Claret Asset Management Q3 2026 Letter
Claret Asset Management has released its third-quarter 2026 investment letter, providing a cautious outlook for the financial markets as they continue to navigate what the firm describes as a wall of worry. While equity prices have maintained an upward trajectory, the firm suggests that historical market behavior indicates a need for a more guarded approach. This perspective is rooted in the cyclical nature of capital investments and the eventual pressure that overexpansion places on future returns.
Capex Cycles and Excess Capacity
According to the analysis provided by Claret Asset Management, the economy is currently influenced by significant capital expenditure cycles. The firm notes that these cycles inevitably result in the creation of excess capacity. Economic principles suggest that a period of overbuilding must be followed by a slowdown, allowing the market the necessary time to digest the surplus. While the managers at Claret Asset Management acknowledge that the exact timing and conclusion of this specific cycle remain unknown, they argue that the outcome is certain.
The firm anticipates that this economic adjustment will eventually cause certain equities to perform below their long-term historical benchmarks. For context, the asset manager points out that the historical average for annualized returns is approximately 8.5%. The letter explains that this shift is a function of reversion to the mean, a process where market performance balances out over time after periods of significant growth or expansion.
Reversion to the Mean
Claret Asset Management clarifies that these observations are not intended to serve as a forecast for an immediate market crash. Instead, the firm states that it is making decisions based on the weight of current evidence rather than speculation. Without the use of a crystal ball or the ability to accurately time market shifts, the managers are focusing on a disciplined investment strategy designed to weather potential volatility.
The firm remains committed to its philosophy of investing in high-quality organizations that demonstrate consistent profitability. Their preferred targets are companies that are non-cyclical and maintain positive free cash flow. Furthermore, the firm prioritizes capex-light businesses, which are those that do not require massive capital expenditures to maintain their operations. Claret Asset Management believes that this strategy represents a prudent method for managing client portfolios in the current environment.
Revisiting Previous Quarterly Insights
To provide additional context for their current positioning and rebalancing strategies, the firm encouraged investors to review its previous communications. These include the Q2 2026 letter, which focused on the compounding effect of money, and the Q1 2026 letter regarding the sea change in interest rates. The firm also highlighted its Q1 2025 letter, which provided an in-depth comparison between equity and fixed income investments. By looking back at these reports, the firm aims to show a consistent approach to navigating the shifting financial landscape over the past several years.
Source: seekingalpha.com · 2026-10-23