March 2026 Update

March, 2026

HALO HALO HALO what's going on 'ere then?

So much is happening, it's best to be very brief. First, the performance in February was pleasing. The Global diversified strategy rose c.5%, in A$, the Global 30, the Value biased, rose about 2%, and the Global listed equity Infrastructure over 6% - all gross of fees but net of withholding taxes and other charges.

Over the last year they have returned respectively, c.28%, c.33%, c.16%.

The market continues to see the recovery of the 'other stocks'.

From October 2025 "…Our biggest concern remains the concentration of the market in just a few stocks. Despite a sell-off in April, the concentration ratio of the 7 stocks (possibly some of them not so magnificent now?) has gone up again and it approaches 25% of the S&P 500. To be fair they also represent a disproportionate percentage of the profits. However, it is not a healthy market and for the run to continue, it has to broaden out. Hence the title of this update. Can the market broaden while these stocks mark time, or will these stocks sell off with less damage done to the prices of the others? Either way the outlook for a cap weighted passive return is less stellar than the general level of expectation."

Value has beaten growth by about 700 basis points in the last year and has, of course, been driven by relative outperformance of stocks outside the MAG7. This has given rise to a new acronym HALO or Heavy Asset Low Obsolescence. (someone out there is very good at making these acronyms up)

We've had exposure to these for a while and it's not so much spotting their undervaluation which was 'easy', it's the 'having the nerve' to sit through the periods when everyone told us we 'didn't get it', and that investing usual traditional valuation techniques was dead. In that sense it's not our models that is the competitive advantage, it's the nerve to apply them consistently and persistently. The performance of Japan is especially pleasing as is the newly discovered enthusiasm for it by the investment community. The Yen remains very undervalued which helps the relative export performance of Japanese companies. The Japanese Prime Minister was resoundingly re-elected on a JIB (Japan is Back) policy.

Claude continued to report that every human being would soon be irrelevant. This would be good news in some places, but there is always room (we think) for the Eurekas and the Poincarés. The US administration sensibly announced that A.I. companies and their Data Centres would be responsible for finding their own power sources. This might avoid the Ouroboros problem we highlighted? https://www.delftpartners.com/news/views/november-2025-to-infinity-and-beyond-or-obviously-an-ouroboros.html

At some point we'd expect utility companies to receive bids and an attempt made to siphon off some of the power plants into independent entities, freed from their regulated obligations to supply the grid. We made significant profit in Constellation Energy which was spun out of Exelon to become an IPP. We suspect more of these to follow. Meantime as we have written before, the suppliers of picks and shovels made more money than the prospectors, or for every action, there is an equal and opposite reaction.

https://www.delftpartners.com/news/views/february-2026-remember-newtons-third-law-of-motion.html

Tariffs are now illegal under some parts of the US Constitution but they're here to stay anyway. How long before Europe decides to place tariffs on the importation of Chinese EVs, imports which are killing their car industries, burdened by lunatic and random requirements to meet EV production?

From October 2025 - "…The automobile sector was hurt by write downs by VW and Porsche on their Electric Vehicle production assets. It seems clear that Net Zero targets are unlikely to be met and even scrapped? Chinese EVs are technologically competitive and cheaper. Their energy costs are significantly lower than Europe's. We wonder whether Australia can have a European approach to its economy (subsidies and net zero) while competing economically in Asia which has none of the accompanying inefficiencies."

A.I. companies continue to insist they will spend the money required and this will have implications for share buyback programmes which have supported share prices. Be wary of high levels of capital investment combined with continued share buybacks because good balance sheets will quickly become levered. Be also wary of the off-balance sheet financing of these committed investment programmes, and believing lazy analysis which will look at cash flow and say "no problem', while failing to account for the real cash cost of share option programmes. Meta anyone?

Banks got hit as worries increase around their exposure to private credit, and companies exposed to A.I. adoption. It pains us to write this, but equity investors are always very late to realise what credit investors see early - deteriorating conditions of revenue shortfalls and debt burdens. Liquidity (aka that provided by listed equities), is worth having because we have a paradox of innovation - fast change is good because it drives productivity and growth but requires depreciation and scrapping rates to be increased.

Notable price moves were enjoyed in Hirose, Amada, Mabuchi (all in Japan) +35%, +32%, + 26%; and in the USA Verizon +27%, Tenet Healthcare + 26% and Arrow Electronics + 25%. We sold Corning at the end of February after a rise of 40% IN THE MONTH.

We've held this for a few years - there is a lot of technology in many companies classified as 'Industrials'!

As we stated late last year, the active risk in the portfolios has risen to uncomfortable levels driven by price momentum, the downside to outperformance. Put another way, high exposure to price momentum is great until it isn't and so we made many more trades than usual in February to reduce this oversized risk.

We sold or trimmed amongst others, from our strategies:-

Best Buy, Mitsubishi Chemical, Sumitomo Electric, KDDI, Cummins, Smiths Industries, Freenet, Mizuho, Johnson and Johnson

We purchased new or added To:-

Misumi, Japan Airport Terminals, Union Pacific, Vistra, Travellers' Insurance, Orix, Kinder Morgan, London Stock Exchange, Toll Brothers

Delft Partners March 2026