Let’s jump right in. What is the outlook for US large cap value?

Brian Ferguson: I believe the market today offers one of the most compelling opportunities for value investors in many years. While value has trailed growth for much of the past 15 years, I believe this long stretch of underperformance has created the conditions for a strong reversal. In short, there is more “value in value” now than I’ve seen in some time.

Valuation spreads between value and growth stocks are near historic extremes. This suggests a highly attractive risk-reward profile.

One reason for this opportunity is the heavy concentration of capital in a small group of mega-cap names, often referred to as the “magnificent seven.” As a result, many other stocks in the S&P 500 have been overlooked and undervalued. I see significant potential in these underappreciated companies, particularly those with improving fundamentals and positive momentum.

What risks should investors be aware of, and how does active management help in this environment?

Brian: Despite the favorable conditions for value investing, today’s market also presents unique risks that require careful navigation. Not every undervalued stock is a true opportunity. In fact, the number of potential value traps has increased, making selectivity more important than ever.

We’re in a period of significant disruption across industries, driven by shifting government policy, rising capital costs and rapid technological innovation. These forces are transforming business models and altering competitive dynamics in ways that the market may not fully appreciate. As a result, some companies that appear attractively priced may be facing deeper structural challenges.

In my view, this is where active management becomes critical. Our approach is rooted in fundamental research and ongoing assessment of business momentum. I look for signs of improvement in cash flow, competitive positioning and long-term viability. Equally important, I am comfortable avoiding companies that I believe are deteriorating, even if they are widely held or heavily weighted in benchmarks.

Some of our strongest performance has come not just from what I own, but from what I choose not to own. In today’s market, where the future may look very different from the past, the ability to be selective and forward-looking is essential to managing risk and capturing long-term opportunity.

What is your overarching philosophy? How do you add value for clients?

Brian: The combination of value, quality fundamentals and momentum is central to our ability to deliver a well-rounded and adaptive investment strategy.

Value investing focuses on identifying stocks that are undervalued relative to their intrinsic worth, providing a margin of safety and the potential for capital appreciation as the market recognizes their true value. This approach helps capture opportunities that may be overlooked or temporarily out of favor, laying a strong foundation.

Quality fundamentals complement this by emphasizing companies with strong balance sheets, consistent earnings and robust cash flow generation. By prioritizing financial strength and operational stability, I seek to reduce exposure to companies that may be vulnerable during market downturns, thereby enhancing risk-adjusted returns.

Momentum adds a dynamic layer to the strategy by identifying stocks exhibiting positive estimate trends and investor sentiment. This factor allows the fund to capitalize on market trends and shifts in investor behavior, improving the timing of entry and exit points and potentially boosting short-to-medium-term performance.

In summary, the synergy of value, quality fundamentals and momentum enables us to identify resilient companies with attractive valuations and positive market dynamics. 

With over 20 years of experience managing the strategy, could you share the daily practices, beliefs and commitments that underpin your approach to achieving long-term performance?

Brian: At the heart of our long-term success is a disciplined, time-tested investment philosophy. Central to this approach is a steadfast commitment to buying companies priced significantly below their intrinsic value, defined as the present value of future cash flows. This valuation discipline creates a margin of safety, protecting against downside risk while offering upside potential, especially in volatile markets.

Equally important is a rigorous focus on financial strength and balance sheet quality. Unlike many investors who overlooked this during low-interest rate periods, the approach emphasizes prudent debt management to ensure companies can withstand economic stress and emerge stronger, as evidenced during crises like 2008 and 2020.

The philosophy also prioritizes identifying durable business momentum—structural or idiosyncratic changes that sustainably improve free cash flow, growth or risk profile. Examples include strategic shifts by management or industry consolidation that enhance long-term earnings potential.

All investments are evaluated through the lens of cash flow levels, growth and risk, regardless of sector. Importantly, the discipline extends to knowing when not to invest—avoiding companies with deteriorating intrinsic value due to weakening fundamentals or poor capital allocation.

In essence, success stems from consistent daily execution: buying undervalued, financially strong companies with improving fundamentals, avoiding impaired businesses and applying a rigorous intrinsic value framework. This patient, humble and methodical process eschews speculation and fads, focusing relentlessly on long-term outcomes.

Reflecting on the past two decades, what has been your most challenging moment and how did you overcome it?

Brian: Over the past twenty years, I've certainly encountered my fair share of challenging periods. As an active manager with decades of experience, that's to be expected as markets evolve, unexpected events occur, and each cycle presents its own complexities. Among the most challenging moments, two stand out: the Global Financial Crisis and the Covid-19 pandemic. While both were defining in their own ways, I’d highlight the onset of the pandemic in early 2020 as one of the most difficult and instructive periods in recent memory.

Markets were in a state of panic, reacting to the unimaginable, and during times like that, I have often found that the market tends to temporarily ignore the very attributes I focus on most: valuation, strong company fundamentals and both current and future business momentum.

It’s during these kinds of periods that the discipline of our approach is truly tested. Rather than chasing short-term performance or pivoting to whatever is trending in the market at the time, I made a conscious decision to double down on our long-held investment philosophy. I treated each day like any other, relying on the tenure and experience of our team and the consistency of our process. 

Where does research fit in?

Brian: There are several key strengths and competitive advantages that set our team and BNY Investment Newton’s broader research platform apart.

First and foremost is the deep experience of our team. I bring meaningful investment expertise to the table, which translates into a seasoned perspective on markets, cycles and company behavior. In my view, this continuity and depth of knowledge are critical to making sound, long-term investment decisions, particularly in volatile or uncertain environments.

Secondly, I benefit tremendously from the breadth and depth of BNY Investments Newton’s resources. One of the things we value most is the collaborative culture that exists between dedicated portfolio teams like ours and the broader network of specialized investment professionals across the firm. That spirit of open collaboration gives us access to a wide range of insights and perspectives that are essential in today’s complex and fast-moving markets.

Our research platform includes the traditional sector and industry analysts you would expect—highly experienced professionals who have been covering specific domains for many years and bring deep fundamental insights into the companies and sectors we invest in. But where we believe we truly differentiate ourselves is in the unique and specialized research capabilities that go beyond the standard analyst model.

One standout example is our investigative research team, led by Rafe Lewis and Jack Encarnacao. They’re not financial analysts in the conventional sense; they’re investigative journalists by training, having come from respected outlets like the Boston Globe and Boston Herald. Their role is to uncover insights that traditional analysts often can’t access, or can’t access as thoroughly. Their work is not about modeling earnings; it’s about digging into the less visible, often qualitative aspects of an investment story.

That kind of multidimensional research process—combining our own deep fundamental analysis with unique investigative insights—sets us apart. It allows us to form a more complete picture of both risks and opportunities.

What key risk factors, both short term and long term, should investors be mindful of as they navigate the market moving forward?

Brian: Effective risk management starts at the individual stock level, focusing on businesses with attractive valuations, strong or improving fundamentals, sound financials, prudent capital allocation and clear momentum. This builds portfolio resilience amid market volatility. Diversification is key and helps avoid over-concentration pitfalls.

I integrate the quantitative risk team into our fundamentally driven process to monitor portfolio exposures and manage both stock-specific and systemic risks. I also consider broader geopolitical, economic and market risks, adopting a pragmatic approach: hope for the best, plan for the worst, emphasizing bottom-up resilience over top-down forecasting.

Our flexible investment approach lets the market guide us, continuously seeking opportunities based on value, fundamentals and momentum. I believe in rotating sector exposures as opportunities evolve.

In summary, navigating risks like volatility, macro shocks and sector disruptions requires disciplined bottom-up research, broad diversification, rigorous risk monitoring and a dynamic process. This commitment helps us manage risk effectively and deliver client value over time.

Any key takeaways?

I want to reiterate that I believe there has never been more value in value. While large cap value stocks are undervalued relative to the rest of the US market, the pace of innovation across a wide range of industries is likely to separate the winners and losers. I believe the opportunity set has never been stronger for active managers who possess a long-tenured team, a time-tested philosophy and a disciplined investment process.