Large cap U.S. stocks in aggregate look expensive.  This is primarily a function of current market leadership, where the 15 most expensive companies over $250 billion in market cap are collectively trading at a 72% premium to the rest of the market.  The situation appears similar to the one in March, 2000, when the overall market was even more expensive, but a set of opportunities below the surface provided good absolute returns, even as the TMT bubble collapsed. We take a harder look at the market now versus 2000 in our letter. VIEW/DOWNLOAD

The concentration within the S&P 500 is at historic levels. This has produced a divergent set of returns and valuations across the large cap market we have not seen in decades. While our U.S. FSV portfolio has underperformed in this environment, we are steadfast in the view that valuation matters and are optimistic given that our portfolio is at a record free cash flow yield premium to the market. The Small/Mid QV and International FSV strategies also continue to have attractive free cash flow yields while maintaining an eye on quality. VIEW/DOWNLOAD

While NVIDIA has driven the market’s valuations higher, we continue to find valuation opportunities that meet our quality standards, leading our U.S. FSV portfolio to its widest free cash flow yield premium in its history. Our Small/Mid QV and International FSV portfolios likewise offer very attractive combinations of valuation and quality. VIEW/DOWNLOAD

The U.S. equity market’s performance was dominated by its largest constituents during 2023.  Looking at the annual performance of an equal weighted index of large stocks compared to a cap-weighted one shows that 2023 was the second worst year for the equal weight index going back to 1930! VIEW/DOWNLOAD