Pzena Q2 Commentary is out it is titled: A Protracted Value Cycle The history of deep value investing is one of long cycles which last on average approximately ten years. The initial periods are defined by underperformance versus the broad market, followed by even longer periods where deep value wins, resulting in meaningful deep value outperformance over the complete cycle. This margin has averaged 390 basis points per annum in the U.S. (Figure 1). This cycle, however, has tested the patience of even the most committed value investor. Now six years and three months since the peak of the last value cycle in February 2007, deep value has yet to match the performance of the market. Using U.S. data for illustration, deep value has returned 3.0% per annum cycle-to-date, versus 4.6% for the S&P 500. By this time in all four previous cycles, deep value had made up all the underperformance of the cycle’s early phase, and was outperforming the broad market cumulatively. This leads to the inevitable question: Is it different this time? What’s Different This Cycle We would point to four major factors that have contributed to the prolonged nature of the current cycle: • severity of the early [...]
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