Value Investing in a Post-Reflation Environment: Pzena's Strategic Navigation of Q2 2025 Challenges

The post-reflation era has introduced a paradox for value investors: a world where growth stocks, buoyed by speculative optimism around artificial intelligence and technological disruption, command sky-high valuations, while value stocks—often seen as the bedrock of disciplined investing—struggle to gain traction. Yet, in this volatile landscape, Pzena International Value has remained steadfast in its commitment to its core philosophy, even as it grapples with the headwinds of a market skewed toward growth.

Pzena's Q2 2025 Performance: A Test of Conviction

Pzena International Value's Q2 2025 results reflect the challenges of navigating a market where growth stocks outperformed value by a significant margin. The fund underperformed its broad market benchmark, with health care, energy, and materials sectors contributing to the drag2025 Midyear Investment Outlook^[2]. This underperformance, however, masks a deeper strategic resolve: Pzena continues to prioritize undervalued non-U.S. equities, betting on the eventual re-rating of assets that have been sidelined by macroeconomic uncertainty and sector-specific headwindsInternational Value | International Equities | Pzena^[4].

The fund's quarterly update underscores the role of valuation spreads and macroeconomic shifts in shaping its approach. As global equity markets oscillated between optimism and caution, Pzena's managers emphasized the importance of “asymmetric risk-reward profiles” in value stocks, particularly in international markets where valuations remain compelling compared to their U.S. counterpartsQ2 2025 Global Outlook^[1].

Valuation Spreads and the Macroeconomic Tightrope

The widening gap between value and growth stocks in Q2 2025 is not merely a function of market sentiment but a reflection of broader macroeconomic forces. According to the Morningstar Quarterly Style Monitor, valuation spreads reached historically significant levels, with growth stocks—especially in the technology sector—dominating returnsValuation spreads: what they tell us about future …^[5]. This divergence, however, may signal an opportunity for value investors. As Fidelity Investments notes, value stocks in sectors like financials and industrials have shown resilience amid rising policy uncertainty and inflation risks2025 Midyear Investment Outlook^[2].

Pzena's focus on international value equities aligns with this dynamic. While U.S. value stocks have lagged, the Morningstar Global xUS Value index has outperformed U.S. growth stocks, suggesting that global diversification remains a critical tool for capturing value premiumsQ2 2025 Global Market Review and Perspective^[3]. The fund's managers argue that the current environment—marked by tariff uncertainties and a V-shaped recovery in U.S. equities after the pause in “Liberation Day” tariffs—has created a “flight to quality” that disproportionately favors growth, but may reverse as macroeconomic conditions stabilizeQ2 2025 Global Outlook^[1].

The Geopolitical and Policy Crosscurrents

The Q2 2025 macroeconomic landscape is defined by a fragile equilibrium. BlackRock's Midyear Investment Outlook highlights the risks of a sharp slowdown if trade wars escalate, while elevated interest rates and sticky inflation complicate traditional value investing strategies2025 Midyear Investment Outlook^[2]. Pzena's approach, however, is rooted in the belief that value stocks—particularly those in international markets—offer a hedge against these uncertainties.

For instance, the firm's emphasis on non-U.S. equities taps into regions where valuations are more attractive and where economic policy shifts may create untapped opportunities. As Barclays' Q2 2025 Global Outlook warns, the weakening of long-term economic anchors like fiscal discipline and stable inflation has increased volatility, making short-term macroeconomic data a more dominant driver of equity returnsQ2 2025 Global Outlook^[1]. Pzena's strategy, therefore, requires a nuanced balance between patience and agility, as it seeks to capitalize on mispricings that may take time to correct.

A Path Forward: Balancing Risk and Reward

While the near-term outlook for value investing remains mixed, Pzena's quarterly update suggests that the fund is positioning for a potential shift in market dynamics. The firm's managers acknowledge that U.S. value stocks may eventually follow international counterparts in outperforming growth, particularly as corporate investment patterns adjust to evolving macroeconomic conditionsQ2 2025 Global Market Review and Perspective^[3].

For investors, the key takeaway is clear: in a post-reflation environment, value investing is not dead but redefined. Pzena's approach—anchored in rigorous fundamental analysis and a long-term perspective—offers a blueprint for navigating the current volatility. As the Morningstar data indicates, valuation spreads have historically served as predictive indicators for future factor premiumsValuation spreads: what they tell us about future …^[5]. In this context, the current undervaluation of international equities may represent a “buying opportunity” for those willing to endure the near-term noise.