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Pzena Management - Fourth Quarter Commentary


Guest hellsten
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Guest hellsten
The opportunity to own assets deemed risky is exceptionally attractive relative to history, as risk appears significantly mispriced in today's markets.

the average U.K. pension plan now holds just 38.5% of its assets in equities, down from 61.1 in 2006.

the broad equity market, and the cheapest quintile of stocks therein, carry expected returns of 10.9% and 15.7%, above their historical average.

Relative valuations for financials were at close to all-time lows heading into 2012…the sector remains depressed today.

historical experience supports the expectation for significant out-performance in these cyclical stocks.

http://www.pzena.com/uploads/documents/Commentary%204Q12.pdf

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I am a little unclear on how they came up with the expected yield for equities.  They claim it is based on the inverse of the PE but I am not sure which market they are basing this on.  If you use the S&P, it has a PE of 15 or so, that would give you an expected yield of 6.7% as opposed to the 10-11% on the graph.

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I think part of Pzena's problem (unlike Fairholme) was he was concentrated in financials on the downswing and then diversified at the bottom so he missed the upside.

 

Packer

 

Yeah, i would agree.  However, what bothers me is that he wasn't honest with himself about financials. I remember Berkowitz talking about how he didn't understand them and kept away back in like 2006 or something. I think the situation of being brutally honest with oneself is hard to fix. I dunno.

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Pzena was loading up on Fannie Mae common back in 2007-2008. Fannie Mae had ~57 basis points of capital against their insured mortgage book, going into what was clearly (by 2007-2008) a very serious housing/credit contraction. I remember shorting FNM common and related garbage, reading in disbelief about Pzena loading up. I lost all respect for him after that.

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one quick question, say the share count of all stocks in the market didn't change much;

so if A is holding less stock and more bond, there must be a B who's holding more stock now

So who is the B ?

 

So, what's the UK's CAPE.  Oh, and how are private equity / real estate / alternate investments allotted in the graphs?

 

I might be interested to see similar graphs for Japan.  ;)

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Guest hellsten

The average U.K. pension plan now holds just 38.5% of its assets in equities, down from 61.1 in 2006.

 

http://farm9.staticflickr.com/8206/8231607090_e2142a82d7.jpg

Screen shot 2012-11-29 at 8.18.25 PM by PlanMaestro, on Flickr

 

Interesting. Britain's pension funds were selling into the 1973-1974 crash where the FT 30 index lost 73% and they weren't buying bonds:

http://en.wikipedia.org/wiki/1973%E2%80%931974_stock_market_crash

 

The United Kingdom didn't return to the same market level until May 1987 (only a few months before the Black Monday crash), whilst the United States didn't see the same level in real terms until August 1993--over twenty years after the 1973–74 crash began.

 

I wonder what sectors or stocks the pension funds have been dumping lately and are now avoiding. Technology, financials and cyclical stocks? Maybe all stocks in the cheapest quintile :)

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