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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. VIEW ARTICLE

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

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. VIEW/DOWNLOAD

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. VIEW/DOWNLOAD

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