The S&P 500 in our view is expensive, at levels that have proven perilous in the past, and is also concentrated beyond historical precedents. For those who have stayed with the broad market, is it time to move to Value? The reality is that the Russell 1000 Value is only marginally cheaper and also has concentration issues and a legacy of slower underlying fundamental growth. VIEW/DOWNLOAD

Since May 2017, the S&P 500 has achieved a 14.3% annualized total return, with a significant portion (4.6 percentage points) stemming from valuation expansion, particularly among the largest stocks. The remaining return came from dividends and free cash flow growth. Distillate’s U.S. FSV strategy, which has nearly matched the S&P 500’s performance over this period, did not benefit from this valuation expansion. Instead, its net-of-fee returns were driven by superior underlying free cash flow growth, primarily due to systematically rebalancing into less expensive stocks. VIEW/DOWNLOAD

Uncertainty related to tariffs, AI, and the sustainability of federal spending are all creating significant investor unease and market volatility/weakness.  While there is much that is unique to the current environment, we do see many parallels to both the macroeconomic and market backdrop of exactly 25 years ago.  As we again enter uncertain times, we are optimistic that the combination of a valuation discipline and quality measures may again prove highly differentiating as was the case back then. VIEW/DOWNLOAD

A disconnect between prices and fundamentals is being driven mostly by just a handful of the largest stocks.  Given their enormous weight in the broad benchmarks, the overall market has become much more expensive and there looks to be considerable valuation risk for large U.S. stocks in aggregate as a consequence. VIEW/DOWNLOAD