Pzena Investment Management is a New York-based deep value investment firm founded by Richard S. Pzena in 1996. Apart from its headquarter in New York, the firm also has an office in Melbourne, Australia. As of August 2014, the fund boasts of $26.4 billion in assets under management. Pzena Investment Management recently submitted its 13F filing with the SEC for the reporting quarter ending September 30. The filing revealed that at the end of September Pzena Investment Management’s US equity portfolio was worth over $15.70 billion and 39% of it consisted of stocks from the financial sector. In a previous post we have analyzed Pzena Investment Management’s top dividend stocks at the end of the third quarter and in this article we are going to take a closer look at the fund’s top five stock picks overall at the end of September.
But before proceeding to that let’s first understand why we at Insider Monkey track hedge fund activity. From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37 month period beginning from September 2012 (read more details here).
#5 Exxon Mobil Corporation (NYSE:XOM)
Shares Owned by Pzena Investment Management (as of September 30): 6.10 million shares
Value of Holding (as of September 30): $454.26 Million
Owing to Pzena Investment Management increasing its stake by 45% or over 1.91 million shares during the third quarter, Exxon Mobil Corporation (NYSE:XOM) jumped to become the fund’s fifth largest holding at the end of that period even though the stock of the company declined by almost 10% during the July-September period. After declining gradually throughout the first three quarters of the year, shares of Exxon Mobil Corporation (NYSE:XOM) started rallying from the beginning of October and have now narrowed their year-to-date loss to only 8.64%. On November 6, it was reported that regulators in New York are investigating allegations against the company that for decades it hid the facts that its fossil fuel business causes damage to the environment and climate. For the third quarter of fiscal 2015, the company reported EPS of $1.01 on revenue of $67.34 billion, which was better than analysts’ expectation of EPS of $0.89 on revenue of $63.75 billion. Billionaire David E. Shaw‘s firm D.E. Shaw nearly tripled its investment in the company during the second quarter to over 3.85 million shares.
#4 Citigroup Inc (NYSE:C)
Shares Owned by Pzena Investment Management (as of September 30): 9.31 million shares
Value of Holding (as of September 30): $461.92 Million
The over 10% decline in Citigroup Inc (NYSE:C)’s shares during the third quarter coupled with Pzena Investment Management selling 2% or 251,234 shares during the same period relegated the company to being the fourth largest holding of Pzena Investment Management at the end of September from being the second largest at the end of June. On November 6, shares of the company spiked up more than 3% after the Bureau of Labor statistics released dismal non-farm payroll data for October. On October 15, Citigroup Inc (NYSE:C) came out with its fiscal 2015 third quarter results, reporting EPS of $1.31 on revenue of $18.50 billion, compared to EPS of $1.15 on revenue of $19.98 billion that it had reported for the same quarter last year. With an ownership of over 102.5 million shares of Citigroup, Seth Klarman‘s Baupost Group was the largest shareholder of the company at the end of June among the hedge funds tracked by us.