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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Hotchkis & Wiley Large Cap Fundamental Value 2024 Q3 Investor Letter | Buyside Digest

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Primary Source Intelligence • Q3 2024 Letter Analysis

Hotchkis & Wiley Large Cap Fundamental Value Quarterly Analysis

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

Fund Returns

Annualized+8.9%

Digest Analysis

Quick Take

"Concentrated value strategy with 90%+ active share underperformed in Q3 due to energy exposure amid oil price decline. Manager increased defensive sector allocation while maintaining large financials overweight at attractive valuations."

Executive Summary

Hotchkis & Wiley's Large Cap Fundamental Value strategy delivered a concentrated value approach during Q3 2024, maintaining 90-93% active share relative to benchmarks. The portfolio underperformed the Russell 1000 Value index primarily due to energy sector exposure, where crude oil declined from $82 to $68 per barrel, pressuring holdings like APA Corp and NOV Inc. However, the strategy benefited from strong stock selection in technology and consumer staples, with notable contributors including F5, Ericsson, and Unilever. The manager has strategically increased exposure to defensive sectors—healthcare, consumer staples, and utilities—by 10 percentage points over two years, moving from 16 points underweight to just 3 points underweight. Financials remain the largest sector allocation at 27%, with bank valuations trading at discounts roughly 2 standard deviations wider than historical averages. Healthcare positions trade at attractive 12x normal earnings multiples. The manager views the broad market as richly valued with the S&P 500's 24x forward P/E ranking in the 91st percentile since 1990, but remains optimistic about the portfolio's value-oriented positioning and prospects relative to passive alternatives.

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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

68%

CautiousHigh

Moderate (68%)

The manager demonstrates moderate-high conviction through concentrated positioning (90-93% active share), specific sector allocation decisions with clear rationale, and named individual holdings with detailed thesis explanations. However, the diversified nature across multiple sectors and lack of extreme concentration caps the score below 0.75.

Growth Outlook

38%

BearishBullish

Neutral (38%)

The manager expresses caution about broad market valuations, noting the S&P 500 trades at near-record multiples (24x forward P/E in 91st percentile since 1990) and poses considerable risk to passive investors. However, they see opportunities in value stocks and defensive sectors, creating a mildly cautious but not bearish outlook.

Risk Appetite

25%

DefensiveAggressive

Defensive (25%)

The portfolio maintains high active share (90-93%) and has strategically increased exposure to defensive sectors over two years. The manager is selectively adding to undervalued areas like healthcare and financials while avoiding expensive mega-caps, indicating a measured risk-on approach within their value discipline.

Capital Deployment

15%

De-riskingDeploying

De-risking (15%)

The letter describes strategic sector reallocation over a two-year period, increasing defensive sector weights by 10 percentage points. However, this appears to be gradual repositioning rather than aggressive new capital deployment. No specific cash level changes or major new position additions are mentioned for the quarter.

Forward Guidance

50%

CautiousExpansionary

Neutral (50%)

The manager explicitly states optimism about the portfolio's prospects in the foreseeable future, particularly compared to passive alternatives. They view value stocks as more reasonable than the broad market and believe the portfolio appears attractive, indicating a clear deployment bias toward their value strategy.

Language Signal

25%

BearishBullish

Bearish (25%)

Language is balanced with both opportunity-focused terms (attractive valuations, optimistic prospects, reasonable) and risk-aware language (richly valued, considerable risk, elevated multiples). The net balance slightly favors constructive language around their value positioning.

Perceived Risk

65%

Low RiskElevated

Elevated Risk (65%)

The manager identifies specific systemic risks including near-record market valuations, high concentration in expensive stocks, and energy sector vulnerability to commodity price swings. They provide quantitative context (91st percentile valuations, 2 standard deviation bank discounts) showing meaningful risk awareness without being alarmist.

Opportunity Density

60%

ScarceAbundant

Selective (60%)

The manager sees selective opportunities in specific areas like undervalued financials and defensive sectors, but characterizes the broad market as richly valued. They identify attractive valuations in healthcare (12x earnings) and banks (historical discount levels), suggesting moderate opportunity density in their value-focused approach.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

The strategy demonstrates a multi-year approach with references to two-year sector allocation shifts and medium-term growth expectations for holdings like Unilever. The value discipline and focus on fundamental metrics suggests a patient, multi-year investment horizon typical of value investing approaches.