We are constantly evaluating where markets offer the best risk-adjusted returns in a forward-looking perspective. Today's extreme market concentration—with a handful of tech giants driving indices while entire sectors languish—makes Pzena an especially useful tool to have in our kit bag.  

Deep value investing is not for the faint hearted or skittish and we think it also not an area suited to a scatter gun approach. Their disciplined, nearly 30-year history approach to deep value investing provides our clients with what appears to be an increasingly compelling set of opportunities in overlooked market segments. The hope is that the kind of beaten down stock that they invest in has a margin of safety (intrinsic value) that protects on the upside coupled with outsized upside when the tide turns. It also means that the manager must do their homework to make sure the intrinsic value is there and that the turnaround is reasonably likely to happen. There are no guarantees that this will pay off anytime soon, especially relative to the tech juggernauts, but it is increasingly apparent that the upside in this sector is getting bigger and Pzena would argue that the downside is limited. The following examples from this week's video with Pzena Portfolio Manager Ben Silver provide some examples of what’s started to work recently and some areas that look more prospective.     

Harvesting Success in Financials

Pzena's decade-long financial sector overweight, which many questioned during the zero-rate era, has paid off handsomely. Their recognition that banks had fundamentally de-risked—tripling capital, doubling liquidity—while maintaining strong returns on assets proved prescient. As markets finally acknowledged that 4-5% rates represent normal rather than crisis conditions, these positions delivered significant gains.

This success story demonstrates why we maintain our Pzena allocation despite value's recent underperformance versus growth. Their ability to identify mis-pricings and wait for market recognition creates real value for our clients over full market cycles even if it hasn’t been all plain sailing for the strategy as whole.

Emerging Markets: Beyond the Headlines

Our clients often express concern about emerging market exposure, particularly China. Yet Pzena's selective approach—maintaining just 5-6% in carefully chosen positions—demonstrates thoughtful risk management rather than reckless speculation. Their Alibaba investment, initiated when two-thirds of market cap was cash and investments, showcases their discipline in waiting for truly compelling valuations.

The position's strong 2025 performance, driven by competitive AI developments and cloud growth, validates this patience. Through Pzena, our clients gain measured exposure to emerging market opportunities without the excessive risk that can come with a less discriminating approach.

Healthcare: Crisis Creates Opportunity

Pzena's significant healthcare allocation—now approaching 20% of their portfolio—exemplifies why we value their contrarian approach. While most investors flee the sector amid regulatory concerns, pricing pressures, and Medicare Advantage headwinds, Pzena recognises these high-quality, high return-on-capital businesses are trading at distressed valuations.

For our clients, this positioning offers asymmetric upside potential. When sentiment eventually turns, these fundamentally strong companies could deliver substantial returns. Pzena's willingness to "run into the fire" while others retreat aligns with our goal of buying quality assets when they're most unloved.

Portfolio Positioning for What's Ahead

While concentrated growth stocks dominate headlines and indices, we believe diversification into deep value strategies is more critical than ever. Pzena's focus on the cheapest quintile of global markets provides our clients with:

- Downside protection through investments in companies trading below intrinsic value

- Diversification away from crowded momentum trades

- Global opportunity across developed and emerging markets

- Active management from a team that thrives on market stress and dislocation

Their consistent inflows—positive in nine of the last ten years despite value headwinds—reflect institutional confidence in their approach.

The Value of Patience

For our clients, Pzena represents a disciplined approach to finding opportunities where others see only problems. In today's bifurcated market, where extremes in both valuation and sentiment create significant dislocations, having an experienced value manager in our clients' portfolios is prudent diversification and positioning for the inevitable rotation when today's unloved sectors become tomorrow's market leaders, or at the very least recovering patients.