Financial Stocks Dominate Pzena Investment Management’s Equity Portfolio at the End of June

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Pzena Investment Management is a New York-based value-focused hedge fund established by Richard S. Pzena in 1995, which has recently filed its 13F filing. The filing disclosed that, at the end of June, Pzena’s equity portfolio was worth over $17.72 billion and was heavily dominated by stocks from the financial sector, which accounted for 37% of the total value. Moreover, as of June 30, Hewlett-Packard Company (NYSE:HPQ), Citigroup Inc (NYSE:C), and American International Group Inc (NYSE:AIG) represent Pzena Investment Management’s top three holdings.

Richard Pzena - Pzena Investment Management

Mr. Pzena holds a BS summa cum laude and an MBA from the Wharton School of the University of Pennsylvania and prior to starting Pzena Investment Management served as the Director of U.S. Equity Investments and Chief Research Officer for Sanford C. Bernstein & Company. As of June 30, 2015 the fund had $28 billion in assets under management (AUM) and employed 89 people across its offices at New York, London and Melbourne.

We track activity of funds like Pzena Investment Management as a part of our small-cap strategy. In 2014, equity hedge funds returned just 1.4%. In 2013 and 2012, these figures amounted to 11.3% and 4.8%, respectively, which is significantly below the average market returns for the same periods. This doesn’t mean that hedge funds are not capable of identifying profitable opportunities. For example, our small-cap hedge fund strategy, which identifies the best small-cap stock picks of the best hedge fund managers returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012, outperforming the market each year. What’s the reason for this discrepancy you may ask? The reason is simple: size. Hedge funds have gotten so large, they have to allocate the majority of their money into large-cap liquid stocks that are more efficiently priced. In this way, it turns out that it is actually hedge funds’ small-cap ideas that are their best performing ones and we have consistently identified the best picks of the best managers, returning 123% since August 2012, compared to around 58% for the S&P 500 ETF (SPY) (see more details).

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Pzena Investment Management increased its stake in Hewlett-Packard Company (NYSE:HPQ) by 301,655 shares during the second quarter to almost 18 million shares valued at $540 million. Amid weak PC sales, the stock of Hewlett-Packard Company (NYSE:HPQ) lost 24% since the beginning of the year. Hewlett-Packard Company (NYSE:HPQ) currently plans a split of its enterprise and consumer-focused businesses by the end of the year, following which both segments will become independent companies. Most experts are viewing this separation as a possibility to unlock significant value for shareholders. Hewlett-Packard Company (NYSE:HPQ) is also slowly ramping up its cloud and mobility business as was evident from the company’s acquisition of Aruba Networks earlier in May and its purchase of Stackato, a PaaS (platform-as-a-service product) from ActiveState last month. Pzena Investment Management was the largest shareholder of Hewlett-Packard Company (NYSE:HPQ) at the end of first quarter among the hedge funds we cover, followed by Cliff Asness‘ AQR Capital Management which increased its stake to over 10.5 million shares.

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