| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 0% | 0% |
Momentum stocks delivered exceptional returns across developed markets in 2025, with outperformance of 17 percentage points in the U.S. and 22 percentage points in non-U.S. developed markets. Since Liberation Day, leadership has become increasingly speculative, with meme stocks, SPACs, and unprofitable companies driving performance rather than fundamentals. This mirrors historical patterns where momentum cycles become detached from underlying business quality. The current environment shows elevated momentum readings, particularly in Europe at the 99th percentile, while emerging markets have shown more moderate momentum performance. Valuation spreads have widened significantly as capital flows toward speculative opportunities, leaving high-quality companies behind. Historical analysis demonstrates that extreme momentum periods have typically created attractive long-term opportunities for value-oriented investors. After such periods, cheap stocks have historically outperformed meaningfully over subsequent five years while expensive stocks struggled as expectations reset. The firm views the current backdrop as reinforcing the case for patience, selectivity, and emphasis on fundamentals as market dispersion creates opportunity for disciplined value investors.
Momentum has dominated global equity markets in 2025, but the increasingly speculative nature of leadership since Liberation Day, combined with widening valuation spreads, creates an opportunistic setup for patient value investors focused on fundamentals.
The current backdrop reinforces the case for patience and selectivity, with an emphasis on fundamentals as dispersion creates opportunity for value-oriented investors.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 15 2026 | 2025 Q4 | - | EAFE, emerging markets, global, momentum, Speculation, valuation, value | - | Momentum dominated global markets in 2025 with extreme outperformance, but leadership has turned increasingly speculative since Liberation Day. Meme stocks, SPACs, and unprofitable companies now drive returns over fundamentals. Historical patterns suggest such extreme momentum periods create attractive long-term opportunities for patient value investors as valuation spreads widen and quality companies get left behind. |
| Oct 14 2025 | 2025 Q3 | 005930.KS, AAPL, AMZN, BABA, BAX, BIDU, CHTR, GOOGL, LKQ, META, MSFT, NVDA, SCS, SHEL, SPB, TEP.PA, TSLA, TSM, WIZZ.L, WNS | AI, global, Outperformance, portfolios, small caps, value |
BAX TPN SPB WIZZ |
Pzena sees a compelling small-cap opportunity as these stocks trade near historic lows relative to large caps despite superior fundamentals. The Magnificent Seven's dominance created extreme concentration, but small caps generated higher free cash flow growth over the past decade. Historical patterns suggest current valuation gaps often precede multi-year small-cap outperformance cycles. |
| Jul 31 2025 | 2025 Q2 | - | Discipline, global, History, long-term, value, volatility | - | Pzena's analysis of 17 volatility episodes confirms that while value stocks underperform during market stress, they significantly outperform over subsequent five years. The second quarter's volatility from trade wars and geopolitical tensions creates opportunities for disciplined value investors to capitalize on fear-driven selloffs, as recovery typically begins before uncertainty clears. |
| Mar 31 2025 | 2025 Q1 | 005930.KS, AKE.PA, BABA, BAER.SW, BAX, BIRG.L, CABK.MC, CVS, DOW, GSK.L, HUN, KOP, ML.PA, NVDA, NVTA, SBRY.L, TCEHY, TESCO.L, TSM, TSMC, UIS | AI, Banking, Chemicals, Europe, risk management, semiconductors, tariffs, value | 005930.KS | Pzena's value strategies showed mixed Q1 performance amid tariff-driven volatility. The firm trimmed AI and financial winners while adding to beaten-down chemicals and European banks. Their systematic risk framework guides tariff impact assessment across holdings. Samsung highlighted as memory cycle recovery play. European markets outperformed on stimulus hopes, reinforcing the firm's global value discipline. |
| Dec 31 2024 | 2024 Q4 | AAPL, AMZN, C, CSCO, GE, GOOGL, IBM, INTC, META, MSFT, NVDA, TSLA, WMT, XOM | active management, AI, Concentration, growth, large cap, value | - | Market concentration has hit 60-year highs with 10 stocks driving 62% of U.S. performance, creating headwinds for value investing. However, expected earnings convergence between the Magnificent Seven and broader market should reverse this trend. Historical patterns show value significantly outperforms when concentration declines, positioning active managers for better performance ahead. |
| Oct 15 2024 | 2024 Q3 | - | Discipline, drawdowns, long-term, Patience, value | - | Pzena demonstrates that value investing's superior long-term returns come through disciplined patience during inevitable drawdowns. Using 50 years of data, they prove value stocks recover faster from market stress and outperform over extended periods, dispelling the myth that value is inherently riskier than other investment approaches. |
| Jul 22 2024 | 2024 Q2 | - | Concentration, earnings, Equal Weight, growth, Mega Cap, Performance, value | - | Pzena sees compelling value opportunities amid extreme market concentration in mega-cap growth stocks. Value underperformed growth by 1,000+ basis points in H1 2024, while their portfolio maintains strong fundamentals at attractive 9x forward earnings. Historical patterns suggest dramatic reversals following such extreme concentration periods, creating attractive entry points for disciplined value investors. |
| Apr 15 2024 | 2024 Q1 | NVDA, TSM | China, emerging markets, Gdp, Geopolitical, Property, value | - | Pzena sees compelling value in Chinese equities trading at deeply discounted valuations despite solid fundamentals. The firm increased Chinese exposure to 33.2% in emerging markets portfolios, believing markets are overpricing temporary macro headwinds and geopolitical risks. With Chinese stocks offering comparable metrics to EM peers at far cheaper valuations, they view current prices as attractive entry points for disciplined value investors. |
| Jan 25 2024 | 2023 Q4 | AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA | Bonds, Earnings Yield, ERP, multiples, rates, value | - | Pzena advocates for value investing in the current low equity risk premium environment. Value stocks historically outperform during such periods and currently offer superior 13.2% earnings yields versus 5.0% for growth stocks and 3.9% for bonds. Rising rates threaten expensive stock multiples while value stocks maintain consistent valuations, making them attractive for long-term investors. |
| Oct 17 2023 | 2023 Q3 | - | Indexing, Investing, returns, risk, value, volatility | - | Pzena demonstrates that pure value investing in the cheapest quintile of stocks delivers superior long-term returns versus growth and value-light strategies. Despite higher short-term volatility, value offers better risk-adjusted performance over meaningful time horizons. The firm argues against value indexing and value-light approaches that compromise core value principles. |
| Jul 13 2023 | 2023 Q2 | - | - | - | |
| Sep 4 2023 | 2023 Q1 | - | - | - | |
| Jan 25 2023 | 2022 Q4 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIAI emergence has created market hysteria and broad software sell-offs despite limited real-world automation success. Manager believes dominant vertical software platforms can successfully reinvent themselves for an agentic world and fend off AI-native startups through domain expertise and mission-critical systems integration. |
Artificial Intelligence Software Automation Technology |
SoftwareSoftware sector treated as monolith awaiting AI disruption, but manager sees meaningful differentiation. Incumbents with engineering talent and proprietary data have structural advantages in deploying AI tools. Early adopters historically capture more economic benefits than infrastructure providers. |
Enterprise Software SaaS Technology Vertical Software | |
HotelsChoice Hotels represents asset-light, high-margin opportunity trading at distressed multiples due to cyclical headwinds. Company shifting portfolio toward higher-revenue segments like Extended Stay and international markets while potentially unlocking $700M in balance sheet capital for share buybacks. |
Hospitality Franchising Real Estate Travel | |
ValueManager caught between cutting-edge AI technologies and traditional value industries during market broadening. Software overweight has been a millstone despite being cheaper than traditional value industrial exposure. Focus remains on value-oriented special situations within principled framework. |
Value Investing Special Situations Small Cap | |
| 2025 Q3 |
Small CapsSmall caps trade near historic lows relative to large caps, creating an attractive long-term entry point after years of Magnificent Seven dominance. Despite superior fundamental returns over the past decade, small caps have been driven down by sentiment and multiple compression. History suggests extreme valuation gaps like today's have often been followed by multi-year periods of small-cap outperformance. |
valuation outperformance fundamentals sentiment cycles |
AIAI enthusiasm drove market performance in the quarter, with investors showing continued optimism around artificial intelligence applications. The firm capitalized on AI-driven dislocations, particularly in companies like Teleperformance where AI disruption fears created buying opportunities. Samsung Electronics and other tech companies benefited from AI-related demand expectations. |
disruption technology semiconductors data centers automation | |
ValueValue stocks posted positive returns but broadly lagged growth as investors favored higher-multiple technology and consumer discretionary sectors. The firm's value approach focuses on companies trading at attractive valuations relative to normalized earnings, with the portfolio maintaining significant discounts to benchmarks across multiple strategies. |
multiples earnings discount fundamentals contrarian | |
| 2025 Q2 |
VolatilityThe second quarter experienced significant market volatility driven by trade-war fears and Middle East conflicts. Historical analysis of 17 past volatility episodes shows that while value stocks typically underperform during volatile periods, they significantly outperform over subsequent five-year periods. Volatility arrives swiftly and fades unexpectedly, making timing difficult for investors. |
Market volatility Uncertainty Fear Recovery Timing |
ValueValue stocks historically underperform during volatile periods as investors seek safety, but deliver superior long-term returns following market stress. The study shows value stocks more than double the performance of expensive stocks over five-year periods after volatility episodes. This creates opportunities for disciplined value investors during market selloffs. |
Value investing Undervaluation Long-term returns Outperformance Discipline | |
| 2025 Q1 |
Trade PolicyBroad-based tariffs announced in April created significant market volatility and uncertainty. The firm uses its risk framework to assess tariff impacts on portfolio companies, examining business models, balance sheets, and competitive positioning. Many holdings have reduced Chinese exposure since 2018-2019 tariffs. |
Tariffs Trade War China Manufacturing Supply Chain |
ValueThe firm maintains its disciplined value approach, focusing on the cheapest quintile of stocks with strong business fundamentals and balance sheet strength. European markets remain attractively valued despite recent outperformance, providing diverse opportunities across market cap spectrum. |
Valuation Cheapest Quintile Discipline Fundamentals Europe | |
Semiconductor CycleMemory markets experiencing cyclical downturn with oversupply from COVID-era capacity additions. Samsung navigating DRAM weakness while positioning for HBM growth in AI applications. Industry consolidation among three major players should benefit from eventual recovery. |
Memory DRAM HBM AI Cyclical | |
AIArtificial intelligence driving demand for high-bandwidth memory and specialized chips. Chinese tech companies like Alibaba making progress with competitive AI models. Market concerns about sustainability of AI capital expenditure and potential impact of cheaper models like DeepSeek. |
Artificial Intelligence HBM DeepSeek Cloud Capex | |
ChemicalsGlobal chemical companies underperforming due to extended downcycle, supply-demand imbalances, and Chinese oversupply. Firms adding to positions in Dow, Arkema, and Huntsman on attractive valuations and expectation of eventual recovery in construction and auto end markets. |
Petrochemicals Downcycle Construction Auto China Oversupply | |
EuropeEuropean markets showed strong performance in Q1 driven by fiscal stimulus, ECB dovishness, and rotation from US equities. European banks performing well despite declining interest rates, with strong capital return policies. Region remains attractively valued. |
ECB Stimulus Banks Valuation Rotation | |
| 2024 Q4 |
ValueValue stocks have significantly underperformed during the current period of market concentration, but historically outperform when concentration levels decline. The firm expects value stocks to benefit from earnings convergence between the Magnificent Seven and the broader market. |
Value Underperformance Concentration Convergence Outperformance |
AIThe release of ChatGPT in November 2022 has driven market concentration to 60-year highs, with AI-related companies accounting for significant market performance. The Magnificent Seven's incredible earnings growth has been partly driven by AI investments. |
AI ChatGPT Concentration Earnings Technology | |
| 2024 Q3 |
ValueValue investing requires patience and a long-term perspective. Value stocks have outperformed over longer time horizons and recover faster from drawdowns. The empirical evidence dispels the myth that value is riskier, demonstrating that value stocks exhibit a similar range of five-year outcomes while producing higher average returns. |
Value Outperformance Drawdowns Long-term |
| 2024 Q2 |
ValueValue stocks globally underperformed growth stocks by over 1,000 basis points in the first half of 2024, a rare occurrence seen in less than 5% of rolling six-month periods. True value stocks have not participated in earnings-driven performance despite beating earnings at similar rates to the broader value index. The firm believes value indices are currently poor proxies for value due to index construction issues. |
Value Growth Underperformance Index Earnings |
EarningsThe US market has been highly sensitive to earnings beats and misses over the past several quarters, with stock price impact at a 30-year high. While the market is unusually short-term focused on quarterly results, the firm has not seen significant earnings impairment in their portfolios. Their Global Focused Value portfolio trades at less than 9x next year's earnings with consensus estimating 11% EPS growth. |
Earnings Sensitivity Beats Growth Valuation | |
| 2024 Q1 |
ChinaChinese equities are trading near zero-COVID lockdown valuations despite solid fundamentals, creating opportunities for value investors. The firm has increased Chinese exposure to 33.2% in emerging markets portfolios, up from 22.4% in 4Q20. Valuation multiples have collapsed while many companies display strong financial performance. |
Valuation Fundamentals Exposure Multiples Performance |
ValueThe firm sees a fundamental disconnect between Chinese asset valuations and financial performance, with Chinese value stocks offering comparable metrics to EM peers at far less demanding valuations. Starting point of cheap valuation is viewed as the most reliable determinant of long-term equity performance. |
Disconnect Metrics Multiples Performance Returns | |
Emerging marketsResearch shows that steep performance declines in emerging market countries often sow seeds for significant future alpha generation. China offers the largest and most diverse opportunity set with over 600 stocks spanning 60 industries compared to other developing countries. |
Alpha Opportunity Diversification Industries Performance | |
| 2023 Q4 |
ValueValue stocks have historically outperformed during low equity risk premium periods, significantly outperforming value-light and expensive stocks. Value offers a superior double-digit earnings yield of 13.2% compared to the broader universe and expensive stocks. The firm believes value stocks should be an attractive addition to any portfolio given their far superior earnings yield in the current environment. |
Value Earnings Yield Outperformance Low ERP Price/Book |
RatesRising interest rates to 5% in Q4 2023 have brought down the equity risk premium and made bonds more attractive relative to stocks. The nearly 40-year decline in interest rates had an outsized impact on expensive stocks through multiple expansion. If rates move higher again, expensive stock multiples could contract consistent with historical performance in low ERP periods. |
Interest Rates Treasury Yield Multiple Expansion Bond Yields ERP | |
| 2023 Q3 |
ValueValue investing has generated superior returns compared to all other styles including value-light strategies. The document demonstrates that value stocks outperform over longer time periods with better risk-adjusted returns. True value investing requires purchasing the cheapest quintile of stocks rather than value-light approaches that sacrifice core value principles. |
Value Outperformance Risk-adjusted Cheapest Returns |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 14, 2025 | Fund Letters | Daniel L. Babkes | BAX | Baxter International Inc. | Health Care | Medical Instruments & Supplies | Bull | NYSE | Hospitals, Margins, Medical devices, recovery, turnaround, value investing | Login |
| Oct 14, 2025 | Fund Letters | Daniel L. Babkes | TPN | TELEPERFORMANCE SE | Financials | Professional Services | Bull | - | AI, Customer service, Outsourcing, turnaround, Value | Login |
| Oct 14, 2025 | Fund Letters | Daniel L. Babkes | SPB | Spectrum Brands Holdings Inc. | Consumer Staples | Consumer Products | Bull | NYSE | brands, consumer, Re-rating, tariffs, valuation | Login |
| Oct 14, 2025 | Fund Letters | Daniel L. Babkes | WIZZ | Wizz Air Holdings Plc | Industrials | Airlines | Bull | - | Airlines, Aviation, Engines, Europe, recovery | Login |
| - | Fund Letters | Pzena Investment Management | 005930.KS | Samsung Electronics | Technology Hardware & Equipment | Technology Hardware, Storage & Peripherals | Bull | Korea Stock Exchange | AI infrastructure, consumer electronics, Cyclical Recovery, DRAM, HBM, Market Share Leader, memory chips, OLED Displays, oligopoly, semiconductors, Smartphones, South Korea, technology hardware | Login |
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