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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Hotchkis & Wiley Mid-Cap Value Fund 2026 Q2 Investor Letter | Buyside Digest

Back to Fund Profile (Hotchkis & Wiley Mid-Cap Value Fund)

Primary Source Intelligence • Q2 2026 Letter Analysis

Hotchkis & Wiley Mid-Cap Value Fund Quarterly Analysis

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

SOURCE UNAVAILABLE

Fund Returns

QTD+4.67%

YTD+11.72%

Annualized+11.17%

Positioning StanceNEUTRAL

Market CapLarge Cap

GeographyGlobal, US

Digest Analysis

Quick Take

"Hotchkis & Wiley underperformed in Q2 2026 by avoiding the speculative AI-driven momentum rally that pushed valuations beyond dot-com bubble levels."

Executive Summary

The Hotchkis & Wiley Mid-Cap Value Fund returned 4.67% in Q2 2026, underperforming the Russell Midcap Value Index which gained 13.40%, as the market rewarded speculative momentum stocks while fundamentally stable businesses lagged. The fund avoided technology hardware and semiconductors that led the index, with the hardware and storage group returning 84% and semiconductors up 51%. The managers express deep concern about valuations exceeding dot-com bubble levels and question the sustainability of earnings growth driven by $850 billion in AI data center capital expenditures against minimal revenue generation. Energy holdings detracted as oil prices retreated following the reopening of the Strait of Hormuz, though the managers maintain conviction in a structurally undersupplied global energy market. Healthcare was the largest positive contributor, with Centene beating earnings by 48% and raising guidance. The managers increased exposure to non-cyclicals including healthcare and consumer staples amid improving relative valuations. They remain focused on quality businesses with strong balance sheets and attractive valuations, believing the mania-driven market will revert when euphoria gives way to rational fundamentals, positioning their portfolio for that inevitable reversion.

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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 fund demonstrates moderate-high conviction through concentrated positions in named holdings with detailed thesis explanations. Top ten holdings represent meaningful portfolio weights, with Workday at 4.2%, AIG at 3.7%, and energy positions KOS and APA each at 3.5%. The manager provides specific, falsifiable theses for each holding with clear catalysts and valuation frameworks. However, the portfolio holds at least 10+ positions based on the top ten disclosure, suggesting moderate diversification rather than extreme concentration. The language is declarative about their value discipline and willingness to underperform during speculative periods, stating their process will struggle to keep pace but expressing confidence in eventual reversion. The detailed attribution analysis and specific position commentary demonstrate strong conviction in individual holdings, though the overall portfolio structure prevents a score above 0.75.

Growth Outlook

20%

BearishBullish

Bearish (20%)

The manager expresses significant concern about market conditions, describing a speculative, risk-on rally with valuations exceeding dot-com bubble levels. They characterize the market as mania-driven with momentum advantage in the 99th percentile over 70 years. Language includes warnings about excessive valuations, unsustainable earnings growth, and spiking investor leverage. While they acknowledge AI as a powerful tool, they view large pockets of the market as overstating its impact. The outlook is cautious with explicit warnings about market excesses.

Risk Appetite

33%

DefensiveAggressive

Defensive (33%)

The portfolio is positioned defensively relative to the benchmark, having avoided the technology hardware and semiconductors that led the index. The manager increased exposure to non-cyclicals including healthcare and consumer staples, which are traditionally defensive sectors. However, they maintain meaningful exposure to energy through concentrated positions in Kosmos and APA, and hold healthcare names like Centene and Humana. The positioning reflects selective risk-taking in specific value opportunities while avoiding speculative momentum areas, indicating a cautious but not fully defensive stance.

Capital Deployment

43%

De-riskingDeploying

Net Neutral (43%)

The manager describes increasing exposure to non-cyclicals including healthcare and consumer staples, which indicates some reallocation activity. However, this appears to be rotation rather than net deployment, as they are shifting from one area to another rather than reducing cash to add positions. The letter does not provide specific cash level changes, but the language suggests selective repositioning within existing exposure rather than aggressive deployment of new capital. The emphasis on patience and waiting for market reversion, combined with avoidance of the leading momentum sectors, suggests a cautious stance on net deployment. The score reflects modest rotation activity with a slight defensive tilt.

Forward Guidance

30%

CautiousExpansionary

Cautious (30%)

The manager's forward guidance emphasizes patience and waiting for market reversion rather than active deployment. They state they remain focused on quality businesses and continue to believe price matters, suggesting they are holding current positions rather than aggressively adding. The language around increased exposure to non-cyclicals indicates selective repositioning rather than broad deployment. The explicit statement that their process will struggle to keep pace when markets reward risk and speculation, combined with their expectation of market reversion, suggests they are in a waiting posture rather than actively deploying capital into the current environment.

Language Signal

28%

BearishBullish

Bearish (28%)

The letter is dominated by risk-oriented language including mania, speculation, excessive valuations, bubble, unsustainable, and warnings about market excesses. Terms like overstate, overly exuberant, and concerning appear frequently. While there is some bullish language around specific holdings like attractive valuations, strong assets, and well positioned, the overall balance tilts significantly toward cautionary and bearish framing. The manager uses historical parallels to the dot-com bubble and describes current conditions as rare extremes, which are inherently negative signals.

Perceived Risk

80%

Low RiskElevated

Elevated Risk (80%)

The manager identifies multiple specific, material risks with substantial discussion. They explicitly compare current valuations to the dot-com bubble peak, describe momentum advantage in the 99th percentile over 70 years, and warn about spiking investor leverage including 11 leveraged single-stock ETFs launching in one day. They question the sustainability of $850 billion in AI data center capex against minimal revenue generation, characterize the market as mania-driven, and warn about excessive valuations. The letter devotes significant space to systemic risk concerns including accelerating inflation, an increasingly hawkish Federal Reserve, and geopolitical oil shocks. This is not passing mention of risk but central to the letter's narrative, warranting a high perceived risk score.

Opportunity Density

45%

ScarceAbundant

Selective (45%)

The manager describes a challenging environment for finding opportunities within their value discipline, stating their process will struggle to keep pace when markets reward risk and speculation. However, they do identify selective opportunities in non-cyclicals where relative valuations have improved, and maintain conviction in specific holdings like energy and healthcare. The language suggests opportunities exist but require significant selectivity and patience. They favor select quality businesses where the market overstates AI threats, indicating a narrow but identifiable opportunity set. The environment is characterized as requiring discipline rather than being rich with obvious ideas, placing opportunity density in the moderate-low range.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

The manager demonstrates a multi-year investment horizon with emphasis on waiting for market reversion to rational fundamentals rather than near-term catalysts. They describe holding through quarters where their process struggles, suggesting willingness to endure short-term underperformance. Specific holdings like Olin reference a five-plus year supply/demand outlook, and the overall value discipline implies patience for valuations to normalize. However, some positions like Centene and Humana have nearer-term catalysts around margin recovery and repricing cycles within 12-18 months. The fund structure as a mutual fund with quarterly reporting and redemption capability prevents a score above 0.75, but the language and approach clearly indicate a 2-4 year thesis horizon for most holdings.