Hotchkis & Wiley, an investment management company, released its second-quarter 2026 investor letter for the “Large Cap Fundamental Value Fund.” A copy can be downloaded here. Equity markets posted strong returns, with the Russell 1000 Value Index rising by 13.9%, although many individual stocks lagged. Notably, semiconductor stocks and AI-related sectors saw exceptional gains. The rally appeared speculative, marked by a stark difference in performance between high-beta and low-volatility stocks, along with momentum stocks outperforming the market significantly. Despite heightened enthusiasm for AI investments, concerns arise over inflated valuations reminiscent of the dot-com era. While there is substantial capital investment in AI, future earnings growth must justify these expenditures. The fund maintains a cautious approach towards perceived beneficiaries of AI, suggesting that select high-quality businesses with reasonable valuations may be better positioned. Historical trends suggest that speculative markets often revert to valuations based on fundamental economic realities, and the chosen investments are believed to be well-prepared for such a shift. The fund underperformed the index in the quarter and returned 5.69% vs. 13.87% for the Russell 1000 Value Index, largely due to a lack of exposure to high-performing sectors like semiconductors, while stock selection in healthcare provided a positive contribution. Also, check the fund’s top five holdings to see its best picks in 2026.
In its second-quarter 2026 investor letter, Hotchkis & Wiley Large Cap Fundamental Value Fund highlighted Workday, Inc. (NASDAQ:WDAY). Workday, Inc. (NASDAQ:WDAY), a leading enterprise software company that provides cloud applications for human resources and financial management, detracted from performance this quarter. On August 31, 2026, Workday, Inc. (NASDAQ:WDAY) closed at $197.45 per share. Over the past month, Workday, Inc. (NASDAQ:WDAY) returned 15.87%, but its shares are down 13.29% over the past year. Workday, Inc. (NASDAQ:WDAY) has a market capitalization of $47.59 billion.
Hotchkis & Wiley Large Cap Fundamental Value Fund stated the following regarding Workday, Inc. (NASDAQ:WDAY) in its Q2 2026 investor letter:
Workday, Inc. (NASDAQ:WDAY) is a leader in cloud software for back-office business functions, spanning human capital management (HCM), financial management, and adjacent ERP (enterprise resource planning) products, with 60% of the Fortune 500 as HCM customers. Shares declined over the period, pressured by investor concerns that AI could disrupt application software vendors. The most recent quarter, however, did not show evidence of this. Subscription revenue grew 14%, 12-month backlog grew 16%, retention remained industry leading, margins expanded, and management reiterated full-year subscription revenue guidance while raising operating margin guidance. AI adoption also appears to be progressing, with Workday-developed agents now used by more than 4,000 customers and Recruiting Agent activity up sharply year over year. We continue to believe the disruption thesis significantly underestimates enterprise switching costs and the non-code moat that makes Workday durable.
