U.S. Markets close in 5 hrs 35 mins

Richard S. Pzena’s Pzena Investment Management’s Return, AUM, and Holdings

Nina Zdinjak

Pzena Investment Management is a value-oriented hedge fund that was launched back in 1996, by Mr. Richard S.Pzena, who is the fund’s Chief Investment Officer. The fund is headquartered in NYC, while offering additional offices in Melbourne, Australia, and London, England. Over the years, the fund has grown, and according to preliminary news on its website, it managed around $33.4 billion in assets on December 31, 2018. Its founder, Richard S. Pzena honed his investment acumen working at John Hancock Capital Series, Sanford C. Bernstein  Company, Mercer US Large Cap Value Equity Fund, and Amoco Corporation, to name a few. He earned his BS summa cum laude and an MBA from the Wharton School of the University of Pennsylvania.

The fund applies value investing philosophy, or as it stands on its website – “Value investing is our only business”. This is an investment strategy, according to which the investors look for the companies that seem to be deeply undervalued by the market. Value investors must thoroughly analyze the stock and its potential in order to determine that the stock is really undervalued and that it actually carries a very large potential, before investing in it. Pzena Investment Management conducts that kind of detailed analyses of stocks, before deciding to initiate a position in any of them. The fund seeks for the companies that have a small price when compared to its normal earning power, that have a management team with strong potential and a reasonable strategy to improve the business, that are only currently earning less, but they have a history of high earnings. It is understandable that this kind of strategy asks for the people who are willing to take risks in order to achieve serious gains, and for Richard S. Pzena is said that he “isn’t afraid of taking risks”. Let’s take a look at the fund’s return figures in order to see what have these investment tactics brought.

Richard S. Pzena’s Pzena Investment Management’s Return, AUM, and Holdings

A number of its fund’s had positive gains since each of their inceptions; for instance, its Large Cap Value achieved 12.7%, International Value delivered 9.3%, Emerging Markets Focused Value brought back 2.6%, Large Cap Focused Value gained 6.7%, European Focused Value had a return of 4.3% since its launch. In spite of these positive performances it interesting to note that the past year was quite challenging for the fund as, on a one year basis, its Large Cap Value lost 9.9%, International Value was down by 14.3%, Emerging Markets Focused Value dropped by 10.1%, Large Cap Focused Value had a loss of 11.9%, and European Focused Value lost 19.7%. When it comes to the fund’s return throughout the last couple of years, for example, its Pzena Long/Short Value Fund Investor lost  0.02 in 2014, and 4.30% in 2015. In 2016, it came back on its feet, with an impressive return of 15.34%, and in 2017, it brought back 2.90%. Last year through October Pzena Long/Short Value Fund was also down, by 1.69%; its total return amounted to 11.64%, for a compound annual return of 2.48%, while its worst drawdown was 8.62.

Insider Monkey’s flagship strategy identifies the best performing 100 hedge funds at the end of each quarter and invests in their consensus stock picks. This way it is always invested in the best ideas of the best performing hedge funds and is able to generate much higher returns than the market. Since its inception in May 2014, our flagship strategy generated a cumulative return of 89%, beating the S&P 500 ETF (SPY) by 29 percentage points (see the details here). 

At the end of the fourth quarter of 2018, Pzena Investment Management’s equity portfolio was valued $17.11 billion. Among the fund’s top ten positions was famous American multinational investment bank, Citigroup Inc (NYSE:C), which is one of the 30 Most Popular Stocks Among Hedge Funds. Citigroup is a company with a market cap of $151.92 billion, which is trading at a price-to-earnings ratio of 9.51. Over the past 6 months, the company’s stock dropped by 11%, and on February 22nd it had a closing price of $64.14. At the end of the third quarter of 2018, there were 97 hedge funds from Insider Monkey’s database long the stock, which is by 7 more, than in the previous quarter. During Q4 2018, Pzena Investment Management raised its stake in Citigroup by 7% to 8.18 million shares, with a value of $426.10 million, occupying 2.49% of the fund’s portfolio.

More about other 4th quarter investment moves by Pzena Investment Management you can find on the next page.

Pzena Investment Management disclosed having the largest position at the end of the fourth quarter in a global specialty and generic pharmaceutical company, Mylan NV (NASDAQ:MYL). After the fund had lowered its stake in it by 4% the position counted 20.96 million shares that were valued $574.21 million. Mylan’s stock lost 25.18% over the last 12 months, and on February 22nd it had a closing price of $31.26. The company is trading at a price-to-earnings ratio of 20.35, and it has a market cap of $16.12 billion. 39 smart money investors from our table were bullish on this stock at the end of the third quarter of 2018, down by one from one quarter earlier.

The second largest stake the fund held on December 31, 2018, was in Omnicom Group Inc. (NYSE:OMC), a global media, marketing and communications holding company, headquartered in NYC, with a market cap of $16.92 billion. During the fourth quarter of 2018, Pzena Investment Management lowered its stake in it by 7% to 6.88 million shares, with a value of $504.09 million, accounting for 2.94% of the fund’s equity portfolio. Omnicom Group recently reported its financial results for the fourth quarter of 2018, and disclosed a net income of $399.2 million, up by $144.8 million or 56.9% from $254.4 million it delivered in the same quarter of 2017, and a diluted net income per common share of $1.77, which is by 62.4% more than in the corresponding quarter of 2017. Over the last six months, the company’s stock gained 8.9%, and it had a closing price of $75.63 on February 22nd.  Omnicom Group is trading at a price-to-earnings ratio of 12.96.

During the fourth quarter of 2018, the fund initiated the biggest new position in Lear Corporation (NYSE:LEA), acquiring 2.77 million shares, with a value of $339.86 million. Lear Corporation is an automotive seating and automotive electrical systems manufacturer with a market cap of $9.73 billion. It is trading at a price-to-earnings ratio of 8.98, and over the last 12 months, its stock price went down by 19.79%, having its closing price on February 22nd of $155.62. The second biggest new position during the fourth quarter Pzena Investment Management obtained in Cigna Corp (NYSE:CI), by purchasing 733,368 shares, which were valued around $139.28 million.

Pzena Investment Management lost faith in some of the companies in its portfolio and decided to completely sell its positions. The biggest drop was Cubic Corporation (NYSE:CUB) in which the fund previously held $12.41 million worth a position, on the account of 169,939 shares. The next in line is State Street Corp (NYSE:STT), whose 61,957 shares with a value of $5.19 million Pzena Investment Management completely sold out. And, the third biggest stake the fund had said goodbye to during the fourth quarter of 2018, was the one that included 99,108 shares of Bristow Group Inc (NYSE:BRS), which had a value of $1.20 million.

Disclosure: None

This article was originally published at Insider Monkey.