| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 10.9% | 2.4% | 7.8% |
| 2025 | 2024 |
|---|---|
| 7.9% | 3.6% |
The Hotchkis & Wiley Mid-Cap Value Fund returned 2.39% in Q4 2025, bringing full-year returns to 7.87%, underperforming the Russell Midcap Value Index's 11.05% annual return. The managers maintain a contrarian stance, viewing current market valuations as elevated with the Russell Midcap trading at nearly 21x forward earnings compared to their portfolio's 11x multiple. The fund maintains notable overweight positions in oil & gas exploration/production companies, banks, auto suppliers, and health insurers, all trading at attractive valuations with strong fundamentals. Key contributors included Ericsson, Herbalife, and Baytex Energy, while detractors included Kosmos Energy, Adient, and F5 due to company-specific challenges. The managers believe their energy holdings offer compelling free cash flow yields despite temporary oversupply concerns, while their financial sector positions benefit from scale advantages and healthy capital ratios. Looking forward, they remain optimistic about portfolio positioning relative to an expensive broader market, expecting opportunities from a renewed capital investment cycle and structural supply constraints in commodities.
The fund focuses on undervalued mid-cap companies trading at attractive multiples while the broader market trades at elevated valuations, with particular emphasis on energy, financials, and auto suppliers that offer compelling risk-adjusted returns.
We remain optimistic about the portfolio's positioning and prospects, particularly relative to the broad market which we view as expensive.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 29 2026 | 2025 Q4 | ADNT, AIG, APA, BPOP, BTE.TO, CFG, ERIC, FFIV, FLR, HLF, KOS, MGA, OLN | Banking, energy, financials, mid cap, multiples, oil, valuation, value | - | The portfolio trades at 11x forward earnings and close to 6x normal earnings, both in line with historical averages, while the broad market trades at elevated valuations with the Russell Midcap's forward P/E at nearly 21x. The fund focuses on attractively valued companies with single digit earnings multiples and strong free cash flow yields. The fund maintains notable overweight exposure to oil & gas exploration/production companies that produce free cash flow yields well into the double digits. The managers view the oil market as having structural supply constraints and believe these companies represent a rare opportunity despite temporary oversupply concerns. The portfolio has notable overweight exposure to banks that exhibit attractive valuations, particularly considering their scale advantages and healthy capital ratios. Traditional/regional banks and trust banks performed well during the quarter, helping relative performance. |
| Oct 28 2025 | 2025 Q3 | APA, CNC, FLR, OLN, WBD, WPP LN | Artificial Intelligence, earnings, energy, interest rates, Value Investing | - | The fund benefited from improving breadth in U.S. equities as AI optimism, Fed easing, and strong corporate earnings drove performance. Managers expect the environment to favor disciplined valuation strategies as rates decline and AI-related spending broadens across sectors. Energy, financials, and select consumer names contributed most, while technology and industrials detracted modestly amid cyclical volatility. |
| Jul 27 2025 | 2025 Q2 | ADNT, APA, BPOP, FLR, KOS, OLN | Balance Sheets, cyclicals, energy, free cash flow, normalization | - | The commentary highlights energy and cyclical exposure as key differentiators, with normalized earnings and free cash flow offering long-term upside. Despite short-term volatility, select mid-cap businesses are viewed as undervalued relative to fundamentals. Risk management and balance sheet strength remain central to the strategy. |
| Mar 31 2025 | 2025 Q1 | ADNT, AIG, CVS, FFIV, FLR, KOS | - | - | |
| Dec 31 2024 | 2024 Q4 | ADNT, CRGY, ERIC, FFIV, KOS, OLN | - | - | |
| Sep 30 2024 | 2024 Q3 | ADNT, APA, CNO, ERIC, FFIV, KOS | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
OilOil markets disrupted by closure of Straits of Hormuz affecting 20% of global production. Prices surged from $70 to $119.50 before retreating to $90. Market may be tighter than commonly believed despite IEA projections of surplus. Oil represents cheapest major asset class globally, trading at near-record lows relative to gold. |
Crude Brent WTI Hormuz Supply |
Regional BanksFlagstar has exceptional management and board that are ahead of the game in turning their business around after balance sheet issues. Trading at significant discount to conservatively marked balance sheet compared to similar banks. |
Banks Turnaround Value | |
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 |
AIAI has been integrated into RGA's research process through tools like NotebookLM, Gems in Gemini, and Claude Code. The firm views AI as a force multiplier for human judgment rather than a replacement, emphasizing the Kasparov Law principle. They believe the market narrative around AI displacement is swinging to unhelpful extremes, creating investment opportunities. |
Machine Learning Automation Software Productivity Innovation |
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 | |
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 |
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 |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| No Elevator Pitches found | ||||||||||
| TICKER | COMMENTARY |
|---|---|
| ADNT | Automotive seat manufacturer Adient also detracted after reporting guidance for the coming year that was weaker than peers, reflecting customer expectations rather than share losses or internal challenges. |
| 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. |
| BTE.TO | Baytex Energy Co. (BTE CN) is a Canadian independent exploration/production with the majority of its production in Canada after the recent divestment of its US Eagle Ford operations. The company's stock outperformed over the quarter following its sale of its US assets for a valuation higher than market expectations. The sale allows BTE to focus on its Canadian operations, improves the company's cost structure, and results in a net cash balance sheet, supporting stock buybacks. |
| 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. |
| 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. |
| FLR | FLR owned the majority of SMR, which essentially went parabolic. We anticipated FLR would dispose of its SMR stake and use the proceeds to repurchase its own shares, and this is exactly what is happening. The result of the heavy sales by FLR combined with SMR's very speculative valuation has led to a sharp decline in SMR, while FLR has been largely stable. |
| HLF | Herbalife (HLF US) is the second largest multi-level marketing business in the world. The company's brand and portfolio are focused on wellness, with meal-replacement weight loss products as their largest category, followed by supplements, energy products, and other products, including promotional items for its distributors. Herbalife's stock outperformed after the company reported 3Q25 results at the high-end of guidance. The results showed early signs that the business has stabilized, and the turnaround is gaining traction. |
| KOS | Kosmos Energy Ltd. (KOS US) is an independent offshore exploration/production with producing assets in the US Gulf of Mexico, Ghana, and Equatorial Guinea. It also holds a stake in an LNG development offshore Mauritania/Senegal in partnership with BP. KOS trades at a discount to the value of its existing production, providing a margin of safety. The market underappreciates its visible growth pipeline, including near-term LNG developments and brownfield expansions. With deep technical expertise and a strong offshore operating platform, KOS is well-positioned to unlock additional value through exploration and disciplined acquisitions. KOS shares fell over the quarter along with increased investor concerns over an oversupplied oil market in 2026. Additionally, Kosmos' partner in the Jubilee field, Tullow, provided what we believe is an overly conservative 2026 production forecast. The combination of these events increased investor scrutiny over Kosmos' 2026 debt maturity. Post year-end, Kosmos announced the payment of their 2026 bonds as well as a financing strategy for refinancing future maturities. We continue to believe the stock is undervalued relative to its normalized earnings power and think the upside remains compelling. |
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