Commentary
In Q1 2025 the fund rose 4.9% while the MSCI World High Dividend yield rose 3.4% and MSCI World fell 4.7% in GBP. The largest negative contributors to performance were Allegiant (-45%, total return in local currency), J D Wetherspoon (-8%) and Brembo (-14%). The largest positive contributors to performance were Alibaba (+55%), Lloyds Bank (+32%), and Svenska Handelsbanken (+10%).
Winds of change
The quarter was best characterised by change. Since Monday 20th January 2025, the day President Trump took office, there have been numerous changes that have reframed perspectives about the global world order.
The first event wasn't Trump-related. Five days after his inauguration, China's AI model, DeepSeek, captured global attention, prompting a major rethink of AI industry prospects. Even before DeepSeek emerged, semiconductor demand was already showing signs of a slowdown in growth, causing Nvidia, the AI boom's posterchild, to lose about 20% of its value in the first quarter.
February and March saw three Trump-linked shocks: US Vice President JD Vance stunned Europe on 14th February by criticizing its democratic values; Ukraine’s President Zelensky's White House visit on 28th February, intended to be the start of finding a route to peace, exploded into a public shouting match; and Germany’s incoming chancellor, Merz, reacted by pledging a bold, “whatever it takes” defence policy and creating the fiscal capacity for Germany to spend an additional €1.5 trillion on defence and infrastructure.
Back at home, Trump's economic policies form a triad of austerity (reducing deficits), tariffs (reviving manufacturing), and immigration caps (protecting American jobs). What this all means is uncertainty; something markets certainly dislike.
Performance
The portfolio has benefited from these events on both a relative and absolute basis as well as having some stock-specific benefits. During the quarter nearly half of the holdings rose by more than double digits.
Allegiant reported full year results that looked to herald a return to form for a company that had struggled since the pandemic. The fourth quarter saw costs down year over year and underlying profits return to double digit margins for the first time in nearly two years. The guidance for the full year was also positive with the company talking about returning to profitable growth. However, this is broadly where the good news ends. There appears to have been an emerging weakness in consumer demand in the US. This is leading to the risk of more excess capacity in the airline sector and pressure of evidence on ticket prices.
We remain attracted to Allegiant Travel because of its focus on leisure traffic from under-served cities with limited competition on its routes. This, along with a low-cost distribution channel, has historically resulted in industry-leading margins and returns on capital. Maurice Gallagher, the founder and Chairman, owns 12% of the business which provides good alignment.
Allegiant remains extraordinarily cheap on normalised earnings. The company currently generates over $2.5bn of revenue. Pre-COVID operating margins averaged c.20%: even if they deliver 15% this implies around 3 times price to earnings when allowing for interest and tax compared to a long-term median of around 15 times.
Alibaba, the Chinese online retailer, was the standout performer in the quarter. The company benefited from the January launch of DeepSeek’s R1 AI chatbot showing the world that China can do AI. Alibaba’s own AI models also showed impressive results. Driven by increasing demands for AI, Alibaba’s cloud business returned to double digit growth in its most recent quarter. The company’s valuation remains attractive, trading at just eleven times price-to-earnings, excluding net cash on the balance sheet.
Lloyds performed well alongside other European banks. This has been driven by a steepening of the yield curve post the fiscal ‘bazooka’ from the German government. The company guided to a £2.7bn benefit from higher interest rates in 2025 and 2026 compared with net income of £4bn in 2024. The shares still trade at under ten times this year’s expected earnings.
Portfolio changes
Lear, the US based auto seats manufacturer, was the most recent addition to the portfolio. We have followed the company for the last couple of years. We made the decision to invest as the valuation had fallen to a multi-decade low on all three metrics of price to sales (0.2x), earnings (7x) and book (1x).
Lear's performance has been largely driven by weaker global automotive production. This has seen the average age of a US car reach 14 years, up from 12 years prior to the pandemic. Assuming a recovery in global auto sales the shares look to be trading at under five times price to earnings with the average over the last couple of decades being around twice that, implying around 100 percent upside.
To fund the purchase of Lear, we sold the position in Middleby, the US-based food equipment manufacturer. Middleby’s valuation had risen to approximately 17 times price to earnings after an activist investor showed interest in forcing a break-up of the company. We initially acquired Middleby in December 2023 at 13 times price to earnings and held it for just over a year.
Conclusion
With the winds of change in the air one may think that the market has made huge adjustments to expectations. However, this is not yet the case. The S&P 500 still trades at 35 times the Shiller PE (98% percentile) while European stocks remain tethered to the long run average at around 20 times.
Allocations to US equities are still elevated. The MSCI World Index is still over 70% invested in the US compared with around 40% in the MSCI World Equal-Weighted Index. The power of passive has seen global investors flock to the US. Net foreign ownership of US assets has risen from $5trn to nearly $25trn over the last decade. If this money were to return home, it would have a sizeable impact on stock markets and as one FT commentator described it, “lighter allocations to Trump’s America represent basic risk management at this point.”
The absolute prospects for the portfolio remain attractive with a headline multiple of around 10 times price to earnings and a weighted average upside of over 70%, well above the long-run average. As we said last quarter, we believe that the relative starting valuations of the portfolio, the attractive portfolio upside, and the relatively poor sentiment surrounding value investing set us up favourably for the long term. Sentiment may be just at the beginning of a major turn.
Investment review
During the quarter, we conducted our annual investment review, providing an opportunity to reflect on areas for improvement. Since 2005 Oldfield Partners has made over 550 investments. A thorough analysis indicates that small tweaks to our approach could significantly enhance our results.
One key insight from our review underscores the importance of investing at low absolute valuations. Approximately 25% of our investments were made at valuations below nine times historical earnings. The probability of a successful investment amongst this cohort was the same as the average investment. However, the less than nine times cohort experienced smaller losses when underperforming and greater gains when outperforming. This was consistent across all strategies. Notably, this relationship held true for historical earnings-based valuations but not for consensus forecast-based valuations – focusing on valuations rather than forecasts is an important part of our process.
The significance of low absolute valuations in generating excess returns is not surprising, though reassuring particularly during a period in which a value approach has underperformed. Maintaining this discipline becomes increasingly important as market indices rise to near-record valuations. Our analysis reinforces our commitment to focusing on attractively priced companies as a key driver of excess returns.
Additionally, we remain committed to enhancing our research and investment review processes. AI-driven tools have recently generated significant productivity gains, notably OpenAI’s Deep Research product, which has fundamentally transformed our research approach. We highly recommend exploring this tool if you haven't already. Looking ahead, we anticipate further advancements in AI to benefit our investment processes.
Commentary
In Q1 2025 the fund rose 4.9% while the MSCI World High Dividend yield rose 3.4% and MSCI World fell 4.7% in GBP. The largest negative contributors to performance were Allegiant (-45%, total return in local currency), J D Wetherspoon (-8%) and Brembo (-14%). The largest positive contributors to performance were Alibaba (+55%), Lloyds Bank (+32%), and Svenska Handelsbanken (+10%).
Winds of change
The quarter was best characterised by change. Since Monday 20th January 2025, the day President Trump took office, there have been numerous changes that have reframed perspectives about the global world order.
The first event wasn't Trump-related. Five days after his inauguration, China's AI model, DeepSeek, captured global attention, prompting a major rethink of AI industry prospects. Even before DeepSeek emerged, semiconductor demand was already showing signs of a slowdown in growth, causing Nvidia, the AI boom's posterchild, to lose about 20% of its value in the first quarter.
February and March saw three Trump-linked shocks: US Vice President JD Vance stunned Europe on 14th February by criticizing its democratic values; Ukraine’s President Zelensky's White House visit on 28th February, intended to be the start of finding a route to peace, exploded into a public shouting match; and Germany’s incoming chancellor, Merz, reacted by pledging a bold, “whatever it takes” defence policy and creating the fiscal capacity for Germany to spend an additional €1.5 trillion on defence and infrastructure.
Back at home, Trump's economic policies form a triad of austerity (reducing deficits), tariffs (reviving manufacturing), and immigration caps (protecting American jobs). What this all means is uncertainty; something markets certainly dislike.
Performance
The portfolio has benefited from these events on both a relative and absolute basis as well as having some stock-specific benefits. During the quarter nearly half of the holdings rose by more than double digits.
Allegiant reported full year results that looked to herald a return to form for a company that had struggled since the pandemic. The fourth quarter saw costs down year over year and underlying profits return to double digit margins for the first time in nearly two years. The guidance for the full year was also positive with the company talking about returning to profitable growth. However, this is broadly where the good news ends. There appears to have been an emerging weakness in consumer demand in the US. This is leading to the risk of more excess capacity in the airline sector and pressure of evidence on ticket prices.
We remain attracted to Allegiant Travel because of its focus on leisure traffic from under-served cities with limited competition on its routes. This, along with a low-cost distribution channel, has historically resulted in industry-leading margins and returns on capital. Maurice Gallagher, the founder and Chairman, owns 12% of the business which provides good alignment.
Allegiant remains extraordinarily cheap on normalised earnings. The company currently generates over $2.5bn of revenue. Pre-COVID operating margins averaged c.20%: even if they deliver 15% this implies around 3 times price to earnings when allowing for interest and tax compared to a long-term median of around 15 times.
Alibaba, the Chinese online retailer, was the standout performer in the quarter. The company benefited from the January launch of DeepSeek’s R1 AI chatbot showing the world that China can do AI. Alibaba’s own AI models also showed impressive results. Driven by increasing demands for AI, Alibaba’s cloud business returned to double digit growth in its most recent quarter. The company’s valuation remains attractive, trading at just eleven times price-to-earnings, excluding net cash on the balance sheet.
Lloyds performed well alongside other European banks. This has been driven by a steepening of the yield curve post the fiscal ‘bazooka’ from the German government. The company guided to a £2.7bn benefit from higher interest rates in 2025 and 2026 compared with net income of £4bn in 2024. The shares still trade at under ten times this year’s expected earnings.
Portfolio changes
Lear, the US based auto seats manufacturer, was the most recent addition to the portfolio. We have followed the company for the last couple of years. We made the decision to invest as the valuation had fallen to a multi-decade low on all three metrics of price to sales (0.2x), earnings (7x) and book (1x).
Lear's performance has been largely driven by weaker global automotive production. This has seen the average age of a US car reach 14 years, up from 12 years prior to the pandemic. Assuming a recovery in global auto sales the shares look to be trading at under five times price to earnings with the average over the last couple of decades being around twice that, implying around 100 percent upside.
To fund the purchase of Lear, we sold the position in Middleby, the US-based food equipment manufacturer. Middleby’s valuation had risen to approximately 17 times price to earnings after an activist investor showed interest in forcing a break-up of the company. We initially acquired Middleby in December 2023 at 13 times price to earnings and held it for just over a year.
Conclusion
With the winds of change in the air one may think that the market has made huge adjustments to expectations. However, this is not yet the case. The S&P 500 still trades at 35 times the Shiller PE (98% percentile) while European stocks remain tethered to the long run average at around 20 times.
Allocations to US equities are still elevated. The MSCI World Index is still over 70% invested in the US compared with around 40% in the MSCI World Equal-Weighted Index. The power of passive has seen global investors flock to the US. Net foreign ownership of US assets has risen from $5trn to nearly $25trn over the last decade. If this money were to return home, it would have a sizeable impact on stock markets and as one FT commentator described it, “lighter allocations to Trump’s America represent basic risk management at this point.”
The absolute prospects for the portfolio remain attractive with a headline multiple of around 10 times price to earnings and a weighted average upside of over 70%, well above the long-run average. As we said last quarter, we believe that the relative starting valuations of the portfolio, the attractive portfolio upside, and the relatively poor sentiment surrounding value investing set us up favourably for the long term. Sentiment may be just at the beginning of a major turn.
Investment review
During the quarter, we conducted our annual investment review, providing an opportunity to reflect on areas for improvement. Since 2005 Oldfield Partners has made over 550 investments. A thorough analysis indicates that small tweaks to our approach could significantly enhance our results.
One key insight from our review underscores the importance of investing at low absolute valuations. Approximately 25% of our investments were made at valuations below nine times historical earnings. The probability of a successful investment amongst this cohort was the same as the average investment. However, the less than nine times cohort experienced smaller losses when underperforming and greater gains when outperforming. This was consistent across all strategies. Notably, this relationship held true for historical earnings-based valuations but not for consensus forecast-based valuations – focusing on valuations rather than forecasts is an important part of our process.
The significance of low absolute valuations in generating excess returns is not surprising, though reassuring particularly during a period in which a value approach has underperformed. Maintaining this discipline becomes increasingly important as market indices rise to near-record valuations. Our analysis reinforces our commitment to focusing on attractively priced companies as a key driver of excess returns.
Additionally, we remain committed to enhancing our research and investment review processes. AI-driven tools have recently generated significant productivity gains, notably OpenAI’s Deep Research product, which has fundamentally transformed our research approach. We highly recommend exploring this tool if you haven't already. Looking ahead, we anticipate further advancements in AI to benefit our investment processes.
Commentary
Commentary
Commentary
Change of name to the Fund
As of the 31st March 2025 the Overstone Global Equity Income Fund was renamed the Overstone Global All Cap Value Fund. The changes are intended to better align the fund with its objectives as a value first approach and shifts the fund more formally to a capital growth focus rather than one of generating income. This reflects changes in capital markets, with many companies reducing dividends, whilst prioritising share buy backs and total returns. In light of this, the main benchmark will move to the (MSCI) All Country World (ACWI) Value Index with the secondary benchmark as the (MSCI) World Index. The make-up of the Fund’s portfolio will not change and there will be no change to the way that the Fund is managed. The risk/reward profile of the Fund will also not change.
Russian holdings
Please note that on 3rd March 2022 the Fund’s investment in Lukoil ADR listed on the London Stock Exchange (LSE) was suspended from trading. Our Valuation Committee considered it was in the Fund’s best interests that the holding of Lukoil ADR be fair value priced (FVP) at zero. In June 2022, we elected for the holding to be converted into local shares (Lukoil PJSC).
Given the current international sanctions on Russian securities and cash balances, we believe that if lifted and the Fund was able to access the local market, the holding in Lukoil PJSC (with a current FVP of zero) would represent 16% of the Fund and cash dividend of 5%. We continue to monitor the situation closely.
Commentary
Commentary