ESG

Our Approach to Defence as a Value Manager

For Professional Investors Only

24 June 2026

6 min read

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Pzena Investment Management applies a classic value approach to investing. We approach defence-related investments the same way we consider any investment issue: through an integrated bottom-up assessment of the risk/reward trade-offs for the specific company and the path to earnings recovery. Company risks and opportunities are considered as part of our integrated research process and are factored into the decision of whether to invest, as well as position sizing. We also actively engage on material issues as part of ongoing research and portfolio monitoring. For the defence sector specifically, this includes the development, governance, and deployment of products and technologies, alongside human rights considerations.

Philosophically, we believe the defence industry plays an essential role in maintaining peace, national security, and stability, on which economies and societies depend. In many ways, it is a precondition for the freedoms and institutions that responsible investment is designed to protect. Defence and related industries are therefore part of our investable universe across all strategies, with controversial weapons (as defined below) excluded from our Article 8 UCITS funds and Australian Trusts, through our pre-trade compliance process.

For clients with specific values-based requirements, we accommodate custom screens at the mandate level, including exclusions related to defence, weapons, or dual-use activities.

DUAL-USE ACTIVITIES

Dual-use activities are an increasingly complex aspect of defence-related investments. “Dual-use” refers to the blurred line between civilian and military uses of technology, materials, and services. The development of artificial intelligence, quantum computing, advanced materials, and similar technologies has made this line harder to draw. We research and analyze these activities in line with our general investment approach, case-by-case and bottom-up. For clients that wish to exclude certain dual-use activities, we work with them to define scope, in the absence of a clear industry standard.

CONTROVERSIAL WEAPONS

Consistent with market convention, we exclude controversial weapons in several of our funds.

For our Article 8 UCITS funds, as classified under the EU Sustainable Finance Disclosure Regulation (SFDR), we exclude controversial weapons, as defined below. These exclusions seek to promote specific social values as part of the definition of an Article 8 fund, independent of our integrated research process. We define controversial weapons for this purpose as companies involved in the production of any of the following:

  1. Cluster munitions, components, and delivery platforms
  2. Landmines (personnel and vehicle)
  3. Biological and chemical weapons and components
  4. Nuclear weapons (more than 2% of revenues from such activities)
  5. Depleted uranium weapons, ammunition, and armor

For our two Australian Trusts, we specifically exclude cluster munitions in accordance with local regulation. The Emerging Markets Fund in Australia also excludes additional weapons manufacturers, in line with the exclusions for our Article 8 UCITS funds, as described above.

SANCTIONS

As a U.S. registered investment adviser, we comply with all applicable sanction laws.  We also monitor sanctions lists where applicable. We use third-party screening software to screen all firm holdings for inclusion on international sanctions lists. If a portfolio company is added to a sanctions list that we monitor, we receive notification from our compliance systems and take appropriate action.

CONCLUSION

We remain committed to our bottom-up fundamental research process, while accommodating client-specific exclusions. Defence-related companies remain part of our investable universe, and we evaluate each investment opportunity on its individual merits. We also apply specific defence-related exclusions to certain products to meet regulatory requirements and/or client objectives.

“We use third-party screening software to screen all firm holdings for inclusion on international sanctions lists.”

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FURTHER INFORMATION

These materials are intended solely for informational purposes. The views expressed reflect the current views of Pzena Investment Management (“PIM”) as of the date hereof and are subject to change. PIM is a registered investment adviser registered with the United States Securities and Exchange Commission. PIM does not undertake to advise you of any changes in the views expressed herein. There is no guarantee that any projection, forecast, or opinion in this material will be realized. Past performance does not predict future returns.

All investments involve risk, including loss of principal. Investments may be in a variety of currencies and therefore changes in rates of exchange between currencies may cause the value of investments to decrease or increase. The price of equity securities may rise or fall because of economic or political changes or changes in a company’s financial condition, sometimes rapidly or unpredictably. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. These risks are greater for investments in Emerging Markets. Investments in small-cap or mid-cap companies involve additional risks such as limited liquidity and greater volatility than larger companies. PIM’s strategies emphasize a “value” style of investing, which targets undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that returns on “value” securities may not move in tandem with the returns on other styles of investing or the stock market in general.

This document does not constitute a current or past recommendation, an offer, or solicitation of an offer to purchase any securities or provide investment advisory services and should not be construed as such. The information contained herein is general in nature and does not constitute legal, tax, or investment advice. PIM does not make any warranty, express or implied, as to the information’s accuracy or completeness. Prospective investors are encouraged to consult their own professional advisers as to the implications of making an investment in any securities or investment advisory services.

The specific portfolio securities discussed in this presentation are included for illustrative purposes only and were selected based on their ability to help you better understand our investment process. They were selected from securities in one or more of our strategies and were not selected based on performance. They do not represent all of the securities purchased or sold for our client accounts during any particular period, and it should not be assumed that investments in such securities were or will be profitable. PIM is a discretionary investment manager and does not make “recommendations” to buy or sell any securities. There is no assurance that any securities discussed herein remain in our portfolios at the time you receive this presentation or that securities sold have not been repurchased.

For UK Investors:
This marketing communication is issued by Pzena Investment Management, Limited (“PIM UK”). PIM UK is a limited company registered in England and Wales with registered number 09380422, and its registered office is at 34-37 Liverpool Street, London EC2M 7PP, United Kingdom. PIM UK is an appointed representative of Vittoria & Partners LLP (FRN 709710), which is authorised and regulated by the Financial Conduct Authority (“FCA”). The Pzena documents have been approved by Vittoria & Partners LLP and, in the UK, are only made available to professional clients and eligible counterparties as defined by the FCA.

For Jersey Investors Only:
Consent under the Control of Borrowing (Jersey) Order 1958 (the “COBO” Order) has not been obtained for the circulation of this document. Accordingly, the offer that is the subject of this document may only be made in Jersey where the offer is valid in the United Kingdom or Guernsey and is circulated in Jersey only to persons similar to those to whom, and in a manner similar to that in which, it is for the time being circulated in the United Kingdom, or Guernsey, as the case may be. The directors may, but are not obliged to, apply for such consent in the future. The services and/or products discussed herein are only suitable for sophisticated investors who understand the risks involved. Neither Pzena Investment Management, Ltd. nor Pzena Investment Management, LLC nor the activities of any functionary with regard to either Pzena Investment Management, Ltd. or Pzena Investment Management, LLC are subject to the provisions of the Financial Services (Jersey) Law 1998.

© Pzena Investment Management, LLC, 2026.  All rights reserved.