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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Hotchkis & Wiley underperformed in Q2 2026 by avoiding the AI-driven semiconductor rally they view as a speculative bubble with unsustainable valuations. The fund favors enterprise software where AI disruption fears are overstated and has added to overlooked healthcare and consumer staples."
Hotchkis & Wiley's Large Cap Disciplined Value Fund returned 5.65% in Q2 2026, underperforming the Russell 1000 Value Index's 13.87% return. The underperformance was driven almost entirely by the fund's lack of exposure to semiconductors and hardware, which returned 138% and 72% respectively and comprised 13% of the benchmark. The manager views the quarter as a speculative, momentum-driven rally fueled by boundless AI excitement, with valuations reaching bubble-like extremes and investor leverage spiking. While acknowledging AI as a powerful tool, the manager believes markets have overbuilt infrastructure and questions whether AI data center capex growth is sustainable if revenue payoffs disappoint. The portfolio actively avoids perceived AI beneficiaries with excessive valuations while favoring high-quality businesses where AI disruption fears are overstated, particularly enterprise software companies with strong moats and switching costs. The manager has added to defensive segments like healthcare and consumer staples, which offer attractive risk/return prospects. Key holdings include Workday, APA Corp, and health insurers Humana and Elevance. The manager expects market reversion when euphoria gives way to rational fundamentals and believes the portfolio is well positioned for that environment.
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