Retail mutual fund buyers will soon have a few new choices available from long-time institutional money manager Pzena Investment Management. The firm has functioned exclusively in the institutional sector, where it has quietly accumulated more than $26 billion in assets under management since its inception. Pzena has just started its rollout of a series of mid-cap value funds for retail investors.
The three funds it is selling mark Pzena's entrance into the marketplace for individual consumers. (For related reading, see: Vanguard Total International Bond ETF.)
History and Philosophy
Based in New York with satellite offices in London and Melbourne, Pzena Investment Management was founded by Richard Pzena in 1996 with the goal of becoming one of the world’s premiere value-based money managers. It entered the retail marketplace before with its sub-advisory channel, which now accounts for almost half of its assets under management.
The company has three main objectives, the first of which is to become one of the world’s leading deep-value fund managers. It also seeks to become a trusted industry resource on valuation and also attract and retain top-quality talent. It views its employees as partners and 60% of the company is, in fact, owned by 38 of its 88 employees. Twenty-four of its employees are research analysts and the company focuses exclusively on classic deep-value investing for institutional clients such as endowment funds and pension plans.
Its entrance into the retail investing market comes in the wake of its success in the sub-advisor sector, where it also intends to pursue opportunities with variable annuity carriers. Pzena has always focused on mid-cap value stocks that it identified through thorough research and fundamental analysis. It seeks holdings with this cap weighting that are currently underperforming the power of their earnings that they have demonstrated historically. In order to achieve this, the companies that it chooses are usually in the middle of some form of financial distress; Pzena aims to look past a firm's immediate problems to try and see any long-term potential and capitalize on it by purchasing shares of the stock at a depressed price before any real relief is in sight. (For related reading, see: Guggenheim Russell Top 50 Mega Cap ETF.)
This strategy has served Pzena well, and as the shift from defined benefit to define-contribution retirement plans continues, the firm hopes that individual investors profit from this approach in the same manner as institutional clients. The three funds it launched in 2014:
Pzena Mid-Cap Focused Value Fund (PZVMX): This fund usually holds about 30-40 stocks of companies that its research indicates can recover from economic plight and deliver superior returns over a long period of time. The fund takes a bottom-up approach to stock picking and does not weight its holdings according to sector. It has just $2.8 million in AUM and an expense ratio of 1.35%.
Pzena Emerging Markets Focused Value Fund (PZVEX): The largest of the three funds with more than $13 million in AUM, this one's expense ratio is a hefty 1.75% and has posted a one-year loss of over 20%, which is about 5% worse than the average equivalent fund.
Pzena Long/Short Value Investor Fund (PZVLX): This fund has more than $4.3 million in AUM and the highest expense ratio of the three funds at 2.1%. It has also posted a one-year loss of about three and one-third percent compared to a loss by average comparable funds of about 0.90%.
The Bottom Line
Although Pzena’s funds have not posted stellar returns thus far, the firm hopes investors will look beyond current numbers to see how its investment philosophy has worked over time in the institutional arena. (For related reading, see: 10 Most Traded Oil ETFs.)