Pzena Investment Management initiated with a rating of "underperform"
Shares of Pzena Investment Management (NYSE: PZN) are losing ground today after JP Morgan initiated coverage on the investment manager with a rating of “underweight.”
“Pzena is suffering significant underperformance that could lead to meaningful redemptions,” JP Morgan analyst Kenneth Worthington wrote in a research note today.
According to Worthington, Pzena funds have trailed benchmarks significantly in recent months. The investment manager has substantial positions in the financial sector, (40% according to Worthington), which has caused the company pain the past few months as the credit crisis has crippled that sector. The analyst said he thinks the firm’s funds’ performance will show even greater deterioration in the fourth quarter of 2007 due to large positions held in Citigroup (down 39% YTD), Fannie Mae (down 39%), and Freddie Mac (down 51%).
Additionally, outflows are accelerating for Pzena’s $8.1 billion sub-advised fund for John Hancock, according to the analyst.
Due to challenging market conditions, deep value investing may be returning to favor, according to Worthington, which could bode well for this small cap. However, the analyst says weak returns could “test the mettle” of institutional investors.
“We are impressed with the rigor of Pzena's investment method and with the quality of employees," Worthington wrote in a research note today. “We believe that the current setbacks are temporary, but could negatively impact the stock in the near to intermediate term.”
Shares of Pzena (PZN) slid 3.41%, or $0.44, to $12.46 at 2:02 p.m. ET. Shares of Pzena have been trading in the range of $10.55 to $22.25 for the past 52 weeks.
