Global investment management firm Pzena Investment Management purchased only two new holdings in the third quarter, after founder Richard Pzena (Trades, Portfolio) said in his recent shareholder letter that individually researched companies would outperform naĂŻve value strategies as environmental headwinds subdued returns for value investors.
Pzena chose Canadian oil company Cenovous Energy Inc. (CVE, Financial) and wireless telecommunications company Qualcomm Inc. (QCOM, Financial) to add to the portfolio of 149 positions. In total, the portfolio had a value of $15.7 billion, with Financial Services comprising 38.7% and Technology 16.2% of all holdings as the sectors with greatest allocations.
Pzena has aimed to outperform even other standard value strategies such as low-P/B buying by researching each company individually and buying only those with good businesses and temporary impediments. The current value cycle, unlike others that have roughly followed the macroeconomic cycle over the past 50 years, has been “interrupted,” he said in his third quarter letter to investors.
“But this time, there has been no follow through after the initial ebbing of fear,” he said. “Following each period of outperformance value stalled, as another set of fears interrupted the value cycle,” he said, citing the slowdown in emerging markets and persistently low interest rates.
Markets could reach the outperformance stage of the cycle soon judging by valuation spreads, though choosing the right companies would provide alpha regardless, he said.
Over the past five years, Pzena’s Global Focused Value portfolio outperformed a low-P/B strategy by 2.8%, while the MSCI World Value Index underperformed the MSCI Growth Index by 2.5%.
His largest positions were Bank of America (BAC, Financial), American International Group (AIG, Financial) and Citigroup Inc. (C, Financial).
Cenovous Energy Inc. (CVE, Financial)
Pzena started a Cenovous position with 3,937,345 shares, which traded on average at $14 in the third quarter. The holding represents 0.38% of his portfolio. Cenovous shares have fallen 27.1% over the past 12 months.
Cenovus Energy Inc. was incorporated on Sept. 24, 2008 under the CBCA as 7050372 Canada Inc. Cenovus Energy Inc. has a market cap of $12.28 billion; its shares were traded at around $15.73 with a P/E ratio of 25.30 and P/S ratio of 1.13. The dividend yield of Cenovus Energy Inc. stocks is 4.91%. Cenovus Energy Inc. had an annual average earnings growth of 2.60% over the past five years.
Qualcomm Inc. (QCOM, Financial)
Pzena also bought 879,185 shares of Qualcomm, a 0.3% portfolio weight. The shares traded at an average price of $59 and have declined 23.5% over the past 12 months.
Qualcomm Inc. was incorporated in July, 1985 in California. Qualcomm Inc. has a market cap of $92.59 billion; its shares were traded at around $52.98 with a P/E ratio of 16.55 and P/S ratio of 3.43. The dividend yield of Qualcomm Inc. stocks is 3.40%. Qualcomm Inc. had an annual average earnings growth of 13.10% over the past 10 years. GuruFocus rated Qualcomm Inc. the business predictability rank of 4-star.
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