2022 2Q Letter to Investors: YTD Sell-Off Drives Rotation

On measures of free cash flow, stocks have gotten notably less expensive in the first six months of 2022, and the first chart highlights the free cash flow yield now

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Equity & Bond Valuations & Inflation

Amid an uncertain economic future, equities offer an attractive advantage of being able to pass through inflationary costs over the longer-term, but their present relative valuation against bonds does not

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2022 1Q Letter to Investors: Differing Drivers of Returns

In the first quarter of 2022, each of Distillate’s strategies (U.S. FSV, Intl. FSV, and Small QV) outperformed their primary benchmarks.  Crucially, performance both recently and over prior years has

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2021 Year-End Letter to Investors: Value Below the Surface

Distillate’s U.S. Fundamental Stability & Value (U.S. FSV) strategy outperformed its S&P 500 and iShares Russell 1000 Value ETF benchmarks again in 2021.  For a further discussion of performance, portfolio

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Concentration Risk

The largest 5 stocks in the S&P 500 Index accounted for 22% of its value at the end of last month vs. under 12% five years earlier.  In this one-pager,

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2021 3Q Letter to Investors: Valuation & Quality Update

We review recent performance of Distillate’s U.S. Fundamental Stability & Value (FSV), International FSV and Small Cap Quality & Value strategies.  Amid a backdrop of strong price gains and pockets

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2021 2Q Letter to Investors: Valuation & Quality Update

In the wake of strong equity price gains across geographies and market caps, and amid pockets of very rich valuations, we review performance, portfolio changes, and how Distillate’s strategies compare

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Asset Class Valuations in a Historical Context

Amid apprehensions about current valuations and their impact on prospective returns, we look at cash yields for various asset classes over time and relative to one another.  In this framework,

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2021 1Q Letter to Investors: What the Growth vs. Value Debate is Missing

In the U.S., 1Q21 brought a reversal in market leadership from the concentrated gains in “growth” stocks seen in 2020 to those commonly labeled “value.”  After outperforming in an environment

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2020 Year-end Letter to Investors

Distillate’s U.S. and international strategies outperformed their respective benchmarks in 2020.  In the U.S., substantial outperformance among the largest stocks presented a significant headwind and the resulting rich valuations are

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2020 Q3 Letter to Investors: Why We Owned… and Sold Apple

In addition to strategy updates for our U.S. (US FSV) and International (INTL FSV) Fundamental Stability & Value strategies, we look at the evolution Apple Inc. (AAPL) from one of

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2020 Q2 Letter to Investors & Introduction of the International Fundamental Stability & Value Strategy

We introduce our International Fundamental Stability and Value strategy (Intl. FSV) and discuss performance and portfolio changes in the U.S. FSV portfolio related to the attractive opportunity set we are

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A Lopsided Crisis

The economic impacts of the coronavirus crisis are extremely uneven.  Estimates of free cash flow for stocks in hard-hit industries are down 90%.  The free cash flow estimates for the

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2020 Q1 Letter to Investors: The Corona-Crisis and Prospects for Recovery

In addition to providing updates on strategy performance and portfolio changes, we look at the current economic crisis brought on by the outbreak of COVID-19 as well as the possible

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March 2020: Interim Update to Investors

While market prices, in theory, should reflect the discounted value of a very long stream of future cash flows,  they are prone to panic and often overreact to near-term disruptions. 

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Value Failed Because It Was Expensive

So-called “value” indexes have severely underperformed the broader stock market for more than a decade.  While this is an often-told story, it typically comes without any compelling explanation of why

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2019 Year-end Letter to Investors: The Market Rally in a Long-Term Context

We provide an update of our U.S. Fundamental Stability & Value strategy’s performance, portfolio changes, and fundamental attributes.  We also discuss the equity market’s recent performance in a longer-term historical

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Regional Equity Performance & Valuation

The U.S stock market has significantly outpaced major international indexes over the past decade. In this short paper, we look at the drivers behind this by splitting price gains into

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2019 Q3 Letter to Investors: Long-Term Equity Valuations & Looking Past “Factor” Noise

We provide an update of strategy performance and portfolio positioning.  We also look at equity market valuations in a historical context, relative to both underlying fundamentals and the valuations of

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Value Investing in a Capital-Light World

The composition of the economy and stock market has shifted from physical assets to intellectual ones. This change has significant implications for traditional valuation metrics, requiring a new approach.

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2019 Q2 Letter to Investors: The Lurking Risk of Elevated Debt Levels

We provide an update of strategy performance and the market environment, discuss the dangers of elevated debt levels, and describe the unintended risks investors might be taking as they seek

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2019 Q1 Letter to Investors: Mismeasuring “Value” and the Risks in Low Beta Stocks

We provide an update of strategy performance so far in 2019, portfolio changes and positioning, as well as our thoughts on the mismeasurement of “Value” as it is commonly discussed

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Buffett Abandons Book Value

We relate Warren Buffett’s recent comments on book value to our own investment process and make the case that investors buying a “value” index might, unintentionally, simply be taking on

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2018 Year-End Letter to Investors

Our annual review of performance, recent changes to our portfolio, and comments on the outlook for equities in the years ahead.

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Long-Term Investing: The Costs of Myopic Thinking

Adhering to long investment time horizons is easily said but more difficult to do. Emotions and behavioral biases work to erode the otherwise attractive returns offered by equity markets when

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FAANG Valuations: A Mismatch of Old Metrics  and New Companies

The group of stocks known as the FAANGs (Facebook, Apple, Amazon, Netflix, and Alphabet) have garnered significant attention from investors and market pundits—often painted as a homogeneous, overvalued set of

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Risk: Fundamentals Over Price Volatility

Investors should consider investment risk as defined by an investment’s fundamental stability, level of indebtedness, and valuation, rather than simply its short-term price volatility.

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Behavioral Biases: Exploiting Systematic Mispricings

Deeply rooted behavioral biases can offer exploitable opportunities for a thoughtfully designed, systematic investment approach.

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Distillate Reading List

Distillate Capital is built on a few core ideas gleaned from our decades of value investing experience and from the wealth of information and ideas emanating from the rigorous studies

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