Last Update: 2014-12-10

Number of Stocks: 189
Number of New Stocks: 13

Total Value: $27,596 Mil
Q/Q Turnover: 10%

Countries: USA CAN
Details: Top Buys | Top Sales | Top Holdings  Embed:


  • Hotchkis & Wiley Webinar Highlights - High Yield Outlook with Mark Hudoff

    On our October 22nd webinar, Mark Hudoff, portfolio manager of the Hotchkis & Wiley High Yield strategy, discussed the changing high yield environment and its impact on investors. The following recap highlights his views.

    Top Takeaways


  • Hotchkis & Wiley’s Large Cap Value Fund Q3 2014 Manager Commentary


    The S&P 500 Index returned a modest +1.13% over the three months ended September 30th, the seventh consecutive positive quarter for the index. In August, the index closed above 2,000 for the first time, peaking at 2,011 in mid-September before a slight pullback. Unlike prior market peaks (e.g. 1999, 2007), elevated stock prices today are supported by both strong corporate earnings and an improving economic environment. At 16.5x forward earnings, the S&P 500 Index trades at a valuation slightly higher than the 25-year median of 16.0x. Meanwhile, the 10-year Treasury yields 2.5% versus the 25-year median of 4.8%; considering the low interest rate environment equity valuations appear reasonable. The U.S. housing market continued to recover, with new home sales considerably higher than consensus expectations and home prices on the rise. Higher home values create a wealth effect that boosts confidence and drives consumer spending, which accelerated during the quarter—consumer spending comprises two-thirds of U.S. gross domestic product, so the housing market’s economic impact is material. Meanwhile, employment has steadily improved and inflation has remained in check. The U.S. dollar strengthened as a result of the productive economy, appreciating by more than 6% relative to a basket of major developed market currencies1. While the tense geopolitical landscape poses risks to the equity market, we believe the earnings power of our portfolio holdings provides considerable valuation support. The portfolio trades at 10.8x our estimate of normal/sustainable earnings, a significant discount to the market average2.


  • The Evolving High Yield Market - Hotchkis & Wiley Q3 Newsletter

    Given the recent volatility in high yield markets, we thought it would be useful to examine how the market has evolved since the 2008 financial crisis. Specifically, we will explore three major developments in the high yield market since the global financial crisis: 1) the role of Exchanged Traded Funds (ETFs), 2) trading/liquidity influences, and 3) the changing high yield investor base.

    I. The Role Of High Yield Exchanged Traded Funds


  • Hotchkis & Wiley Q2 Manager Commentary

    The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. Investment return and principal value of the fund will fluctuate, and shares may be worth more or less than their original cost when redeemed. Click quarter-end or month-end to obtain the most recent fund performance.


  • Hotchkis & Wiley Large Cap Value Fund June 2014 Manager Q&A

    An Interview with Sheldon Lieberman, Portfolio Manager

    Recently, Sheldon Lieberman, Portfolio Manager and 20-year member of the firm, shared his thoughts on the current equity markets and the Hotchkis & Wiley Large Cap Value Fund.


  • Hotchkis & Wiley Comments on Vodafone

    Stock selection in telecommunications also detracted from performance, as our lone position (Vodafone 3.0%*) lagged the market. Vodafone (VOD) reported modest results and a disappointing outlook due to elevated capital expenditures. Vodafone , Bank of America (BAC) (3.3%)*, and Target (TGT) (2.7%)* were the largest individual performance detractors.

    From Hotchkis & Wiley's Large Cap Value Fund Second Quarter 2014 Commentary.


  • Hotchkis & Wiley Comments on Oracle

    Stock selection in technology was the largest performance detractor for the quarter. Oracle (ORCL) (2.7%)* lagged after reporting results slightly below consensus estimates, though our investment thesis remains fully intact.

    From Hotchkis & Wiley's Large Cap Value Fund Second Quarter 2014 Commentary.


  • Hotchkis & Wiley Large Cap Value Fund Second Quarter 2014 Commentary

    Market Commentary

    Despite several bouts of geopolitical unrest, the S&P 500 Index gained +5.23% during the second quarter and has returned +7.14% since the beginning of the year. Equity investors appeared to largely dismiss both the Russia/Ukraine and Iraq/ISIS conflicts as economically inconsequential. In fact, the VIX Index, often used as a proxy for overall investor apprehension, reached a seven-year low in mid-June. Economic activity over the past quarter was positive and seems to have invigorated investor confidence. The unemployment rate fell to a post-financial crisis low, and now stands at 6.1% compared to 10.0% in late 2009. The housing market demonstrated signs of improvement, with new home sales reaching six-year highs and pending sales of existing homes reaching four-year highs. Corporate performance continued to be robust with more than 75% of S&P 500 Index companies exceeding consensus earnings estimates this quarter. In response to these developments, the Federal Open Market Committee’s official statement in mid-June struck a more optimistic tone than its late-April statement, which helped boost equity prices. With the VIX Index reaching a multi-year low, however, we would not be surprised to encounter stints of increased volatility in the near/medium term.


  • High-Yield Covenant Trends - Hotchkis & Wiley Second Quarter Newsletter

    Avoiding the Losers At Hotchkis & Wiley, we believe that averting mistakes is the single most important quality in successful high yield investing. We are not immune from making mistakes, but avoiding high defaults and low recovery rates is a key tenet of our strategy. This “avoid the losers” mentality is achieved by focusing on several factors. First, we have a preference for securities that are senior in the capital structure, i.e. we prefer senior or senior secured to subordinated bonds. Second, we emphasize asset coverage, where the value of the assets provides morethan- sufficient support. Covenant packages represent a third layer of defense that we believe is often overlooked.

    A tight covenant package guards against management behaviors that might be favored by equity shareholders or other stakeholders, but could put bondholders at risk. The level of conservatism exhibited by covenant packages varies with the credit cycle. When spreads rise and investors become more risk-averse, covenant packages tend to become more restrictive. Conversely, when spreads narrow and investors become less risk-averse, covenant packages tend to become lax. Today’s spread environment resembles the latter, so we thought analyzing covenant trends would be a productive exercise. This newsletter will attempt to identify broad trends in covenant packages by dividing covenants into three categories: 1) redemption flexibility; 2) negative covenants; and 3) change of control provisions.


  • Hotchkis & Wiley Large Cap Value Fund First Quarter 2014 Market Commentary

    Market Commentary

    The S&P 500 Index finished the first quarter of 2014 with a +1.81% return but experienced some turbulence along the way. In early February, the S&P was down nearly 6% for the year, fueled by developments in several of the largest emerging market economies. Chinese manufacturing slowed and the country’s banking regulator signaled increased credit scrutiny. Also, Argentina devalued its peso triggering a selloff in several other emerging market currencies, revealing that contagion is alive and well. This rattled US equity investors, sending the VIX Index from 14 at the beginning of the year to 21 in early February.


  • Hotchkis & Wiley First Quarter Newsletter - 'Frequently Asked Questions'

    The opportunity to visit with clients and prospects with exceptionally diverse backgrounds and personalities is one of the most interesting facets of our job. No two meetings are the same, and the thought-provoking discussions ensure that our profession never goes dull. Question topics range from broad market views to credit-specific details, with everything in between. In this newsletter, we address the questions that seem to be asked most frequently and/or we believe are particularly relevant in the current market environment.

    In your opinion, is the current high yield market compelling? Relative to history, high yield valuations are less attractive than average but high yield fundamentals are more attractive than average (technicals are average). Also, the forward yield curve provides some reason for caution. Our collective view on the high yield market, therefore, is positive but tempered. Valuations


  • Hotchkis & Wiley Comments on IBM

    We took a new position in IBM (IBM) (1.5%)*, which we believe is a well-positioned, diversified technology company with a strong balance sheet, prudent capital allocation, and an attractive valuation.

    From Hotchkis & Wiley's fourth quarter 2013 manager commentary.


  • Hotchkis & Wiley Large Cap Value Fund Fourth Quarter Manager Commentary

    The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. Investment return and principal value of the fund will fluctuate, and shares may be worth more or less than their original cost when redeemed. Click quarter-end or month-end to obtain the most recent fund performance.

    Manager Commentary Period ended December 31, 2013


  • Fallen Angels - A Neglected Segment of the High Yield Market: Hotchkis & Wiley Q4

    The high yield market can be segmented in a multitude of ways — credit rating, sector, and seniority to name a few. The market can also be split into original high yield issues and fallen angel . Original high yield issues are credits that were high yield rated when issued (BB+ or below), and fallen angels are credits that were investment grade rated when issued (BBB - or above) , but have since been downgraded. The two market segments often exhibit considerably dif ferent characteristics and behaviors. We believe fallen angels represent an often-overlooked segment of the market that habitually offers compel ling risk/reward opportunities, particularly for bottom - up credit pickers.  

  • High Yield and the Business Cycle - Hotchkis & Wiley Commentary

    While history may not repeat itself verbatim, visceral human behavior often produces distinct cycles. We may learn from past mistakes, but collectively we exhibit the same instinctual traits as preceding generations. Many have attributed various social, cultural, and even military cycles to perpetual behavioral tendencies that society exhibits through time. Nowhere is this phenomenon more apparent than in economics, where cycles reign supreme. This newsletter's objective is to evaluate the business cycle and its influence on the high yield market. We will explore various economic, fundamental, and policy-related metrics to assess where we stand in the business cycle currently, and the underlying implications for high yield investors.  

  • Hotchkis & Wiley Mid-Cap Value Strategy - Q&A with Stan Majcher, Portfolio Manager

    Mid caps are an attractive but often overlooked way to participate in the equity market. Portfolio Manager Stan Majcher shares his insight on the mid cap market, the management of the Fund, and illustrates why mid caps make sense for the long-term investor.

    Q1: It is often reported that Wall Street research on mid cap companies is limited. What implications does this have for managers in this space?  

  • Hotchkis & Wiley Diversified Value Fund Commentary Q2 2013

    Market Commentary During the second quarter, 10-year US Treasury bond yields bottomed at 1.6% before ballooning to 2.6% once the Fed suggested it might taper its proactive bond purchasing program. The rapid interest rate rise has focused attention on "low risk" bond portfolios and reminded investors that it is possible to lose money in high grade fixed income. Meanwhile, US equity markets continued to reward investors as the S&P 500 Index ended the quarter with a +2.91% return and the Russell 1000 Value Index rose +3.20%. While an extended rise in equity prices would normally portend a cautious outlook, corporate earnings have improved such that valuation multiples remain below historical averages—particularly considering widespread balance sheet deleveraging and improved capital allocation policies. In addition to reasonable valuations, the US economy appears to be on the mend. A recovery in the US housing sector has improved consumer balance sheets as well as confidence, which should further stimulate economic activity. Moreover, employment and manufacturing have continued to exhibit signs of progress. Unfortunately, the outlook for equities is not entirely upbeat—Europe has struggled, emerging markets (China) have slowed, and the US political landscape remains divided.

    Taking a closer look at the US equity market during the quarter, performance dispersion by sector was rather significant as the financials, consumer discretionary, and healthcare sectors posted returns in the mid-to-high single digits. Commodity-tied sectors lagged as prices for Brent crude oil (-6%), industrial metals (-10%), and natural gas (-11%) declined. Consequently, energy, materials, and utilities had negative returns during the quarter.  

  • Hotchkis & Wiley Q2 Newsletter: The State of the High Yield Market Fundamentals, Technicals, & Valuation

    During our regular meetings with investors, the question we are asked most often is a rather simple one: "What is your outlook for the high yield market?" The question's form can take one of several iterations (e.g. Are you bullish or bearish and why? What past environment best resembles the current environment?), but each is straightforward and the underlying objective for each is indistinguishable. Unfortunately, a simple question is not always a prelude to a simple answer.  

  • Hotchkis & Wiley Webinar Highlights - A Review of the Current High-Yield Environment

    On our April 17th webinar, Mark Hudoff, portfolio manager of the Hotchkis & Wiley High Yield strategy shared his thoughts on the current opportunities and challenges in the high yield marketplace.

    The following recap highlights his views.  

  • Hotchkis & Wiley Q1 Newsletter - The Interest Rate Environment: Comparing High Yield Bonds and Bank Loans

    Introduction: It has been over four years since the Federal Open Market Committee ("FOMC") voted to lower the overnight rate at which banks lend to each other ("fed funds rate") to a range of 0.00% - 0.25%. The FOMC has maintained this target ever since and Treasury rates of all maturities have persisted near record lows as a consequence. The prevailing environment has prompted many investors, Hotchkis & Wiley included, to question how long it will be before interest rates rise once again.

    Based on discussions with economists, strategists, and other industry experts, the consensus view appears to be an inevitable rise in interest rates but with highly uncertain timing. In its most recent meeting minutes, the FOMC stated that it will keep the target fed funds rate at the current level until employment improves, inflation remains in check, and "other" market conditions comply. Such an opaque framework is unsettling. The timing and direction of interest rate movements, while nearly impossible to forecast precisely, has material implications for investment returns. Interest rate changes can affect equity markets but influence fixed income markets disproportionately— particularly when the change is unexpected. We recognize that there is a risk of rising rates, but given the headwinds facing the economy, we also understand that rates could persist at low levels for an extended period. Because our outlook for interest rates is rather ambiguous, we will contrast two credit instruments in a variety of interest rate environments: high yield bonds and bank loans. Our goal is to ascertain whether one, the other, or both are appealing investments in today's environment.  

Add Notes, Comments

If you want to ask a question, or report a bug, please create a support ticket.

User Comments

No comment yet

Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial