The Case for International Value
For Professional Investors Only
4 min read
Learn More About International Value
International value stocks marginally led their growth peers across many regions during 2023. While value is certainly working for intuitive reasons, such as the high interest rate regime across markets, the cohort remains very attractively valued relative to growth. The price-to-book spreads between the cheapest and most expensive quintiles of stocks in non-US developed markets reflect just how far growth stocks ran up during the “easy money” years prior to the pandemic.
International Value Remains Cheap
Despite the strong performance of international equities in 2023, the valuation disparity between US and non-US equities remains wide. The broad US market is particularly expensive relative to the rest of the world, largely reflecting the well-documented rise of the “Magnificent Seven”1 in 2023. The relative cheapness of international equities is currently at a historically rare level; on a forward earnings basis, the MSCI EAFE Value Index has only been cheaper than the Russell 1000 Value Index 3% of the time over the past 20 years.2
Deep Value Reigns Supreme
Given the compelling opportunity, we believe it is an excellent time to consider allocating to international value. Foregoing investment in non-US markets means passing over idiosyncratic opportunities in a broad investment universe consisting of over 1,500 companies. Additionally, despite a wealth of empirical evidence supporting its track record, some investors are reluctant to embrace value and instead turn to indexing or “value-light” strategies; such strategies may sidestep the most contentious and volatile stocks, but in so doing, sacrifice the core tenets of the value philosophy and the historical performance advantage of value.
The Pzena Advantage
We utilize our proprietary screening tool StockAnalyzer to identify the cheapest 20% of the investment universe, and we subsequently assign research priority to the most interesting companies from that quintile. At the conclusion of our research process, we have an educated estimate of normalized earnings, as well as a thesis for how company management could turn around the business. We build concentrated portfolios of undervalued businesses, which are typically experiencing issues we deem to be temporary.
We believe that our focus on fundamental research, paired with a disciplined process to uncover potential ideas across a broad universe, has contributed to the Pzena International Value strategy’s strong long-term performance.
Footnotes
1Amazon, Apple, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla
2Source: FactSet, Pzena analysis
FURTHER INFORMATION
These materials are intended solely for informational purposes. The views expressed reflect the current views of Pzena Investment Management, LLC (“PIM”) as of the date hereof and are subject to change. PIM is a registered investment adviser registered with the United States Securities and Exchange Commission. PIM does not undertake to advise you of any changes in the views expressed herein. There is no guarantee that any projection, forecast, or opinion in this material will be realized. Past performance is not indicative of future results.
All investments involve risk, including loss of principal. The price of equity securities may rise or fall because of economic or political changes or changes in a company’s financial condition, sometimes rapidly or unpredictably. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. These risks are greater for investments in Emerging Markets. Investments in small-cap or mid-cap companies involve additional risks such as limited liquidity and greater volatility than larger companies. PIM’s strategies emphasize a “value” style of investing, which targets undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that returns on “value” securities may not move in tandem with the returns on other styles of investing or the stock market in general.
This document does not constitute a current or past recommendation, an offer, or solicitation of an offer to purchase any securities or provide investment advisory services and should not be construed as such. The information contained herein is general in nature and does not constitute legal, tax, or investment advice. PIM does not make any warranty, express or implied, as to the information’s accuracy or completeness. Prospective investors are encouraged to consult their own professional advisers as to the implications of making an investment in any securities or investment advisory services.
For U.K. Investors Only:
This marketing communication is issued by Pzena Investment Management, Limited (“PIM UK”). PIM UK is a limited company registered in England and Wales with registered number 09380422, and its registered office is at 34-37 Liverpool Street, London EC2M 7PP, United Kingdom. PIM UK is an appointed representative of Vittoria & Partners LLP (FRN 709710), which is authorised and regulated by the Financial Conduct Authority (“FCA”). The Pzena documents have been approved by Vittoria & Partners LLP and, in the UK, are only made available to professional clients and eligible counterparties as defined by the FCA.
For EU Investors Only:
This marketing communication is issued by Pzena Investment Management Europe Limited (“PIM Europe”). PIM Europe (No. C457984) is authorised and regulated by the Central Bank of Ireland as a UCITS management company (pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011, as amended). PIM Europe is registered in Ireland with the Companies Registration Office (No. 699811), with its registered office at Riverside One, Sir John Rogerson’s Quay, Dublin, 2, Ireland.
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