The curated database of hedge funds that publish investor letters. Research by geography, strategy, and schools of thought.
| # | Fund | Strategy | Style | Geography | AUM | Latest Letter |
|---|---|---|---|---|---|---|
The Hotchkis & Wiley Small Cap Value Fund returned 7.51% in Q2 2026, underperforming the Russell 2000 Value Index which returned 17.19%. The quarter was characterized by a speculative, low-quality rally driven by AI euphoria, with the semiconductor industry returning 112% despite comprising only 3% of the benchmark. The highest-beta and highest-momentum stocks dramatically outperformed quality businesses, with companies in the lowest quintile of return on invested capital outperforming those in the highest quintile by 45 percentage points—a spread nearly three standard deviations wide. Investor leverage spiked through margin debt and leveraged instruments. The fund's underperformance was driven primarily by what it did not own rather than what it did, particularly the avoidance of semiconductor names in favor of profitable software businesses. The manager questions the sustainability of the $850 billion AI data center capex spend if revenue payoffs disappoint. The team remains disciplined and long-term focused, believing the quality businesses owned are well positioned for reversion when euphoria gives way to rational fundamentals and valuation discipline.
The Hotchkis & Wiley Small Cap Value Fund maintains a disciplined focus on quality businesses with strong balance sheets, shareholder-friendly management, and attractive valuations that provide a margin of safety, positioning the portfolio for a reversion from the current AI-driven speculative mania to rational fundamentals.
The manager expects the current speculative mania to revert when euphoria gives way to rational fundamentals and valuation discipline. History suggests these short-term speculative episodes are relatively short-lived. The manager believes the quality businesses owned by the fund—attractively valued, well capitalized, and prudently managed—are well positioned for this reversion. The team remains disciplined and long-term focused despite near-term underperformance.
As of Jul 28, 2026
The Small Cap Value Fund targets capital appreciation by normally investing at least 80% of its net assets plus borrowings for investment purposes in equity securities of small capitalization companies, defined as those with market capitalizations similar to the Russell 2000® Index. The fund maintains a concentrated approach with 50-80 stocks, 96% Active Share, and strong value characteristics including a Price/Normal Earnings ratio of 6.9x versus 12.2x for the Russell 2000 Value index.
Disciplined, independent analysis is the key to finding undervalued securities. The fund builds a concentrated portfolio that targets undervalued small cap stocks that are out of favor and often underfollowed by Wall Street research. Seeking smaller companies with strong balance sheets and attractive assets, the Fund strives to outperform the Russell 2000 Value Index over a full market cycle. The investment approach focuses on companies that are often overlooked or misunderstood and that trade at a significant discount to intrinsic value.
Moderate Conviction Bullish
Market Conviction
The fund demonstrates moderate-high conviction through its concentrated top ten holdings (totaling approximately 39.7% of assets) and willingness to accept significant underperformance rather than abandon its quality and valuation discipline. The manager articulates a clear thesis about quality businesses and mean reversion, uses declarative language about maintaining discipline, and explicitly sized the top ten positions. However, the absence of individual position-level commentary beyond percentage weights and the diversified nature beyond the top holdings (60% in other positions) prevents a higher score. The conviction is in the process and discipline rather than in specific named catalysts or timeframes for individual holdings.
Growth Outlook
Market outlook remains low conviction: The fund underperformed in 2025 due to a speculative, retail-driven rally of unprofitable companies, but the managers expect a sharp, fundamental-driven market correction to restor...
Risk Appetite
Risk appetite posture is low conviction: The fund underperformed in 2025 due to a speculative, retail-driven rally of unprofitable companies, but the managers expect a sharp, fundamental-driven market correction to restor...
Capital Deployment
The letter provides no explicit cash level data or discussion of net deployment activity. The manager describes maintaining positions in quality businesses and avoiding semiconductor speculation, which suggests capital rotation rather than net deployment or de-risking. The fund's underperformance came from 'what the portfolio did not own' rather than selling activity, and there is no mention of raising cash or adding leverage. The stance appears to be holding steady with selective rotation, scoring slightly negative due to the defensive posture and lack of deployment language.
Forward Guidance
Forward guidance signal: The fund underperformed in 2025 due to a speculative, retail-driven rally of unprofitable companies, but the managers expect a sharp, fundamental-driven market correction to restor...
Language Signal
The letter is dominated by risk and caution language: 'speculative,' 'mania,' 'euphoria,' 'near-record extremes,' 'question whether sustainable,' 'signs are hard to miss,' and warnings about leverage spikes. While there is some positive language about the fund's quality holdings being 'well positioned for reversion,' the overwhelming directional language is bearish on current market conditions. The ratio of cautionary to constructive language is approximately 3:1.
Perceived Risk
Perceived risk level is evaluated as high conviction. The fund underperformed in 2025 due to a speculative, retail-driven rally of unprofitable companies, but the managers expect a sharp, fundamental-driven market correction to restor...
Opportunity Density
The manager views the current opportunity set as sparse and challenging. The letter emphasizes the difficulty of finding attractive investments in the current speculative environment, with quality businesses underperforming dramatically. The manager's focus on maintaining discipline and waiting for reversion rather than finding new opportunities suggests limited attractive options at current valuations. The statement that 'quarters like this are an inherent feature of an investment approach centered on quality and valuation' implies the manager is not finding compelling new ideas that meet their criteria.
Time Horizon
The manager demonstrates a multi-year time horizon with explicit patience for mean reversion. The letter states the team 'remains disciplined and long-term focused' and expects quality businesses to be 'well positioned' when fundamentals reassert themselves. The willingness to accept significant quarterly underperformance while maintaining conviction in quality businesses indicates a 2-5 year outlook. However, the letter does not describe a permanent capital structure or decade-plus horizon, and there is some implicit catalyst dependency on the reversion of the current speculative mania, preventing a higher score.
Top Conviction Themes
Key Catalysts
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