2025 1Q Letter to Investors: Uncertainty
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.
Distillate Capital mentioned in “7 Best Stock Fund Managers” in U.S. News & World Report*
March 25, 2025: Distillate Capital mentioned in “7 Best Stock Fund Managers” in U.S. News & World Report. * Third party ratings provided by U.S. News were provided on March 26, 2025. Ratings and assessments were based on the opinion of U.S. News and are not reviewed or ratified by any other third parties. Distillate does not solicit for, nor provide compensation for, any third-party ratings.
2024 4Q Letter to Investors: Prices & Fundamentals Diverging
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.
Asset Class Valuations 2024 UPDATE
December 19, 2024: We update an asset class yield analysis first published in 2021. Since that time, we have seen dramatic changes in the valuation of some assets, most notably U.S. equities.
Equity Market Concentration – What Comes Next
November 1, 2024: Large cap stocks are extremely concentrated even beyond simple measures of the weight of the largest few stocks. Historically, levels of concentration to this degree have subsequently seen strong outperformance among smaller stocks within the large cap universe. Equal weighted indexes also subsequently do well, but equal weight indexes themselves can suffer from lower quality. For longer term investors, this analysis supports our view that there is great opportunity to invest in the higher quality parts of the market with a bias away from the largest and most expensive stocks.
2024 3Q Letter to Investors: Valuation Risk
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.
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