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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Extreme equity market concentration around artificial intelligence has eroded index diversification, creating compelling mispricings in cash-generative international businesses across enterprise software, European industrials, and Chinese consumer leaders."
Pzena International Value Composite generated a net return of 6.6% in the third quarter of 2026 (6.8% gross), outperforming the MSCI EAFE Index return of 0.8% and the MSCI EAFE Value Index return of 4.3%. Year-to-date net performance reached 18.5% compared to 10.3% for MSCI EAFE. Active share stood at 86.4% across 65 holdings, trading at an attractive valuation of 9.1x price-to-normal earnings versus the universe median of 14.4x. Sector positioning was led by financials at 25%, industrials at 14%, and consumer discretionary at 13%, while North America cash and geographic allocations remained disciplined alongside 50% exposure to continental Europe ex-U.K. Macroeconomic conditions were marked by rising global bond yields and an energy-driven inflation spike stemming from the ongoing conflict in the Middle East. While equity markets saw narrow breadth and heightened volatility, the portfolio capitalized on market dislocations driven by artificial intelligence speculation and geopolitical fears. The manager maintained that market concentration around artificial intelligence has severely compromised true index diversification, creating substantial valuation dispersion and compelling bottom-up opportunities in overlooked, out-of-favor international franchises. Key portfolio drivers included strong contributions from customer experience outsourcer Teleperformance, enterprise software provider SAP, and IT consultancy Accenture, while Daikin, LVMH, and MinebeaMitsumi detracted. Strategic actions during the quarter included initiating a position in Tencent, expanding stakes in United Utilities, Pirelli, and Julius Baer, while fully exiting Toray Industries and ArcelorMittal and trimming winners such as Murata Manufacturing and UBS.
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