The London Company Large Cap Strategy's fourth-quarter 2025 investor letter offers insights into current market conditions and their investment philosophy, particularly concerning Republic Services, Inc. (RSG). The letter discusses the resilience of RSG's business model, its ability to maintain strong operational performance amidst market fluctuations, and its appealing valuation. This perspective provides valuable context for understanding the waste management sector and broader investment trends.
Amidst a backdrop of economic and policy uncertainties heading into 2026, the strategy remains focused on long-term wealth creation and downside risk management. The letter details how factors such as volatility and concentrated market leadership have impacted portfolio performance, while also emphasizing the enduring strength of companies like Republic Services. This comprehensive view helps investors navigate complex market environments and identify robust investment opportunities.
Republic Services: A Resilient Investment
Republic Services, Inc. (RSG) is presented as a compelling investment opportunity, particularly noted for its robust and defensive business model within the essential waste management industry. Despite encountering short-term challenges such as cyclical volume weaknesses in construction, demolition, and industrial sectors, RSG has demonstrated remarkable operational strength. This resilience is primarily attributed to its effective pricing power and stringent cost controls, which have collectively contributed to enhanced profit margins. The company's ability to maintain stable cash flow generation underscores its high-quality operational framework, making it an attractive prospect for investors seeking stability and long-term growth.
The London Company Large Cap Strategy's decision to increase its exposure to Republic Services reflects a broader confidence in businesses that offer both defensive characteristics and attractive valuations in fluctuating markets. The company's consistent performance, even when faced with industry-specific headwinds, highlights its foundational strength and management's capability to navigate adverse conditions. This strategic investment is further supported by recent insider purchases, which are often interpreted as a positive signal of confidence in the company's future prospects and current valuation by those with intimate knowledge of its operations.
Market Dynamics and Investment Philosophy
The broader market in the fourth quarter of 2025 showcased a delicate balance as investors weighed optimism surrounding earnings growth against concerns about returns from artificial intelligence and cooling macroeconomic indicators. This complex environment saw US equities extend their rally for a third consecutive quarter, with the Russell 3000 Index posting a 2.4% increase. However, the London Company Large Cap portfolio achieved a more modest 0.4% return (0.2% net), lagging behind the Russell 1000 Index's 2.4% gain, primarily due to significant headwinds from market volatility and highly concentrated leadership.
Heading into 2026, the economic and policy landscape continues to be characterized by a mix of confidence and uncertainty, prompting the London Company's portfolio to prioritize stability and risk management. The strategy emphasizes investments in high-quality businesses with strong and stable cash flow, such as Republic Services, to foster long-term wealth creation while actively mitigating downside risks. This approach underscores a cautious yet optimistic outlook, focusing on resilient companies that can withstand market turbulence and deliver consistent value over time, rather than chasing high-risk, high-reward opportunities that may not align with their long-term objectives.