05 Aug 2010 Hancock Classic Value Fund - Q2 2010 Commentary
In our view, the market fears have created significant opportunities for the long-term investor. We believe investors are overlooking the opportunity in equities, both from a broad market perspective, as well as at the company level. The expected return on the S&P 500 is now over 11% per annum, versus roughly 3% for U.S. Treasuries, or an 8% equity risk premium. Value stocks, defined as the cheapest quintile of the 1,000 company universe, now have an expected return of over 16% per annum over the medium to long term given today’s valuations.

04 May 2010 Pzena Investments - Q1 2010 Commentary
- Equities in general are attractively valued, and the equity risk premium is wider than normal;

- Companies are well positioned to expand margins and sub-stantially increase profitability, having slashed operating costs and strengthened their balance sheets during the downturn; and

- Leading companies have positioned themselves to weather a wide range of economic scenarios, and require only modest top-line growth to generate meaningful profit improvement.

The current risk premium, defined as the expected return on equities less the risk free rate, is at a very attractive level: 5.9%, versus an average of 2.9% over the last 30 years. Other than the once-in-a-generation peak reached during the recent financial crisis, we have only seen this wide a premium four times in the last 30 years. Today, based on our dividend discount model, the expected return on equities is 9.7%, a substantial premium to 10-year treasury yields of 3.8% and yields on corporate debt of 4.6%...

27 Oct 2009 Pzena Investment Management - Q3 2009 Commentary
In fact, we can look back to the last three recessions and find market behavior which is essentially identical to that which we face today. Investors flock to the companies which are having current success, and shun the companies that are threatened by the consequences of a downturn. ... In all three cases over the past 30 years, fear of a pending recession reduced the demand for value stocks and caused a flight into the supposed "good names."

Broadly speaking, equities continue to appear undervalued globally, although certainly not at the generation-low levels we reached back in March. Our dividend discount model for the U.S. equity market - Figure 3 - indicates that we are still at a 29% discount to fair value. This model is sensitive to the current interest rate on treasuries. Interest rates would have to rise by over 200 basis points to 5.75% (a level not seen since 2000) for our model to indicate equities are fairly valued.

While market pundits are counseling "de-risking" as their advice du jour, equities in general and value spreads in particular remain attractive despite the sharp run up of the last seven months. History suggests that we are still in the early innings of this value cycle, with the next leg up likely to be driven by earnings increases in the context of a modest economic recovery. We continue to find high quality companies in sectors experiencing near term stress where we believe research and patience are the ingredients for long term outperformance.

27 Jul 2009 Pzena Investment Management - Q2 2009 Commentary
Despite the recent run-up in valuations, we believe there is a significant amount of upside left, both for the market and particularly for our portfolios. A deep value strategy has generated over 400 basis points per annum of excess return in prior cycles, even after excluding the "best" value environments.

Only time will tell if this rally is the real turning point, but it does illustrate the historical experience of quick, sharp moves off market bottoms and the power of a valuation based investment strategy during the early stages of recovery.

But now that we have experienced a strong rebound in performance, the question is: "Is it over?" "Did we miss the big re-valuation opportunity?" Our analysis of current valuations and examination of past market cycles leads us to believe that it is not over, and that the evidence provides us reason to believe there is still a considerable amount of upside left to go. We premise this observation on the following:

Valuations are now only at recessionary levels, earnings normalization has yet to occur, and value strategies have fared well during an economic recovery, even in a low growth / high inflation environment.

11 May 2009 Pzena Investments - Q1 commentary
The past nine months in the financial markets have strained the patience of even the most seasoned investor. Uncertainties surrounding the length and depth of the recession and the impact of government fiscal and monetary actions have led some investors to move to the sidelines, waiting for a clear signal as to when the bottom is behind us and it's safe to get back into the market. While it is highly tempting to try and time the market or to try and integrate economic forecasts into thinking about the markets, the record on doing so is highly suspect. For example, in the last 16 trading days of the quarter (from the market's bottom), the S&P 500 was up over 16%, despite being in the midst of mostly unsettling economic data.

Absent an unusual talent for market timing, sticking to a time-tested investment strategy has proven to be the most effective means of generating excess returns over the long haul, even despite the inevitable setbacks that are part of such a strategy...

02 Feb 2009 Hancock Classic Value - Fund Commentary
... We have taken advantage of the recent wholesale value destruction to initiate a number of new positions across various sectors. We took the opportunity to trim our relatively defensive positions in consumer staples, as well as some consumer discretionary names that had outperformed.