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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Hotchkis & Wiley Small Cap Value Fund 2025 Q1 Investor Letter | Buyside Digest

Back to Fund Profile (Hotchkis & Wiley Small Cap Value Fund)

Primary Source Intelligence • Q1 2025 Letter Analysis

Hotchkis & Wiley Small Cap Value Fund Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Hotchkis & Wiley Small Cap Value Fund. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

QTD-6.79%

YTD-6.79%

Annualized+10.87%

Positioning StanceConstructive

Market CapSmallCap

GeographyUS

Digest Analysis

Quick Take

"Small cap value manager maintains bottom-up approach despite Q1 2025 market decline. Russell 2000 down 17% from post-election highs on recession fears and tariff concerns."

Executive Summary

The Hotchkis & Wiley Small Cap Value Fund employs a bottom-up value approach, seeking good companies with strong balance sheets and attractive valuations in the small cap space. The fund outperformed the Russell 2000 Value Index in Q1 2025 despite challenging market conditions. US small cap stocks initially surged post-election on expectations of deregulation, lower corporate taxes, and supply chain reshoring, but sentiment darkened in Q1 2025 due to tariff concerns, persistent inflation, and recession fears. The Russell 2000 declined 9.5% in the quarter and is down 17% from post-election highs. The manager believes this sell-off has created opportunities, as small cap valuations are now in line with historical averages. Stock selection was positive in technology, energy, financials, healthcare, and industrials. The manager expects fundamentals to eventually drive market performance, benefiting their approach of owning fundamentally sound but currently shunned companies. They believe the current environment of realistic pricing rather than perfection pricing will be conducive to their value-oriented investment strategy.

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Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

75%

CautiousHigh

High Conviction (75%)

The manager demonstrates high conviction in their value-oriented, bottom-up approach. They clearly articulate their investment philosophy and express confidence that their strategy will benefit from the current environment where fundamentals should drive performance rather than momentum.

Growth Outlook

38%

BearishBullish

Neutral (38%)

The manager acknowledges significant market challenges including recession concerns, tariff impacts, and persistent inflation, but also sees this as creating opportunities. The tone is cautious but not deeply pessimistic, with recognition that current valuations may present value opportunities.

Risk Appetite

10%

DefensiveAggressive

Defensive (10%)

The manager maintains their bottom-up value approach and appears positioned to take advantage of current market conditions. They express confidence in their strategy and suggest the current environment could be conducive to their investment approach, indicating a slightly positive risk appetite.

Capital Deployment

0%

De-riskingDeploying

De-risking (0%)

No specific information is provided about cash levels, position sizing changes, or capital deployment activities. The manager discusses their ongoing approach but doesn't indicate significant changes in deployment strategy.

Forward Guidance

20%

CautiousExpansionary

Cautious (20%)

The manager expresses optimism about their investment approach being well-suited for the current environment. They believe fundamentals will eventually drive performance and that shunned companies will be better appreciated, suggesting a constructive forward outlook.

Language Signal

45%

BearishBullish

Balanced (45%)

Language includes both negative terms like 'recession', 'concerns', 'darkened mood', and 'sell-off', balanced with positive terms like 'opportunities', 'outperformed', and 'conducive'. The net balance is slightly negative due to the economic concerns discussed.

Perceived Risk

65%

Low RiskElevated

Elevated Risk (65%)

The manager acknowledges significant macroeconomic risks including recession concerns, tariff impacts, persistent inflation, and the potential for small caps to decline further from current levels. However, they frame these as creating opportunities rather than existential threats.

Opportunity Density

70%

ScarceAbundant

Abundant (70%)

The manager sees the current market decline as creating opportunities, particularly in fundamentally sound but currently shunned companies. They believe the environment where fundamentals drive performance will be conducive to finding attractive investments.

Time Horizon

75%

Short-TermLong-Term

Decade+ (75%)

The manager references Ben Graham's concept of the market as a weighing machine in the long-term, suggesting a patient, long-term investment approach. They focus on fundamental value that should be recognized over time rather than short-term catalysts.