In their latest Q2 2025 commentary, Pzena Investment Management offers a sober but optimistic perspective for long-term investors confronting heightened volatility. “The second quarter was a wild ride for global equity markets,” they write, citing early-quarter declines sparked by trade-war fears and later volatility due to Middle East tensions.
Despite this turmoil, Pzena makes the case that “staying disciplined and invested in value stocks has led to strong long-term returns after the turmoil subsides.”
Drawing on a study of 17 historical periods of elevated volatility, Pzena observes that while uncertainty drives sharp selloffs—“stocks broadly lower in 15 of the 17 occurrences”—it also sets the stage for substantial recovery, especially for value investors.
“Value stocks usually underperform the market…when fear dominates,” they note, as investors flee toward perceived safety. But that underperformance is often a precursor to outsized gains. In fact, “value has historically significantly outperformed all styles and the overall market over the subsequent five-year periods.”
Timing such periods is notoriously difficult. “Volatility arrives swiftly,” Pzena reminds us, often triggered by unanticipated shocks. Whether the cause is a geopolitical crisis, financial dislocation, or a global pandemic, markets rarely give “advance warning,” and rebounds tend to begin “while uncertainty still feels high.”
Their research reveals that once volatility hits the top 10% threshold, it peaks within an average of just two and a half months—leaving little time for investors trying to “wait for the all-clear.”
This creates a behavioral trap. “Investors tend to sell into weakness and wait on the sidelines for ‘calmer waters,’” Pzena warns. But by the time confidence returns, “a good deal of the upside has already passed.”
For value investors, this rebound can be especially rewarding. “The first 12 months after volatility reaches extreme levels tend to be particularly profitable, with value stocks outperforming all styles by more than 1,000 basis points.”
Importantly, these patterns are consistent across geographies and sectors. Pzena finds that “areas of the market with higher perceived inherent risk, such as emerging markets…outperformed in the five-year period after volatility first reached extreme levels.” The takeaway: investor fear often leads to indiscriminate selling, which in turn creates deep value opportunities.
Ultimately, Pzena underscores that resilience requires discipline. “Volatile markets test investor patience,” they write. But “history shows that this impulse [to flee] often leads to missed opportunity.” Their message to investors is clear: “Staying invested, maintaining a valuation discipline, resisting the urge to react to headlines…remain the best recipe for compounding capital over time.”
You can read the entire commentary here:
Pzena – Second Quarter 2025 Commentary
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