In their latest Q4 2022 Letter, Pzena Investment Management explain why the value opportunity is compelling. Here’s an excerpt from the letter:
Despite recession, inflation, and geopolitical fears, we believe the value opportunity is compelling, even after its best relative performance in more than two decades.
Macroeconomic and geopolitical fears seemed to be the primary drivers of global equity markets throughout 2022. Inflation worries and the continuing concerns surrounding Russia’s invasion of Ukraine are at the top of investors’ minds, as disruption in the energy market significantly increases the probability of a global recession in 2023.
Acknowledging that we are not geopolitical experts, we believe there are valuable lessons to be learned from economic history to help navigate today’s uncertain markets, including the following:
• Typical recessions are not as severe as the two most recent recessions (COVID-19 and the Global Financial Crisis)
• The peak-to-trough share price decline in 2022 was in the range of typical recessions
• The five-year period following the start of a recession has proven to be a good entry point for stocks in general, and value stocks specifically
• Value equities is one of the few asset classes offering a positive real earnings yield
You can read the entire letter here:
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