| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 9.4% | 14% | 8.7% |
The Pzena Focused Value strategy returned 14.3% gross in Q2 2026, slightly outperforming its Russell 1000 Value benchmark as health care and financials drove gains while energy detracted. The quarter was dominated by a semiconductor earnings boom that accounted for the vast majority of global equity returns, with memory chip margins reaching unprecedented levels above 80%. The manager explains why these margins are unsustainable using a normalized earnings framework, having bought semiconductors when cheap in 2022-2023 and trimmed on strength well before the cycle peaked. The portfolio is now finding value in areas left behind by AI-driven concentration, including managed care insurers Humana and CVS Health, which contributed strongly on favorable medical cost trends. New positions include Workday and SS&C Technologies, purchased after AI-disruption fears drove software valuations to decade lows despite mission-critical product positioning. The manager trimmed energy holdings as oil spiked near $120 on Middle East conflict, then gave back gains as tensions eased. With the equal-weighted MSCI EM Index underperforming cap-weighted by 18%—the widest gap in 34 years—the manager sees compelling opportunities in consumer businesses and health care franchises at valuations that do not require historically anomalous conditions to justify returns.
The Pzena Focused Value strategy applies a disciplined normalized earnings framework to identify businesses trading below their sustainable mid-cycle earnings power, avoiding cyclical peaks and concentration-driven momentum in favor of durable value opportunities.
The portfolio is positioned for a resolution of extreme market concentration in favor of valuation discipline. The manager expects the current semiconductor earnings boom to eventually revert, as commodity industries historically show persistent margin mean reversion. Meanwhile, compelling opportunities exist in areas left behind by AI-driven concentration, including consumer businesses in emerging markets and health care franchises in developed markets. The manager remains focused on normalized earnings power rather than cyclical peaks, accepting that this approach will miss some momentum but avoids the risk of buying businesses at unsustainable earnings levels. The tone is patient and disciplined, emphasizing that periods of extreme concentration have historically resolved in favor of value approaches.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 27 2026 | 2026 Q2 | ACN, BAX, C, CDW, CTSH, CVS, HUM, WDAY | AI Disruption, Health Care, IT Services, large cap, normalized earnings, semiconductors, US, value | - | Pzena Focused Value outperformed in Q2 2026 on health care strength, led by managed care insurers benefiting from favorable medical cost trends. The manager trimmed semiconductors on unsustainable 80%+ margins, avoiding the cyclical peak, and initiated software positions after AI-disruption fears created decade-low valuations. Extreme market concentration has created compelling value opportunities in consumer and health care businesses left behind by the AI rally. |
| Apr 28 2026 | 2026 Q1 | ACN, AVT, C, CDW, COF, CTSH, DAL, DOW, DOX, FMC, HUM, OSK, SWKS | energy, financials, healthcare, industrials, technology, value |
HUM COF CTSH ACN CDW |
Pzena's value strategy declined 4.7% in Q1 amid Iran conflict volatility and AI disruption fears. The manager added to beaten-down positions including Humana and Cognizant, viewing concerns as overblown, while initiating new positions in Accenture and CDW at attractive valuations. Despite headwinds, they see exceptional long-term opportunities in the current environment. |
| Jan 29 2026 | 2025 Q4 | BAX, C, CTSH, DAL, DG, DOX, FMC, KNX, MDT, PPG, QRVO, RHI, SWKS, WFC | Buybacks, Capital markets, earnings, Freight, Trade Down, value | - | Pzena's Focused Value strategy underperformed in Q4 as momentum stocks continued their leadership. Key detractors included FMC, Baxter, and Skyworks on disappointing results, while Dollar General and Citigroup contributed positively. The team initiated Knight-Swift during the freight downturn and trimmed outperformers. Management sees attractive valuation dispersion creating opportunities for patient value investors. |
| Oct 24 2025 | 2025 Q3 | BAX, C, CHTR, CVS, MGA, PPG, RHI, SOLV, TEL | financials, healthcare, industrials, underperformance, value | - | Pzena Focused Value underperformed in Q3 despite positive contributors from financials. The strategy initiated positions in discounted PPG Industries and spinoff Solventum while exiting Charter Communications due to competitive pressures. Healthcare and financials exposure remains high with attractive valuations. The manager continues targeting undervalued companies with improvement catalysts, adding to Baxter despite temporary headwinds. |
| Aug 25 2025 | 2025 Q2 | BMY, C, COF, DG, DOW, EQH, GPN, OSK, RHI, SWKS, TEL, WFC | consumer discretionary, financials, M&A, positioning, tariffs, value |
GPN OSK DG OSK |
Pzena's value strategy slightly underperformed in Q2 2025 as trade policy volatility weighed on markets. Strong performance from discount retailer Dollar General and financials like Citigroup offset weakness in staffing and chemicals. The firm initiated Oshkosh while trimming strength in Wells Fargo and others. Despite macro uncertainty, valuations remain attractive across sectors. |
| Mar 31 2025 | 2025 Q1 | BAC, BAX, CVS, DAL, DG, EQH, FNF, LKQ, NWL, PVH, UHS | consumer, earnings, financials, healthcare, Trade Policy, value | - | Pzena's Focused Value strategy returned 1.0% in Q1 but lagged its benchmark amid trade policy uncertainty. Healthcare and consumer staples outperformed while technology and consumer discretionary detracted. The manager added to positions at attractive valuations in LKQ Corp and Universal Health Services while trimming strength in financials. Portfolio valuations remain extremely attractive with primary exposure to healthcare and financials. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIThe letter extensively discusses AI's impact on IT services companies, arguing that fears of AI-driven disruption to firms like Accenture, Cognizant, and Globant are overstated. The manager believes these companies are positioned to adapt and become enablers of AI adoption rather than victims, with deep client relationships and domain expertise providing defensibility. The manager initiated positions in Workday and other software companies following AI-related sell-offs. |
IT Services Disruption Enterprise Software Automation |
Semiconductor CycleThe letter analyzes the semiconductor earnings boom driving global equity returns, particularly in memory chips. The manager explains why current 80%+ gross margins for memory producers are unsustainable, representing a cyclical peak rather than a new normal. Using normalized earnings framework, they bought semiconductors when cheap in 2022-2023 and trimmed on strength, avoiding the full cycle run-up. |
Memory DRAM HBM Margins Cyclical | |
Managed CareHealth care, particularly managed care insurers Humana and CVS Health, was the largest contributor to portfolio performance. Humana rose sharply after strong Q1 results showed favorable medical cost trends with no evidence of adverse selection despite significant Medicare Advantage membership growth. The manager views these as attractively valued franchises with improving fundamentals. |
Medicare Advantage Medical Loss Ratio Health Insurance | |
ValueThe letter emphasizes the firm's disciplined value approach using normalized earnings framework. The manager explains selling semiconductors well before the cycle peaked and finding compelling value in consumer businesses, health care, and other areas left behind by AI-driven concentration. The equal-weighted MSCI EM Index underperformed cap-weighted by 18%, marking the widest gap in 34 years, reflecting opportunity being created by concentration. |
Normalized Earnings Valuation Discipline Dispersion Concentration | |
Energy TransitionThe letter discusses data center power constraints and compares the current situation to the 'whale oil moment' of the 19th century, suggesting that sustainability challenges may be resolved through disruptive innovation such as small modular reactors or next-generation geothermal. Chief Sustainability Officers are exploring longer-term technology bets to address grid capacity issues. |
Data Centers Grid Capacity SMR Geothermal | |
OilThe Iran War and closure of the Strait of Hormuz caused crude oil to approach $120/barrel in Q2. The manager trimmed energy-exposed holdings including Equinor, Petrobras, Shell, and Dow Inc. on strength as oil prices surged, then gave back gains as Middle East tensions eased. Energy was the only sector to detract from absolute performance. |
Iran War Strait of Hormuz Energy Producers Petrochemicals | |
| 2026 Q1 |
AIAI-related uncertainty and fears of disruption weighed on multiple portfolio holdings including Cognizant, Accenture, and CDW. The manager views these AI fears as overblown and sees potential benefits from rising demand for process automation enabled by AI. |
Artificial Intelligence Automation Technology Disruption Services |
ValueThe manager emphasizes the portfolio's starting valuation and describes the current environment as an exceptional long-term opportunity given the breadth, magnitude, and quality of the opportunity set despite recent performance challenges. |
Valuation Opportunity Undervalued Long-term Quality | |
Data CentersData center buildout and robust data center demand drove positive performance for Avnet and created optimism for Oshkosh's aerial work platform products used in AI-related data center construction. |
Infrastructure Technology Construction Equipment | |
| 2025 Q4 |
OilOil represents the cheapest major asset class globally, trading at near-record lows relative to gold despite balanced fundamentals. The closure of the Straits of Hormuz has created the largest supply shock in industry history, disrupting 20 million barrels per day. Non-OPEC supply growth is slowing dramatically, with U.S. shale production plateauing outside the Permian Basin. |
Crude Oil Brent WTI Shale OPEC |
Natural GasNatural gas ranks in the 99.5th percentile of historical undervaluation relative to equities. U.S. production growth has concentrated entirely in the Permian Basin, with other shale regions declining. Once the Permian's current gas production surge runs its course, supply growth should plateau and eventually decline, setting the stage for materially higher prices. |
Henry Hub LNG Shale Gas Permian | |
SilverSilver surged 51% in Q4 and over 140% for the year, staging a dramatic catch-up rally relative to gold. This magnitude of silver outperformance has historically marked important turning points, suggesting investors should consider reducing precious metals exposure in the short term as a sell signal has been triggered. |
Precious Metals Gold Silver Ratio | |
CopperCopper markets have moved back into surplus with exchange inventories rising to levels last seen in 2003. Despite strong performance in 2025, the fundamental outlook has shifted bearish as Chinese demand slows and new supply comes online. Inventories now represent roughly 17 days of global demand, placing them in the top 20% of observations over thirty years. |
Base Metals China Demand LME | |
Platinum Group MetalsPGMs continued their powerful advance with platinum and palladium each surging 28% in Q4. Policy reversals in the U.S. and Europe are unwinding the aggressive push toward electric vehicles, supporting longer-term demand for internal combustion engines and auto-catalysts. The bearish narrative built on rapid EV adoption is being rewritten. |
Platinum Palladium Auto Catalysts Electric Vehicles | |
UraniumSurging uranium demand is meeting a fragile supply base, creating structural tightness in the market. The uranium fuel cycle faces significant supply constraints while global nuclear capacity expansion accelerates, particularly in emerging markets seeking reliable baseload power generation. |
Nuclear Fuel Cycle Supply Deficit | |
| 2025 Q3 |
ValueThe strategy focuses on undervalued companies with characteristics for improved valuations. PPG Industries is trading at a discounted valuation due to concerns around tepid organic growth, which the manager sees as overly discounted. Solventum presented an attractive entry point due to operational challenges and margin pressure concerns. |
Undervalued Discounted Attractive |
| 2025 Q2 |
Discount RetailDollar General appreciated meaningfully as same-store sales improved and gross margins expanded, driven by increased traffic from middle-income consumers trading down to the discount channel. The company benefited from improved inventory control measures and a labor boost that helped reduce theft. |
Trade Down Retail Margins Inventory Traffic |
Capital MarketsFinancials delivered strong performance supported by benign credit losses, favorable stress test outcomes, a more accommodative regulatory backdrop, and robust capital markets activity. Citigroup delivered low single-digit revenue growth and declining expenses, resulting in improved returns on capital. |
Credit Regulation Returns Revenue Activity | |
Merchant AcquiringGlobal Payments announced a transformational acquisition of Worldpay during the quarter. After extensive due diligence, the strategic rationale became clear as the combined entity will process $4 trillion in annual payment volumes and offer Global Payments the opportunity to expand distribution of its Genius point-of-sale product. |
Payments Acquisition Volumes Distribution Synergies | |
| 2025 Q1 |
ValueValue stocks outperformed the broad market in the quarter, though the Focused Value strategy underperformed its benchmark. The manager emphasizes that starting point valuations remain extremely attractive in the portfolio today. |
Value Undervalued Discount Attractive |
Trade PolicyUncertainty regarding U.S. trade policy triggered fears of a worsening environment for economic growth. PVH Corp declined on fears related to China's Unreliable Entity list, likely in response to U.S. trade policy, with concerns around tariff impacts on companies like Newell Brands. |
Trade Tariffs China Policy |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Apr 28, 2026 | Fund Letters | Pzena Focused Value strategy | HUM | Humana Inc. | Healthcare Plans | Health Care Plans | Bull | New York Stock Exchange | CMS, health insurance, healthcare, Medicare Advantage, Regulatory, Value | Login |
| Apr 28, 2026 | Fund Letters | Pzena Focused Value strategy | COF | Capital One Financial Corporation | Credit Services | Consumer Finance | Bull | New York Stock Exchange | AI impact, banking, consumer finance, credit cards, credit quality, geopolitical risk | Login |
| Apr 28, 2026 | Fund Letters | Pzena Focused Value strategy | CTSH | Cognizant Technology Solutions Corporation | Information Technology Services | IT Services | Bull | NASDAQ | AI disruption, Digital transformation, IT services, organic growth, Outsourcing, Technology Consulting | Login |
| Apr 28, 2026 | Fund Letters | Pzena Focused Value strategy | ACN | Accenture plc | Information Technology Services | IT Services | Bull | New York Stock Exchange | AI implementation, Cyclical Recovery, Digital transformation, Enterprise Services, It consulting, Process automation | Login |
| Apr 28, 2026 | Fund Letters | Pzena Focused Value strategy | CDW | CDW Corporation | Information Technology Services | Technology Hardware, Storage & Peripherals | Bull | NASDAQ | AI Adaptation, market leadership, portfolio expansion, technology distribution, Technology Reseller, value-added services | Login |
| Aug 25, 2025 | Fund Letters | Daniel L. Babkes | GPN | Global Payments Inc. | Financials | Transaction & Payment Processing Services | Bull | New York Stock Exchange | acquisition, Genius, M&A, Payments, Point of Sale, scale, Worldpay | Login |
| Aug 25, 2025 | Fund Letters | Daniel L. Babkes | OSK | Oshkosh Corporation | Industrials | Construction Machinery & Heavy Trucks | Bull | New York Stock Exchange | Aerial Work Platforms, AWP, Cyclical, Defense, Postal Contract, Replacement Cycle, Underearning | Login |
| Aug 25, 2025 | Fund Letters | Daniel L. Babkes | DG | Dollar General Corporation | Consumer Discretionary | General Merchandise Stores | Bull | New York Stock Exchange | discount retail, Inventory Control, Margins, Middle-Income Consumer, Shrink, tariffs, Trade-down | Login |
| Jun 30, 2025 | Fund Letters | Pzena Focused Value strategy | OSK | Oshkosh Corporation | Industrials | Machinery | Bull | NYSE | Aerial Work Platforms, Cyclical Recovery, Defense Contractor, Industrial Equipment, manufacturing, Postal Vehicles, Replacement Cycle, Vocational Vehicles | Login |
| TICKER | COMMENTARY |
|---|---|
| HUM | Medical insurer Humana rose sharply, more than recovering its prior-quarter decline after strong first-quarter results driven by favorable medical cost trends and no evidence of the feared adverse selection associated with the company's substantial membership growth. |
| CVS | Health insurer and retail pharmacy operator CVS Health also benefited from moderating medical cost trends and continued retail pharmacy growth, with its pharmacy benefit manager operations proving resilient. |
| BAX | Medical products manufacturer Baxter International rebounded from last quarter's decline on solid results and the absence of meaningful impact from higher oil prices, which subsequently declined. |
| CTSH | IT services companies Cognizant and Accenture declined materially following weaker organic growth guidance and, in Accenture's case, the announcement of increased future acquisitions. The market continues to assess the long-term implications of AI-driven disruption on IT services business models and the near-term shift in client spending toward AI-related token consumption at the expense of services spending. |
| ACN | IT services companies Cognizant and Accenture declined materially following weaker organic growth guidance and, in Accenture's case, the announcement of increased future acquisitions. The market continues to assess the long-term implications of AI-driven disruption on IT services business models and the near-term shift in client spending toward AI-related token consumption at the expense of services spending. |
| WDAY | We initiated a position in Workday, a leading enterprise resource planning (ERP) software company integrating human resources and financial management into a cloud-native platform. Workday's products are highly sticky, with gross revenue retention approaching 98%, reflecting their deep integration into core workflows such as accounts payable, payroll, tax, and financial reporting. We established the position following the broader software sell-off driven by concerns over AI disruption. We believe the mission-critical nature of Workday's offerings is underappreciated by the market, and we see a significant opportunity for AI-driven margin expansion, including in software development. |
| CDW | We increased our position in IT solutions distributor CDW, which sold off sharply due to near-term margin pressure from a mix shift toward hardware despite solid revenue growth. |
| C | We funded these purchases by trimming electronic components distributor Avnet and money center bank Citigroup, following strong performance. |
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