| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 8.7% | 4.5% | 17.1% |
| 2025 | 2024 |
|---|---|
| 17.1% | 12.8% |
Hotchkis & Wiley's Large Cap Disciplined Value Fund outperformed the Russell 1000 Value Index in Q4 2025, returning 4.5% versus 3.8% for the benchmark. The fund's core thesis centers on identifying undervalued, high-quality businesses while avoiding the elevated valuations of market leaders. The S&P 500's forward P/E of 26x ranks in the 97th percentile since 1990, but opportunities remain abundant outside the Magnificent 7 stocks. The portfolio trades at 13x forward earnings, significantly below market levels. Software represents the largest sector exposure, with major purchases in Workday and Salesforce based on attractive valuations despite superior business quality. The fund remains overweight healthcare and energy, both trading at historical valuation discounts. Banking exposure contributed strongly to performance with nearly 40% returns for the year. Key risks include elevated market valuations and rising capital intensity challenging growth narratives. The manager maintains an optimistic outlook on portfolio positioning relative to the expensive broad market, having improved the risk profile without sacrificing return potential.
The fund targets undervalued, high-quality businesses trading at attractive valuations relative to their fundamentals, with particular focus on software companies with sticky customer bases, healthcare businesses trading at historical discounts, and select financial services companies, while avoiding the elevated valuations of market-leading technology stocks.
The manager remains optimistic about the portfolio's positioning and prospects, particularly relative to the broad market which they view as expensive. They believe the portfolio is well-positioned with attractive valuations in select areas outside of the highly concentrated market leaders.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 29 2026 | 2025 Q4 | AIG, APA, C, CMCSA, CRM, CRWD, CVS, ERIC, FDX, FFIV, FISV, GM, NFLX, PLTR, UNH, WBD, WDAY, WPP | banks, energy, financials, healthcare, large cap, software, valuation, value | - | The portfolio trades at 13x forward earnings and less than 10x normal earnings, both in line with historical averages. The manager emphasizes attractive valuations outside… |
| Oct 28 2025 | 2025 Q3 | AIG, APA, C, CMCSA, WBD, WPP LN | Energy E&P, Fed Funds, Market Concentration, S&P 500, Value Stocks | - | Rates: A 25 bps Fed rate cut with inflation near 3% supported multiples and risk appetite. Valuation: The S&P 500 traded at historically high forward… |
| Jul 27 2025 | 2025 Q2 | APA, C, FFIV, KHC, NOV, UNH | active management, healthcare, Large Caps, Value Investing | - | - |
| Mar 31 2025 | 2025 Q1 | AIG, CVS, ELV, GOOG, MGA, OLN | - | - | - |
| Dec 31 2024 | 2024 Q4 | CVS, ELV, FFIV, GM, OLN, WFC | - | - | - |
| Sep 30 2024 | 2024 Q3 | APA, ERIC, GM, NOV, UL | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
EnergyEnergy plays a critical role in AI infrastructure economics, with data centers becoming major electricity consumers. Rising power costs compress margins while grid constraints and regulatory scrutiny influence deployment timelines. The manager emphasizes that unlike software-driven growth, AI compute cannot be scaled independently of physical energy reality. |
Data Centers Grid Power Infrastructure Utilities |
FinancialsEuropean banks have been rehabilitated after years in purgatory, with returns of 77% in 2025. Return on equity has normalized above 12% following exit from ultra-low rates, while capital positions have been rebuilt. However, supportive factors are well-appreciated by markets, reflected in significant valuation re-rating. |
Banks Return On Equity Interest Rates Capital Valuations | |
HealthcareHealthcare was the strongest relative contributor in the quarter with holdings increasing nearly +16% compared to benchmark returns of roughly +12%. Exact Sciences was acquired for a significant premium by Abbott Laboratories resulting in an +86% return, while other strong performers included Tarsus Pharmaceuticals, Glaukos following approval of a new product, Penumbra, and Repligen driven by strong earnings results. |
M&A Product Approval Earnings Biotech | |
Software |
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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 |
EnergyBHE operates regulated utilities serving 5.4 million customers and natural gas pipelines. The business faces significant investment needs driven by AI computing demand and wildfire risk mitigation, particularly in the Western U.S. |
Regulated Utilities Natural Gas Renewable Energy Grid Infrastructure |
| 2025 Q2 |
Active ManagementDavis advocates for active management over passive indexing given stretched valuations in major indexes. They believe active managers can be selective at the security level and maintain rational diversification, contrasting with passive indexes where weightings are determined by share price momentum. |
Active Passive Indexing Selectivity Diversification |
Large Caps |
||
Value Investing |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| No Elevator Pitches found | ||||||||||
| TICKER | COMMENTARY |
|---|---|
| AIG | Property and casualty insurer American International Group (AIG) reported better-than-expected earnings, with strong expense management and share repurchases offsetting a weakening pricing environment. Shares also benefited from reports that fellow insurer Chubb is exploring a potential acquisition of the company. |
| C | Money center bank Citigroup rose amid strong capital markets activity and benign credit conditions. The company continued to repurchase stock and return capital to shareholders, while expenses related to its transformation are expected to decline next year. |
| CMCSA | Within the portfolio, stocks like AutoZone, Comcast, and Zoetis were all punished for having perceived headwinds to already lowered expectations for growth. |
| CRM | By looking at their Rnancials, FactSet, PayPal, Adobe, and Salesforce seem to be doing Rne. The market, however, is reading subdued revenue growth as a sign of increased competition on their core oSerings. These companies' outlooks look more di'cult than their past. |
| CRWD | CrowdStrike Holdings, Inc. - A year and a half since the famous outage that grounded planes and impacted a broad array of the company's customers, we can conclude that management has done an excellent job in the aftermath of the outage. The company is now seeing a reacceleration in net new annualized recurring revenues (ARR), which accelerated to 73% growth year-on-year in the third quarter. |
| CVS | CVS Health represents 2.02% of top holdings |
| ERIC | Ericsson is one of the largest vendors of hardware and software needed to operate wireless networks outside China. Ericsson's earnings are below normal as demand for wireless equipment is low in Japan and India. Management is turning around its mismanaged Cloud Software and Services business. We believe valuation is attractive even if Ericsson's competitors do not lose market share due to political or scale problems, but there is substantial additional upside if these possible outcomes occur. Ericsson's stock outperformed as the company signaled a pivot towards returning more capital to shareholders and 3Q25 results were modestly better than expected: company gross margins and the Cloud Software and Services business continued to improve. |
| FDX | As strong as the banks were, parcel delivery companies were even stronger, with FedEx Corp (FDX) at +23% pacing the Fund for the quarter. FedEx delivered a sizable beat-and-raise quarterly performance, and higher contracted rates appear to be sticking, even as fuel prices have declined. |
| FFIV | F5 Inc. is a global provider of application delivery, security, and performance solutions that help enterprises run and protect applications across hybrid and multi-cloud environments. Shares fell after the company disclosed that state-backed hackers from China had breached its networks and gained access to certain files from the company's BIG-IP application services. While the direct impact of the breach has been limited – no sensitive customer data was leaked and F5's operations were not impacted – management expects a modest impact to new bookings in the near term as customers are currently focused on evaluating the security posture of existing IT assets rather than buying new products. In response to the breach, F5 offered weak guidance for next quarter, and consensus earnings expectations have declined 7% for 2026 relative to pre-breach levels. While the breach may have a near-term impact on profit growth, our research suggests that the impact of security breaches at similar IT vendors have been short-lived and have very rarely led to impairment of long-term earnings power. Also, F5's strong free cash flow, net cash balance sheet, and high switching costs should help protect the company from any near-term impacts to bookings that may occur this year. We believe F5 should be able to grow revenue in the high-single-digits for many years given the strong tailwinds the company is seeing related to data center modernization and application traffic growth and limited competition in its core markets. Now trading at about 10x our estimate of next year's normal operating profit, F5's shares offer a very attractive risk/reward outlook, in our opinion. |
| FISV | Fiserv is a financial technology company that provides payments and other solutions to merchants and financial institutions. The company's scale, diversification, and ability to compound earnings at a double-digit rate make current valuation attractive. There was a sharp reset in Q3, with the FY25 outlook cut materially after a large miss versus expectations concentrated in the Financial Solutions segment, where both topline growth and profitability disappointed. While 2026 guidance has not been formally introduced, the new CEO framed FY26 as a transition year that resets the long-term growth algorithm to a lower baseline. Once earnings stabilize, we believe Fiserv offers a combination of strong topline growth, margin expansion, and cash generation. |
| GM | For insight into the real economy operating beneath this AI and data center boom, we must look elsewhere within the S&P 500, including bellwethers like General Motors |
| NFLX | NFLX was the portfolio's largest detractor in 4Q25 following investor concerns around near-term subscriber growth and rising content spending. While revenue grew approximately 10% year-over-year, management guided to slower net subscriber additions in North America and Europe after recent price increases, and margins were pressured by elevated investment in live sports and international content. |
| PLTR | The top three contributors to this outperformance came from Palantir Technologies (US Defense) |
| UNH | We also added back a full position in UnitedHealth |
| WBD | Warner Bros Discovery (WBD) was the top contributor during the quarter. The U.S.-headquartered media company's stock price surged as multiple parties submitted offers to acquire all or part of the business. Following several rounds of bidding, WBD announced an agreement to sell its Streaming and Studios business to Netflix, while spinning the Global Networks business to shareholders. Paramount Skydance subsequently made a direct $30 per share offer to shareholders for the entire company. We are pleased with the steps the WBD board has taken thus far to unlock shareholder value. We will continue to closely monitor developments as this bidding war unfolds. |
| WDAY | Finally, we have exited our relatively small position in Workday. The company's growth has decelerated the past few quarters and the Financials segment of the business (~25% of sales) is growing slower than we believe it should be. This is a company we may revisit at a later date but, for now, feel that we have better opportunities in other areas of the portfolio. |
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