Browse the world's most comprehensive database of hedge fund investor letters, sorted by recent quarter. Access primary source research from leading institutional managers.
| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
Buyside Digest is not affiliated with, and does not endorse, Distillate Capital Small/Mid Cap Quality & Value. This analysis is provided for institutional research purposes only and is not investment advice.
"Distillate Capital sees extreme market bifurcation with AI names trading at over 50x free cash flow after $25 trillion in gains against minimal fundamental improvement. The manager actively avoids AI due to unfavorable risk/reward in an increasingly competitive industry."
Distillate Capital's Q2 2026 letter highlights extreme market bifurcation driven by AI enthusiasm, with AI-related names gaining over $25 trillion in value since early 2023 while next-twelve-month free cash flow estimates rose by just $300 billion. The S&P 500 Momentum index outperformed the Equal Weight index by a record 30 percentage points, reminiscent of the tech bubble. The manager actively avoids AI names due to unfavorable risk/reward and concerns about profit generation in an increasingly competitive industry. Outside of AI and rich mega-caps, the manager sees tremendous value opportunities with numerous stocks trading at double-digit FCF yields while delivering mid-teens revenue growth. The cheapest 20% of stocks trade at 10x trailing free cash flows versus 37x for the broader index, similar to the tech bubble valuation divergence. The manager's Small/Mid Quality Value strategy has an 8% NTM FCF/EV yield versus 2.9% for the S&P 500. By focusing on fundamentals over sentiment and rotating into cheaper, higher-quality names, the manager believes their strategies are well-positioned for superior long-term returns, particularly if market multiples contract as they did post-2000 when cheaper stocks significantly outperformed.
Sign in or create a free account to unlock full commentary, extracted equity pitches, and direct outbound manager source links with your 3 quarterly credits.