| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 10.9% | -1.4% | 1.6% |
| 2025 |
|---|
| 1.6% |
The Hotchkis & Wiley Small Cap Value Fund underperformed in Q4 2025 and for the full year, returning 1.61% versus the Russell 2000 Value Index's 12.59%. The underperformance was driven by the fund's limited exposure to unprofitable, speculative companies that dominated small-cap returns in 2025. Companies with negative earnings returned 26% compared to 7% for profitable companies. The managers identify concerning parallels to the dot-com bubble, with speculative segments like AI, space/satellite, and quantum computing representing over 10% of the Russell 2000 and returning over 100% as a group. Retail trading now comprises over one-third of US trading volume, creating a short-term focused cohort less anchored to fundamental analysis. The fund maintains its disciplined approach to profitable companies with strong ROE and low beta characteristics. Management believes the speculative rally may be largely exhausted based on historical comparisons and expects economic fundamentals to reassert themselves, positioning the fund to benefit from market normalization through a potentially meaningful and prolonged correction.
The fund maintains a disciplined value approach focused on profitable small-cap companies with strong fundamentals, positioning defensively against current speculative excess while expecting market normalization to favor their investment style.
The managers expect a meaningful and potentially prolonged correction as the speculative rally exhausts itself and fundamentals reassert themselves. They believe they are well positioned to benefit from this normalization given their focus on profitable companies.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 29 2026 | 2025 Q4 | - | Correction, fundamentals, profitability, Quality, Russell 2000, small caps, Speculation, value | - | The fund maintains a value-oriented approach focused on profitable companies with strong fundamentals. They have limited exposure to unprofitable companies, which historically has been a performance tailwind but became a headwind in 2025 as low-quality stocks dominated returns. The managers believe economic fundamentals and rational pricing will reassert themselves over time. The Russell 2000 Index returned 12.8% for the full year 2025, with companies with negative earnings dominating performance at +26% versus +7% for profitable companies. The fund's limited exposure to unprofitable small-cap companies weighed on relative performance during this period of speculative excess. The managers identify extreme speculative behavior in small-cap markets, with meaningful portions concentrated in highly speculative segments like space/satellite, AI, next-generation energy, rare earth materials, and quantum computing. They view current conditions as similar to the dot-com bubble and expect a meaningful correction as fundamentals reassert themselves. |
| Oct 28 2025 | 2025 Q3 | - | inflation, interest rates, Quality, small caps, Value Investing | WPP LN | The fund underperformed despite strong small-cap market gains led by speculative, low-quality stocks. Management noted the rally was driven by negative-earnings and high-beta names rather than fundamentals. They remain focused on high-quality companies with durable balance sheets, free cash flow, and attractive valuations as the market shifts toward selectivity amid lower rates and persistent inflation. |
| Jul 27 2025 | 2025 Q2 | - | cycle, fundamentals, Quality, SmallCaps, Valuation gap | - | The letter emphasizes historically attractive small-cap valuations relative to large caps, reminiscent of prior cycles that favored small-cap outperformance. Fundamental discipline and quality screens are used to avoid speculative risk. The manager views the valuation gap as a long-term tailwind for patient investors. |
| Mar 31 2025 | 2025 Q1 | - | - | - | |
| Dec 31 2024 | 2024 Q4 | - | - | - | |
| Sep 30 2024 | 2024 Q3 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
Risk AppetiteManager emphasizes disciplined risk management through cycle awareness rather than market timing. Fund maintains cash cushion during high-risk periods and deploys capital countercyclically. Approach focuses on behavioral edge by having cash available when fear creates best entry points and avoiding leverage that leads to forced selling. |
Leverage Cash Volatility Positioning Discipline |
Small CapsSmall caps getting strong start in 2026 supported by easing monetary conditions and constructive fiscal backdrop. Small caps more sensitive to economic cyclicality which is overdue for expansion. Expected to grow at better pace than large caps in 2026 after long period of underperformance. |
Value Growth Cyclical Monetary Policy Fiscal Policy | |
ValueManager emphasizes investing in controlled companies trading at significant discounts to NAV, with European holding companies showing discounts of 30-68%. The strategy focuses on securities mispricing where real value exists, contrasting with overvalued technology stocks. |
Discounts NAV Mispricing Undervalued Controlled | |
| 2025 Q3 |
Small CapsSmall caps getting strong start in 2026 supported by easing monetary conditions and constructive fiscal backdrop. Small caps more sensitive to economic cyclicality which is overdue for expansion. Expected to grow at better pace than large caps in 2026 after long period of underperformance. |
Value Growth Cyclical Monetary Policy Fiscal Policy |
ValueThe manager continues to find attractive value opportunities despite expensive markets, purchasing undervalued companies like Centene, GlaxoSmithKline, Carrefour and PayPal trading at low multiples with strong fundamentals. |
Undervalued Low Multiples Contrarian Opportunistic | |
| 2025 Q2 |
SmallCaps |
| TICKER | COMMENTARY |
|---|---|
| No ticker commentary found. | |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
|---|---|---|---|---|---|
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| Industry | Prev Quarter % | Current Quarter % | Change |
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| No industry data available | |||
