Pzena Investment Management’s Third Quarter 2015 Community Newsletter says that “Value investing is not a simplistic factor, but rather a philosophy that requires research to outperform over the long run.” According to the newsletter, “the DNA of value investing . . . has always been in bottom-up research and human psychology.” Thus, the newsletter suggests there is a meaningful difference between passively managed funds that treat “value” as a factor and a fund actively managed using a value approach to make investment decisions.

The newsletter suggests that “value as a factor has disappointed” because of marcoeconomic events that have skewed the historical “value cycle.”  Over recurring ten-year periods, the newsletter states, value struggles as economies slow, but outperforms once valuation bottoms, such that “the strongest relative returns are earned as the economy picks up steam.”  It notes that “the current cycle . . . has not fit the pattern,” perhaps due to global policy actions taken to address the financial crisis, which may explain the unusual variation in the value cycle. It may be that “emerging markets [are] the last region to fall in a long global unwind.”

The newsletter contends that “value investing as a discipline, not a factor, offers the opportunity for a more favorable outcome” than investing in passive value funds. The difference, it maintains, is research. “Long tern Outperformance = Exposure to Value Factor + Alpha from Proprietary Research.” It concludes “we believe the odds are in favor of an active value investor, and that company-specific research is the key to achieving investment success.”