| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 12.23% | 5.77% | 16.22% |
| 2025 |
|---|
| 16.2% |
The RS Large Cap Value Strategy delivered strong performance in Q4 2025, returning 5.77% net versus 3.81% for the Russell 1000 Value Index. The team maintains excitement for value investing amid an unusual market dynamic where AI enthusiasm has driven popular indexes higher while creating intriguing opportunities in value-oriented stocks being largely ignored. Value stocks outperformed growth in Q4, with encouraging performance from small-cap value suggesting a potential larger rotation ahead. The Federal Reserve's accommodative pivot with three rate cuts provided market support despite concerning employment data. Key contributors included healthcare and financial sector selections, with notable positions in Sealed Air (acquired by private equity) and Eaton Corporation (benefiting from data center and grid upgrade demand). The team continues focusing on companies with improving ROIC stories trading at discounts to intrinsic value, emphasizing quality businesses with strong balance sheets. Looking ahead, they see opportunities from potential deregulation and favorable M&A conditions while remaining cautious of elevated valuations in many market segments.
The RS Value Team seeks to invest in good companies with strong management teams that are attractively valued, focusing on businesses that can create shareholder value through improving returns on invested capital (ROIC) or attractive reinvestment opportunities.
The team maintains excitement for value investing and believes this is an attractive time to be a value-oriented investor. They see a growing number of companies with improving return stories trading at deep discounts to intrinsic value. The move higher in smaller value-oriented stocks suggests they might be on the cusp of a larger rotation. They maintain a positive outlook on reduced regulatory burdens and a more favorable M&A environment.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Feb 12 2026 | 2025 Q4 | C, CHKP, ETN, GOOGL, KEY, MDLZ, PNC, REGN, SEE, TEVA, ZBRA | AI, Data centers, financials, Grid Upgrade, healthcare, large cap, ROIC, value |
SEE ETN |
AI has been a key theme driving popular equity indexes higher and creating unusual market dynamics with elevated concentration risk. The rapid integration of artificial intelligence may drive significant long-term productivity gains and provide a counterweight to softening employment conditions and inflationary pressures. Value stocks outperformed growth counterparts in Q4, with the Russell 3000 Value Index gaining 3.8% versus 1.1% for growth. The team sees intriguing investment opportunities in value-oriented stocks that are being largely ignored, creating an attractive backdrop for stock pickers. Strong demand for data centers has accelerated sales for companies like Eaton Corporation. The buildout of AI-associated data centers is driving increased demand and margin improvements for companies benefiting from this infrastructure spend. The need for upgraded electric grids has accelerated demand for Eaton's products. The process of electrification and grid investment should provide improvements in ROIC along with additional benefits from AI infrastructure spend. |
| Oct 20 2025 | 2025 Q3 | LKQ, VLO | energy, Quality, ROIC, tariffs, value |
VLO LKQ VLO LKQ |
RS underperformed its benchmark as consumer and industrial names lagged, though holdings like Valero Energy performed well. The team sees long-term value opportunities in companies with strong ROIC and balance sheets amid tariff-driven volatility and moderate inflation. Managers remain focused on quality large caps with improving capital efficiency. |
| Jul 27 2025 | 2025 Q2 | CACI, CPAY | Balance Sheets, downside protection, ROIC, valuation, value | - | The commentary focuses on value investing anchored in improving returns on invested capital rather than headline multiples. Management emphasizes downside protection, balance-sheet quality, and disciplined valuation in an uncertain policy and rate environment. Volatility is viewed as beneficial for active value investors. |
| Mar 31 2025 | 2025 Q1 | ABBV, ZBRA | - | - | |
| Jun 30 2024 | 2024 Q2 | CPAY, TEVA | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
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 |
Data CentersSupply constraints curtailing infrastructure buildout rate, but compute capacity is being used immediately upon coming online. This differs from dot-com bubble when dark fiber was installed ahead of need. Labor, power and land shortages creating bottlenecks. |
Supply Constraints Utilization Bottlenecks Infrastructure | |
Grid UpgradeUtilities are deploying ever-accelerating amounts of capital into grid infrastructure to meet rising electricity demand. S&P 500 Utility Index capex forecasts for 2026 and 2027 increased by 16% and 15% respectively. Higher levels of capital deployed within the regulated utility framework are lifting utility growth profiles. |
Grid Infrastructure Capital Expenditure Regulated Utilities Transmission Power Grid | |
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 |
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 |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 20, 2025 | Fund Letters | Robert J. Harris | VLO | Valero Energy Corporation | Energy | Oil & Gas Refining & Marketing | Bull | NYSE | cashflow, Cost advantage, Decarbonization, Diesel, energy, FCF, Margins, refining, shareholder returns, valuation | Login |
| Oct 20, 2025 | Fund Letters | Robert J. Harris | LKQ | LKQ Corporation | Consumer Discretionary | Auto Parts & Equipment | Bear | NASDAQ | Auto parts, Cost control, Cyclicality, exit, inflation, Margins, Reallocation, Repair, tariffs, Volumes | Login |
| Oct 20, 2025 | Fund Letters | Robert J. Harris | VLO | Valero Energy Corporation | Energy | Oil & Gas Refining & Marketing | Bull | NYSE | cashflow, Cost advantage, Decarbonization, Diesel, energy, FCF, Margins, refining, shareholder returns, valuation | Login |
| Oct 20, 2025 | Fund Letters | Robert J. Harris | LKQ | LKQ Corporation | Consumer Discretionary | Auto Parts & Equipment | Bear | NASDAQ | Auto parts, Cost control, Cyclicality, exit, inflation, Margins, Reallocation, Repair, tariffs, Volumes | Login |
| Feb 12, 2026 | Fund Letters | Robert J. Harris | SEE | Sealed Air Corporation | Materials | Packaging & Containers | Bull | New York Stock Exchange | cashflow, Margins, Packaging, ROIC, takeover, turnaround | Login |
| Feb 12, 2026 | Fund Letters | Robert J. Harris | ETN | Eaton Corporation plc | Industrials | Electrical Components & Equipment | Bull | New York Stock Exchange | AI, datacenters, Electrification, Grid, Margins, ROIC | Login |
| TICKER | COMMENTARY |
|---|---|
| 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. |
| CHKP | Shares of cybersecurity software firm Check Point Software Technologies and food manufacturer Marzetti were sold as prices approached our estimate of intrinsic value. |
| ETN | Eaton's shares pulled back in August following strong performance through July. Like many companies in the industrials complex, Eaton's results did not exceed very high investor expectations. Moving into 2026, we anticipate accelerated growth for the company that is tied to strong trends in data center, aerospace, and defense markets. |
| GOOGL | In the third quarter, Google, Kairos Power, and the Tennessee Valley Authority announced a major collaboration centered on a novel power purchase agreement. Google followed this announcement with another significant step forward. On October 27, Google and NextEra Energy announced plans to restart the Duane Arnold Energy Center. |
| KEY | 0.42% contribution to return |
| MDLZ | Mondelez International is a global snacking powerhouse with leading market share positions in crackers, cookies and chocolate. The brand portfolio houses iconic names like Cadbury, Milka, Toblerone, Oreo and Ritz. Mondelez possesses a unique global footprint that over-indexes to snacking occasions. Snacking is an advantaged category that benefits from robust pricing power, low private label competition and rising per capita consumption. We believe these attributes will help Mondelez sustain industry-leading growth. A rapid rise in commodity costs has temporarily depressed margins, masking the company's true earnings power. We believe Mondelez's strong pricing power and commodity relief will help improve margins. The short-term fears surrounding commodity inflation allowed us to purchase shares at a discounted valuation relative to history, peers and the broader market. |
| PNC | We initiated a preferred perpetual security in this bank holding company due to its robust capital position. |
| REGN | Performance was driven by strength in large-cap longs, specifically Regeneron |
| SEE | Other strong performers included containers and packaging business Sealed Air |
| TEVA | Teva has historically been known for its large generics business but is increasingly focused on growing its innovative pharmaceutical business, which now represents roughly half of the company's profits. Austedo continues to see strong adoption in a significantly underpenetrated and underdiagnosed tardive dyskinesia market, Ajovy has gained share in chronic migraine, and Uzedy has launched successfully in schizophrenia. |
| ZBRA | back in November, Zebra Technologies (ZBRA) hit our insider radar. On the surface, the valuation of the $12.6B business appeared attractive at less than a 14x P/E, a modest debt burden and decent return on incremental invested capital. It looked like a worthwhile investment candidate – but the wheels came flying off when we did our risk review. What these attractive statistics do not tell you is that management had entered into a transformative acquisition of commercial touch screen provider, Elo Touch for $1.3B. The problem, management almost certainly paid too much for a business generating ~$80M in EBITDA (earnings before interest, taxes and depreciation) (press release). At over 16x EBITDA, the acquisition blew out the capital structure with debt and presented significant execution risk resulting in an expected risk-adjusted return well below our threshold of safety. |
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