Elena Khoziaeva, Bridgeway

And I've done different programs. At the end, I was admitted to the master's program in the University of Houston. So, interestingly, never really wanted to be an accountant, but got a master's degree in accounting. And later in my career, I found it incredibly useful to be able to understand financial statements, to actually analyze stocks and do a lot of systematic analysis, financial analysis, based on the accounting background. And I have a colleague, Christine, here as well, who is a CPA and an auditor. And the same thing. It's incredibly useful to understand what's behind, your show is behind the ticker and what's behind the numbers. So, again, accounting background is very helpful in this case.

And, again, Joint Bridgeway was here a partner number six. So, I still have my offer letter from all these years ago. Enjoyed seeing the company grow. We're at 24 partners right now. We have about right under $5 billion under management. Eleven strategies, kind of spectrum ranging from the asset class exposure in segments of U.S. equity market to a global hedge fund with zero correlation to equity market. And to give you a timeline, we launched our first mutual funds, three mutual funds in 1994. So, that was before my time.

And seeing a lot of, growth, some combinations, some closures. And most recent launch would be of this absolute return hedge fund in fall of 2024. So, continue to grow, continue to expand, going into global markets. We have an emerging opportunity strategy as well. So, it's amazing to see this company stand the ground, succeed. It's not easy in the current world. But I'm excited to co-lead the team with my partner colleague, Jacob Pajarni. So, we call ourselves partners to reflect our sense of ownership, accountability.

So, being owners of the firm is very important for that, for that sense of responsibility. And that was in 2022. So, 2005 was when I was named the portfolio manager on several strategies. And along the way, learned more and more. Worked with John Montgomery very closely, who is our founder and former CIO. He is now a CEO of the firm. And, now I'm in a position of the co-CIO, working with Jacob closely to lead the investment team. Wonderful.

And so, that would be probably my how I'd be enjoying and happiness in life of spending time with family. Wonderful.

We, as I mentioned, have strategies across the size spectrum and the style spectrum. Majority kind of asset-wise invested in this kind of small-cap value space. And we have multiple approaches to that investing. Some ranges from the asset class exposure, which is what we're going to talk about today, to more of an active select, more of a diversified value approach. As well as we have a very large blue chip ETF that is a great performer, elegant design, equal-weighted ETF that we are managing. And we also have this recent endeavor into the global markets, international markets, as well as the absolute return strategy.

So, Jacob Pajar brought years of expertise running such strategies. And so, he's working with a team on managing this global opportunities strategy, as well as some other strategy in the emerging market space. So, diversify from the factor standpoint, from the approach standpoint. And we really want to offer solutions and opportunities for all kinds of investors.

It's like, we read, we talk about what the foundation is doing across the world. And it's incredible. You have shivers. And, like, it's hard to believe that you're part of that, that you're supporting this kind of work. So, stopping genocide was John Montgomery's mission and, part of investment or, business plan when he started Bridgeway. We have done incredible strides there with the help of Bridgeway Foundation. And we continue to be working together on that. Another thing with culture is, and it's related to this cap that you mentioned that we've had. And it's people come to Bridgeway because they, one, is they love what they're doing.

And, two, they want to be a part of the team. And they want to kind of have fun, enjoy, and collaborate together. So, and it's, I've seen it on investment team years and over years. We say we're competitive with the world, but we're not competitive with each other. And, like, I really like this idea of when we present internally. So, here's an example of the culture. When we have the research work presented within the research team. There is zero defensiveness. There is, humility is a very important quality when you're developing something new. Research wouldn't be called research if we knew what we were doing, right?

So, we sometimes are endeavoring and moving into some new ideas. And it's easy to get caught up in that. Oh, I have this great result. Here's what it is. And if we just do it X, Y, and Z, it's going to be. It's incredibly important to say, do you agree? Do you see anything else? Is there anything else that I want to be doing? And so, that sense of collaboration and know that you can be wrong and be open to that being wrong helps us create stronger models, stronger alpha, more consistent strategies. Something better for the shareholders and investors because we are open to that criticism, feedback internally.

And typically, in those environments, it's doing better than the benchmark because of this tilt of the deeper exposure that it kind of creates internally. And it's constantly rebalancing towards smaller and deeper value names.

So, it's a matter of the kind of reversion. And we call it this spring is tighter. When the spring is tighter, the comeback is very strong. And you can see what happened in 2021, for example. Or what we're seeing even this year of the comeback of the factors that happened in the first quarter of 2026, when the market was down 4% and the Russell 2000 value was up 5%. The comeback is pretty rapid. And it's important to have that consistent exposure to that factor.

That allows us also to have higher capacity for the strategies for the cap-weighted versus, an equal-weighted strategy in the small cap space. And it brings the diversification to the table with us having this many name in a strategy.

Mm-hmm.

The correlation of monthly returns of the strategy since inception to S&P 500 index is 79%. That compares to 83% of the correlation of monthly returns to the S&P 79. That compares to 83% for Russell 2000 value. So it is still lower correlation. It reflects better diversification. And that's another reason to consider that as a potential investment is not only for return potential, but also for diversification to that exposure to the large caps. Now, specifically going within a strategy, we, during rebalancing, so we can talk about the high level, how we are creating this portfolio.

But during rebalancing and when we're creating and following the table portfolio, there are certain limits on the top for max positions. And they can appreciate, so you may see, higher positions as our holdings. But as we are going through our holding period and as we're rebalancing, we will be trimming and selling the names that are no longer small in value, that are past our criteria, and investing in a deeper value and smaller names. And so that rotation is not too high at the level. the turnover of the strategy is about 25% to 30%. So it is a relatively low turnover strategy. And so we are taking time to, enter and exit the positions.

But nonetheless, that's the idea. And it's definitely an opportunity to have exposure to a strategy that offers greater diversification with a big, large cap core allocation. And then within a strategy, you're not exposed as much. You don't have such active exposure to individual positions, as you may see with other strategies.

And we can talk about that just to kind of have a more robust universe with less risky stocks. And then we apply our evaluation, which, by the way, is a multiple metric valuation measure, which is very important. We're not using just one way of measuring value. It's multi-metric, multi-measure. That allows us to actually have a higher quality positioning in the portfolio. And within those names, let's say you have a universe. This is how you can run your evaluation measure. There is two ways, two distinct ways of creating a value portfolio. You can do it within sectors, where you're comparing, energy to energy, financials to financials, and select names that rank high by the measure within a sector.

Or you would kind of run your measures across the universe. And that way, you really go into the sector that has the kind of the most undervalued, the most attractive by your measures. So we are taking the latter approach. And because we're looking for the deepest value exposure, we are running our evaluation measure across the, investable universe, so the filtered universe. And that creates more sector tilt. We do have constraints in place. So yes, we're typically higher on the financials, but that usually is the highest percentage of the index.

So financials tend to represent about 25% of the index. We are higher than that. Banks is the most, the biggest industry group. Again, we're higher on banks. Healthcare, it may be a matter of time. There could be times when healthcare is undervalued, and we'll have more selection in that sector. At the same time, after a run-up of healthcare in 2025, that may not be exactly our most, undervalued or value-tilted sector at the time. So it reflects the positioning of the valuation measures that we have. And we do run it, but within the constraints that we have for our research.

So I can give you like some relative numbers. The median ratio of book-to-market of Russell 2000 value to S&P 500 is about 1.6. At the end of the last year, we were at 2.8. So, a significant gap. There's still a lot of room. And even with the recent comeback and stronger performance on the year-to-date basis of the Russell 2000 value, there are still significant opportunities to capture. And the interesting thing about this space and the smaller and the deeper value the names are, the more important that is. It's how quick the turnaround can happen. it's pretty fast, pretty rapid when you can have a 5% run in a day.

Right. And I tell investors, tell people, tell just generally, it does not, if this is part of your allocation, and this is an important thing, like don't time the market. Don't think that you're going to catch it both ways, in and out. Just have an allocation to the space. And, do either monthly or systematic investing. And that's probably the best way not to destroy value, I would say, from that perspective. But, yeah, so still valuation indicates that there's still a significant potential. We have seen the first quarter of 2026 with a big gap between large growth and small value, which is about 15%, with growth being down 10% and value being up 5%, small value.

In this particular quarter, size still was a strong performing factor. it really added to returns. The smaller names did significantly better than larger names. But on a value growth perspective, that's what we're seeing, a little bit of a pullback, let's say. So the value factor just had some mix. We call it a barbell returns, where the most expensive and least expensive names did well. And, so it's not a strong pattern of returns. But nonetheless, the size indicates if you take the 15% for Russell 1 and 22% for Russell 2.

There is a continuing run for the small caps.

The second thing is we do, per design, have several ways to screen what we call bad players. So, again, helping the consistency of performance. And that is kind of screening the negative momentum names, screening the penny stock, something that is not consistent. It's a risk for their strategy. And so allowing us what, we've been asked, how do you screen for, what do you think about fallen knives? And so that's a way to address that, to remove fallen knives from the portfolio, the deepest value names that continue to go down. One, we implemented a variety of screens to help us with that. So I would say that's the reason number two for that. And three is, I think, alignment of expectations and results.

We are very clear that this strategy is, deeper value and smaller. So when the two factors are out of favor and for a long period of time, we will tend to underperform. And that's expected. So, knowing that there is this, and then on the other hand, when the small and value do well, the strategy tend to perform strongly and kind of bounce back and deliver out performance in that period of time. So that adds to the consistency over time. And I think the importance of this multi-measure valuation screen, our sidestepping approaches, as well as the kind of aligned expectations with results is what adds to the consistency.

And you see in a strategy that actually remains pure to those, remains consistent with these approaches and performs well with expectations. So where would that search take you? So, and that's how I think of it. It's the exposure to the deeper value, smaller size. It may not be the core allocation. It depends on the risk tolerance. It depends on the asset allocation and the preferences of investors. But I would strongly kind of pound the table that there is a place for small cap value allocation. It depends, the percentages depend on the risk tolerance. But it's definitely to capture the benefit of the long-term return potential and diversification to the, large cap space.