.HK, 4063.T, ABEV, BABA, GFI, HEI.DE, HMY, HO.PA, JD, JD.L, NOVN.SW, P911.DE, ROG.SW, TFII, TSM | AI, international, Quality, tariffs, uncertainty, valuation | - | Distillate Capital navigates unprecedented uncertainty from tariffs, AI doubts, and fiscal unsustainability by focusing on valuation discipline and quality measures rather than traditional risk metrics. Their International FSV strategy outperformed in Q1 with 8.39% returns, maintaining record valuation spreads while filtering for cash flow stability and low leverage, positioning for differentiated performance similar to post-2000 conditions. |
| Dec 31 2024 | 2024 Q4 | ABT, ADBE, AMGN, AVGO, BMY, CRM, CSCO, CVS, DKS, ELV, GDDY, HCA, HII, MO, NVDA, PG, QRVO, TMUS, UNH, WSM | AI, Concentration, Quality, risk management, small caps, valuation, value | - | Distillate maintains valuation discipline amid extreme market concentration and rich valuations. While 15 mega-cap stocks drive market gains at 83% premium to rest of market, Distillate's strategies offer superior free cash flow yields by focusing on quality companies at attractive prices, positioning for outperformance when fundamentals matter again. |
| Oct 20 2024 | 2024 Q3 | 000660.KS, 005930.KS, 6902.T, 9433.T, BABA, BTI, JD, PDD, RIO.L, TSM | Concentration, international, Quality, risk, valuation, value | - | Distillate Capital warns of significant valuation risk in U.S. markets, with concentration in expensive megacap stocks reminiscent of 2000. Their quality-focused approach avoids the most expensive names while finding opportunities in international markets and selective small/mid cap stocks. The firm believes current market bifurcation creates attractive opportunities for patient, fundamentally-driven investors. |
| 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, international, Quality, small caps, valuation, value | - | Distillate significantly underperformed in Q2 as AI-driven concentration dominated markets, with just 7 stocks driving two-thirds of S&P 500 gains. Despite frustration, the firm maintains strict valuation discipline, viewing current market concentration as reminiscent of the late 1990s bubble and positioning for eventual normalization when fundamentals matter again. |
| Apr 15 2024 | 2024 Q1 | 1024.HK, AAPL, AMAT, AMZN, BABA, BIDU, CSCO, DKS, FANG, GOOGL, JD, LI, META, MSFT, MSTR, NVDA, SMCI, STLA, TSM, WSM | AI, China, international, Quality, technology, valuation, value | - | Distillate Capital maintains disciplined value approach amid NVIDIA's dominance, finding opportunities in overlooked international markets. Their International FSV strategy significantly outperforms on valuation metrics while avoiding AI bubble risks. Key holdings include Stellantis with strong cash returns and Chinese e-commerce giants trading at deep discounts despite solid fundamentals. |
| Jan 24 2024 | 2023 Q4 | 6857.T, AAPL, AMGN, AMZN, AVGO, BABA, BMY, CNQ, CSCO, FMX, GOOGL, HRL, ITX.MC, JBL, LRCX, MC.PA, MSFT, NVDA, OC, PBR, PDD, PG, PNDORA.CO, QCOM, TSLA, V, WSM | Concentration, free cash flow, international, Mega-caps, Quality, value | - | Distillate Capital advocates fishing where the fish are by avoiding overvalued mega-caps that dominated 2023 returns. Their value-focused strategies achieve superior free cash flow yields through quality companies at attractive valuations. While market concentration creates risks for passive investors, it provides opportunities for selective active managers who can navigate valuation dispersion across geographies and market caps. |
| Nov 10 2023 | 2023 Q3 | 036570.KS, 6857.T, 9988.HK, AAP, AAPL, AMGN, AMP, AMZN, AN, AON, AVGO, AVY, BLDR, CF, CSX, CVS, DHR, ETSY, GOOGL, IPG, ITX.MC, JBL, LKQ, MC.PA, META, MPC, MSFT, NVDA, OC, OMC, PCAR, PRIO3.SA, PYPL, ROG.SW, SMCI, TEP.PA, TSLA, VSCO | free cash flow, international, Quality, risk management, selectivity, value | - | Distillate's International strategy outperformed by 4.25% through Q3 by focusing on quality value opportunities while avoiding debt-heavy small caps and expensive mega-caps. The portfolio achieves superior free cash flow yields through selective positioning in fundamentally stable, low-leverage companies across international markets, with strong performance from LVMH and Advantest offsetting weakness in NCsoft and Teleperformance. |
| 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 | AI, Concentration, large cap, Quality, risk management, technology, valuation, value | - | Distillate warns of extreme market concentration with mega-cap stocks at rich valuations driving S&P 500 gains. The firm avoids expensive large-cap names, focusing on quality companies with stable cash flows and attractive valuations. Despite AI enthusiasm, they emphasize discipline and capital preservation, achieving superior free cash flow yields through selective stock picking. |
| Apr 14 2023 | 2023 Q1 | 005930.KS, AAP, AAPL, ADBE, AKER.OL, AMX, AMZN, AN, APA, BABA, BLDR, BTI, CE, CI, CVS, FIS, FTNT, GOOGL, ITX.MC, JBL, JD.L, JNJ, MC.PA, META, MO, MSFT, NVDA, PHM, PM, PRG, ROG.SW, SMOORE, SWKS, TMUS, TSLA, UNH, V, WRK, WU | Banking, international, Leverage, Quality, rates, selectivity, value | - | Distillate's value strategies lagged in Q1 due to concentrated mega-cap tech outperformance while avoiding banking sector stress. The firm sees current market dislocations as creating attractive opportunities in high-quality, low-debt companies with strong free cash flow yields, maintaining optimism about the investment landscape despite macroeconomic uncertainties around inflation, rates, and potential recession. |
| Jan 30 2023 | 2022 Q4 | - | - | - | |
| Oct 10 2022 | 2022 Q3 | - | - | - | |
| Jul 30 2022 | 2022 Q2 | - | - | - | |
| Apr 30 2022 | 2022 Q1 | ADBE | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIAI enthusiasm drove massive market moves in Q2 2026, with AI-related names gaining over $25 trillion in value since early 2023. However, next-twelve-month free cash flow estimates rose by only $300 billion over the same period, meaning share prices moved over 80x the corresponding improvement in net free cash flow. The manager is not bearish on AI as a technology but worries that profit generation needed to satisfy current stock prices could be difficult to generate in what is shaping up to be an extremely competitive industry. |
Hyperscalers Semiconductors Valuations Profitability Competition |
SemiconductorsSemiconductor and tech equipment stocks surged in Q2 2026 as they benefited from enormous hyperscaler spending. NVIDIA and Broadcom relinquished leadership while picks-and-shovels stocks surged. The combined value of U.S. semiconductor and tech equipment stocks rose from $3 trillion to $20 trillion since 2023. However, the manager notes these are traditionally commoditized and cyclical stocks, and their recent dominance pushed the Russell 1000 Value Index to look expensive. |
Tech Equipment Cyclical Valuations Capital Spending | |
ValueThe manager sees tremendous value opportunities outside of AI and mega-caps, with numerous stocks trading at double-digit FCF yields against enterprise value while delivering mid-teens revenue growth. The cheapest 20% of stocks trade at 10x trailing free cash flows while the broader index is near 37x. Historically, cheaper stocks on normalized free cash flow have significantly outperformed, particularly when market multiples are flat or declining. |
Free Cash Flow Valuation Outperformance Bifurcation | |
QualityThe manager focuses on high-quality companies with consistent cash generation and strong fundamentals. Accenture is highlighted as a current example of a high-quality company trading at a compelling valuation with zero debt and healthy growth forecasts, now at roughly 7.3x FCF versus a historical 20x. The strategy emphasizes fundamental stability and avoiding unprofitable names, particularly in small-cap and international markets. |
Fundamental Stability Cash Generation Balance Sheet Profitability | |
MomentumMomentum dominated markets in Q2 2026, with the S&P 500 Momentum index outperforming the S&P 500 Equal Weight by a record 30 percentage points for the quarter. The speed and acceleration of the move was even higher than in the late 1990s tech bubble. The manager views this as unsustainable, noting that historically momentum has lagged significantly in the years following such peaks. |
Relative Performance Tech Bubble Unsustainable Mean Reversion | |
Small CapsSmall stocks look attractive from a valuation perspective as they have gotten cheaper relative to large caps. However, the manager emphasizes that small-cap benchmarks are polluted with unprofitable companies and considerable financial leverage, making selectivity critically important. The firm's Small/Mid Quality Value strategy has an 8% NTM FCF/EV yield versus 1.2% for the Russell 2000 and 2.0% for the Russell 2000 Value. |
Valuation Selectivity Profitability Leverage | |
| 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 this approach has historically outperformed through better fundamental growth rather than valuation expansion. |
Free Cash Flow Valuation Rebalancing Fundamentals Quality |
QualityQuality is emphasized as a key selection criterion, particularly in international and small-cap markets where selectivity is critical. The strategy focuses on companies with low debt levels, stable cash flows, and strong fundamental characteristics. |
Cash Flow Stability Low Debt Selectivity Fundamental Stability Risk Management | |
| 2025 Q4 |
AIAI-related valuations experienced volatility during the quarter with concerns about elevated valuations and 'AI bubble' dynamics frequently dominating headlines. Despite some weakness in growth sectors including AI, the manager notes echoes of the late 1990s with the AI boom raising corporate earnings but valuations at levels last seen in the dotcom era. |
Artificial Intelligence Technology Valuations Growth |
GoldGold has been the fund's most profitable exposure over 2025, with the manager continuing to hold it as a hedge since initiating the position in July 2024. US political and policy worries have been fueling gold performance, and both gold and silver recorded their best year since 1979. |
Precious Metals Hedge Commodities | |
JapanJapan was one of the standout markets over 2025 and the fourth quarter, powered by technology stocks and boosted by yen weakness. The manager remained overweight Japan throughout the period, which added value. Sentiment was also boosted by election results with the new Prime Minister regarded as supportive to corporate reform. |
Japanese Equities Technology Currency | |
| 2025 Q3 |
ValueThe manager emphasizes that while the Russell 1000 Value benchmark is intended to offer a counter to valuation risk, it suffers from being demarcated on book value which inadequately measures valuation in today's economy. Their U.S. FSV strategy offers substantially better valuation at 6.1% free cash flow yield versus 3.9% for Russell 1000 Value and 3.1% for S&P 500. |
Free Cash Flow Valuation Book Value Russell 1000 Value Benchmarks |
AIThe AI bubble continues to inflate with equity benchmarks looking increasingly rich and risky. The S&P 500 is now more expensive than at any time other than during the TMT bubble and more concentrated than ever. AI-related stocks have led to crowding out of defensive sectors similar to the TMT bubble. |
Bubble Concentration TMT Valuation Technology | |
QualityThe manager focuses on stable businesses with systematic quarterly rebalancing where proceeds of more expensive stocks go into underlying cash flows of less expensive names. Their strategy has consistently grown underlying free cash flows at significantly faster rates than benchmarks through focus on quality measures and valuation discipline. |
Stability Cash Flow Rebalancing Fundamentals Discipline | |
| 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. Valuation expansion has contributed 4.6 percentage points to annualized returns since 2017, but this presents significant risk going forward as starting valuations historically predict future valuation headwinds. |
Free Cash Flow Yield Multiples Rich Expensive |
MomentumMomentum has been the dominant force in the market rally and the lone standout factor with surging relative performance. However, momentum generates the risk of disconnecting prices from fundamentals and has led to painful reversals in the past, warranting caution given current stretched valuations. |
Factor Performance Behavioral Reversal Disconnect | |
ValueThe firm believes now is a moment to lean into value, but emphasizes that proper definition of value is crucial. Their systematic rebalancing around value definitions has generated superior underlying free cash flow growth and protection against valuation risk compared to traditional value benchmarks. |
Systematic Rebalancing Definition Protection Growth | |
QualityQuality has been beneficial to returns over the long-term but has been a drag during speculative periods including the tech bubble, meme stock frenzy, and recently. The firm's focus on quality through eliminating negative free cash flow stocks and companies with significant leverage continues to be viewed as accretive longer-term. |
Cash Flow Leverage Stability Long-term Drag | |
Small CapsAttractive valuations in small/mid cap stocks offer an important opportunity to guard against valuation risk in the large cap market. However, selectivity is crucial as broader small cap benchmarks include many unprofitable companies and those with significant leverage that have been a drag on performance. |
Selectivity Unprofitable Leverage Opportunity Guard | |
| 2025 Q1 |
TariffsAnnounced tariffs of around 23% represent the largest trade shock in a century, potentially creating enormous inflationary pressures and economic uncertainty. The scale of potential tariff impact on GDP is unprecedented, with complex follow-on effects including potential retaliation, supply chain disruption, and business investment uncertainty. |
Trade Policy Inflation Economic Shock |
AIAI technology faces mounting uncertainty as progress slows despite enormous investments, with issues like hallucinations remaining endemic. Chinese company DeepSeek's low-cost model has challenged assumptions about capital intensity barriers, while profitability concerns grow as companies like OpenAI struggle with revenue models. |
Data Centers Cloud Semiconductors | |
ValuationCurrent market conditions mirror March 2000 with extreme valuation dispersion between largest and smallest stocks. The strategy achieves record valuation spread over benchmarks with 6.2% free cash yield, comparable to 2009 crisis levels, while maintaining quality filters for leverage and cash flow stability. |
Value Quality Small Caps | |
UncertaintyMarkets face unprecedented uncertainty from confluence of tariffs, AI technology questions, and government spending sustainability. Unlike quantifiable risk measures, uncertainty is unknowable and cannot be mathematized, requiring investment processes focused on leverage, cash flow stability, and valuation rather than price volatility metrics. |
Risk Appetite Volatility Quality | |
| 2024 Q4 |
ValuationLarge U.S. equities are up 43% since October 2023 while underlying free cash flows increased only 9.6%, creating significant valuation risk. The most expensive 15 mega-cap stocks trade at an 83% premium to the rest of the market and account for almost 40% of total market capitalization. Distillate's strategies offer attractive valuations with free cash flow yields well above market levels. |
Value Quality Risk Appetite Earnings |
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 considerable risk for the broader market. The disconnect between price appreciation and fundamental growth is most acute in this small group of the largest companies. |
Risk Appetite Large Cap Mega Cap | |
AINVIDIA experienced extraordinary growth driven by AI chip demand following ChatGPT's launch, contributing almost 6% of the market's 25% total return in 2024. However, the company faces sustainability concerns as record profits and margins attract competitors, including many of NVIDIA's own largest customers. The AI boom has created both opportunities and valuation risks. |
Semiconductors Data Centers Growth | |
Small CapsSmaller U.S. stocks rallied indiscriminately starting in July, with lower quality companies performing better than higher quality ones. Russell 2000 stocks with negative free cash yields had stronger returns than those with positive yields. Distillate's Small/Mid QV strategy emphasizes quality and valuation in this dispersed market segment. |
Small Caps Quality Value | |
| 2024 Q3 |
ValuationThe letter extensively discusses valuation risk in U.S. markets, comparing current conditions to the 2000 TMT bubble. The manager highlights that over 40% of the S&P 500 trades at NTM P/E ratios above 30x, while only 30% trades below 20x. International stocks now appear more attractive than U.S. stocks on a relative valuation basis after a long period of underperformance. |
Free Cash Flow P/E Ratios Enterprise Value Yield Premium |
QualityThe manager emphasizes their focus on quality companies with stable cash flows and low leverage. Their small/mid cap strategy specifically targets quality names while avoiding unprofitable and highly leveraged stocks that dominate small cap indexes. The process seeks to protect against fundamental shocks by focusing on each company's risk profile. |
Cash Flow Stability Leverage Profitability Risk Profile Fundamentals | |
ConcentrationThe letter discusses extreme market concentration, with just 15 megacap stocks accounting for almost 40% of S&P 500 market capitalization and trading at a 72% premium to the rest of the market. This concentration creates significant valuation risk similar to conditions in 2000. |
Megacap Market Cap Premium Risk Dispersion | |
| 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 Concentration Valuation Bubble |
ValueDistillate maintains strict valuation discipline despite significant underperformance, with their free cash flow yield now at a record high relative to the S&P 500. The manager emphasizes that valuation matters for long-term returns even though it provides little guidance for short-term outcomes. |
Free Cash Flow Valuation Discipline Long-term | |
QualityThe firm focuses on companies with stable cash flow generation and low leverage, particularly in small-cap and international strategies where debt burdens are typically higher. Quality metrics help differentiate their portfolios from benchmark indices. |
Cash Flow Stability Leverage Debt Fundamentals | |
| 2024 Q1 |
AINVIDIA has become the Magnificent 1 with market cap rising to $2.5 trillion from $350 billion, representing over 2% of global GDP. The AI boom has created extraordinary growth and pricing power for NVIDIA, with EBITDA margins rising from 33% to 55% and projected to reach 65%. |
NVIDIA Growth Semiconductors Technology Valuation |
ValueDistillate's strategies maintain attractive free cash flow yields significantly above benchmarks, with U.S. FSV at 6.6% vs S&P 500's 4.1%. The firm focuses on companies with low debt, stable cash generation, and attractive valuations while avoiding richly valued mega-cap tech stocks. |
Quality Cash Flow Valuation Margin of Safety | |
ChinaChinese stocks offer attractive valuations despite economic concerns. Holdings like Alibaba and JD.com trade at roughly 40% of market cap in projected free cash flows with large net cash positions, exposed to growing consumer segments rather than troubled construction and banking sectors. |
E-commerce Valuation Consumer Technology | |
| 2023 Q4 |
ConcentrationThe letter extensively discusses the extreme concentration in the S&P 500, where the largest five stocks now represent 24% of the index weight. This concentration creates significant risk for cap-weighted benchmarks and provides opportunities for active managers who can avoid overvalued mega-caps while finding value elsewhere in the market. |
Concentration Mega-caps Index Risk Valuation |
ValueThe manager emphasizes their value-oriented approach, highlighting how their strategies achieve superior free cash flow yields compared to benchmarks by avoiding richly valued stocks. They focus on finding attractive valuations in overlooked areas of the market while the largest stocks trade at stretched multiples. |
Value Free Cash Flow Yield Valuation Multiples | |
QualityQuality is a core component of the investment process, with emphasis on fundamental stability, low leverage, and stable cash generation profiles. The strategies avoid companies with debt problems and focus on businesses with durable characteristics and consistent cash flows. |
Quality Stability Leverage Cash Flow 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% free cash yield compared to 4.9% for the S&P 500. |
Free Cash Flow Valuation Selectivity Quality Yield |
QualityFocus on fundamental stability and low leverage as key quality metrics. The strategy emphasizes cash flow stability scores and debt-to-EBITDA ratios to identify resilient companies that can preserve capital in adverse scenarios. |
Fundamental Stability Low Leverage Cash Flow Balance Sheet Resilience | |
Risk AppetiteManager identifies significant risks in both small caps due to elevated debt levels and large caps due to stretched valuations. Strategy focuses on avoiding these risks through selective positioning. |
Risk Management Debt Levels Valuation Risk Selectivity Capital Preservation | |
| 2023 Q2 |
ValuationThe letter extensively discusses valuation concerns, particularly around the largest stocks in the S&P 500. The mega-cap six stocks now trade at 40x expected free cash flow versus their historical discount to the market. The manager emphasizes that despite strong business fundamentals, rich valuations create problematic risk/reward profiles when substantial optimism is already priced in. |
Free Cash Flow Enterprise Value Multiples Risk Reward Pricing |
ConcentrationMarket concentration has reached extreme levels with the top 5 stocks comprising over 24% of the S&P 500, the highest since 1980. The manager warns that high concentration reduces diversification and exposes investors to company-specific risk, while historically the largest stocks tend not to remain at the top over time due to creative destruction and growth challenges. |
Market Cap Diversification Index Weight Creative Destruction Company Risk | |
AIThe manager acknowledges AI's potential enormous impact but cautions against the current enthusiasm driving stock prices to imprudent levels. Drawing parallels to the internet bubble, they note that while technological disruption often proves transformative, it historically tends to be more of a headwind than tailwind to incumbent firms, and predicting winners in early stages is extremely difficult. |
Technology Disruption Innovation Bubble Uncertainty | |
| 2023 Q1 |
Credit StressSilicon Valley Bank and Signature Bank collapsed due to maturity mismatches and deposit flight, while Credit Suisse was forced into a UBS sale. Banking pressures highlight risks from high leverage and potential further distress in commercial real estate lending. |
Banking Leverage Commercial Real Estate Deposits Contagion |
RatesFederal Reserve raised rates sharply to combat inflation, but current 10-year yields look reasonable in historical context. Higher rates may reverberate through leveraged parts of the economy, though the risk of dramatically higher rates has diminished. |
Federal Reserve Interest Rates Inflation Monetary Policy Bond Yields | |
ValueDistillate focuses on attractively valued stocks based on free cash flows with little debt. The firm sees significant valuation dispersion in markets and opportunities through selectivity, avoiding expensive mega-cap stocks that drove Q1 performance. |
Free Cash Flow Valuation Stock Selection Debt Avoidance Selectivity |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 16, 2025 | Fund Letters | Thomas Cole | CMCL LN | Gold Fields Ltd. | Materials | Gold Mining | Bull | NYSE | balance sheet, dividends, FCF, Gold, inflation hedge, Mining, stability, valuation | Login |
| TICKER | COMMENTARY |
|---|---|
| GOOGL | Hyperscalers (Alphabet, Amazon, Meta, Microsoft, & Oracle) lagged amid concerns about returns on their enormous investments. The hyperscalers have increased in value from $4 to $11 trillion since 2023. Hyperscaler free cash flow has dropped sharply to near zero reflecting their massive investment. Fully half of Alphabet's recent $80 billion secondary share issuance is purportedly related to payments covering the cost of taxes on options it issues to employees. |
| AMZN | Hyperscalers (Alphabet, Amazon, Meta, Microsoft, & Oracle) lagged amid concerns about returns on their enormous investments. The hyperscalers have increased in value from $4 to $11 trillion since 2023. Hyperscaler free cash flow has dropped sharply to near zero reflecting their massive investment. |
| META | Hyperscalers (Alphabet, Amazon, Meta, Microsoft, & Oracle) lagged amid concerns about returns on their enormous investments. The hyperscalers have increased in value from $4 to $11 trillion since 2023. Hyperscaler free cash flow has dropped sharply to near zero reflecting their massive investment. |
| MSFT | Hyperscalers (Alphabet, Amazon, Meta, Microsoft, & Oracle) lagged amid concerns about returns on their enormous investments. The hyperscalers have increased in value from $4 to $11 trillion since 2023. Hyperscaler free cash flow has dropped sharply to near zero reflecting their massive investment. The situation is reminiscent of Microsoft in 2009, when sentiment was extraordinarily negative yet fundamentals were strong. |
| ORCL | Hyperscalers (Alphabet, Amazon, Meta, Microsoft, & Oracle) lagged amid concerns about returns on their enormous investments. |
| NVDA | NVIDIA and Broadcom relinquished their leadership while the 'picks and shovels' stocks surged. Two-thirds of the $300 billion increase in consensus-estimated NTM FCF since early 2023 came from NVIDIA. The hyperscalers and NVIDIA have committed around $180 billion to OpenAI and Anthropic, who in turn spend much of that investment with those same companies. |
| AVGO | NVIDIA and Broadcom relinquished their leadership while the 'picks and shovels' stocks surged. |
| ACN | Accenture is a current example of a high-quality company that is trading at a compelling valuation that offers potential significant upside with notable margin of safety characteristics proving downside protection. The stock has plummeted due to AI disruption fears despite maintaining solid fundamentals, zero debt, and healthy growth forecasts. Historically valued at ~20 times FCF, the stock now trades at a steep discount of roughly 7.3x. This double digit FCF yield gives management the option to repurchase 8% (conservatively) of its shares annually – an outcome which could meaningfully grow FCF per share ahead of Wall Street's expectations. The situation is reminiscent of Microsoft in 2009, or Apple in 2015, when sentiment was extraordinarily negative yet fundamentals were strong. |
| MPC | MARATHON PETROLEUM was a top contributor to relative performance for the U.S. FSV Strategy in 2026 YTD with a 0.65% impact. |
| ON | ON SEMICONDUCTOR was a top contributor to relative performance for the U.S. FSV Strategy in 2026 YTD with a 0.55% impact. ON Semiconductor Corp was among the largest sales during recent quarterly rebalancing with a -1.6% weight change. |
| JBL | JABIL INC was a top contributor to relative performance for the U.S. FSV Strategy in 2026 YTD with a 0.52% impact. Jabil Inc. was among the largest sales during recent quarterly rebalancing with a -1.3% weight change. |
| MRK | MERCK & CO. INC. was a top contributor to relative performance for the U.S. FSV Strategy in 2026 YTD with a 0.52% impact. |
| FFIV | F5 INC was a top contributor to relative performance for the U.S. FSV Strategy in 2026 YTD with a 0.44% impact. |
| CRM | SALESFORCE INC was the largest detractor from relative performance for the U.S. FSV Strategy in 2026 YTD with a -0.76% impact. Salesforce, Inc. was among the largest adds during recent quarterly rebalancing, increasing from 1.7% to 2.2% weight. |
| ADBE | ADOBE INC was a large detractor from relative performance for the U.S. FSV Strategy in 2026 YTD with a -0.61% impact. |
| CTSH | COGNIZANT TECH SOL was a large detractor from relative performance for the U.S. FSV Strategy in 2026 YTD with a -0.56% impact. |
| EPAM | EPAM SYSTEMS INC was a large detractor from relative performance for the U.S. FSV Strategy in 2026 YTD with a -0.49% impact. EPAM SYSTEMS INC was also a detractor for the SMID QV strategy with a -0.37% impact. |
| FDX | FedEx Corporation was among the largest purchases during recent quarterly rebalancing with a 1.4% weight. |
| INTU | Intuit Inc. was among the largest purchases during recent quarterly rebalancing with a 1.3% weight. |
| ICE | Intercontinental Exchange was among the largest purchases during recent quarterly rebalancing with a 1.2% weight. |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
|---|---|---|---|---|---|
| No Recent Buys Data | |||||
| Ticker | Put/Call | Amount Sold | Shares Sold | % Change | Weight % | Status |
|---|---|---|---|---|---|---|
| No Recent Sells Data | ||||||
| Industry | Prev Quarter % | Current Quarter % | Change |
|---|---|---|---|
| No industry data available | |||
