Key Takeaways
The current investment landscape is dominated by a narrative favoring passive index funds. For many investors, the reasoning seems sound: during the 10-year period ended 12/31/25, only 14% of actively managed U.S. large-cap funds outperformed the S&P 500 Index. This has led many investors to conclude that capturing alpha in the large-cap space is largely out of reach.
Channing’s Large Cap Value strategy challenges that assumption. Over the same 10-year period, where most active managers struggled, the portfolio generated a 12.80% return, outpacing its benchmark, the Russell 1000 Value, which returned 10.53%. In fact, the strategy’s seven-year track record places it in the top 5% of all large-cap value managers.
These strong results aren’t limited to a single, isolated window of time. Our Large Cap Value strategy has outpaced its benchmark across every standard reporting period — including the 3- and 5-year marks — and has delivered over 100 basis points of alpha annually since inception. This systematic outperformance reinforces that our results are driven by a process designed to compound value over the long term.
Source: Channing Capital Management, as of 12/31/25
To understand how Channing’s Large Cap Value strategy is defying the odds, we sat down with Portfolio Manager Deryck Lampe, CFA, to discuss his investment philosophy, the power of active share, and why he believes the market is ripe for a value resurgence.
In large-cap investing, the line between active and passive management is often narrower than it appears. To manage risk or limit tracking error, some portfolios end up holding hundreds of stocks and closely resemble the index, often referred to as closet-indexing. Deryck’s approach is the polar opposite. He’s built a concentrated portfolio (~35 holdings) of the team’s “best ideas.”
"Actively managed portfolios that resemble the index generally run an active share in the 20%-50% range," Deryck explains. "For them to outperform, that slice of the portfolio has to work incredibly hard." In contrast, Channing’s Large Cap Value strategy has an active share of more than 86%. By maintaining a high active share, Deryck seeks to ensures the portfolio reflects Channing’s high-conviction research rather than the broader market’s momentum.
This concentration helps to allow for a laser focus on the unit reward per unit level of risk. "We measure what the index is providing and strive to make sure our portfolio is materially ahead of that at all times," Deryck explains. “While managing a portfolio of approximately 35 names — compared to the 800+ holdings in the Russell 1000 Value — can lead to higher short-term volatility, this high-conviction approach has historically resulted in competitive downside mitigation and upside alpha capture. This was evident in 2022, a year of significant market distress, when Channing’s strategy remained "in the black" while the broader market suffered deep losses
At the heart of the strategy’s success is a disciplined fundamental research process rooted in a specific formula: buying high-quality businesses at 70 cents on the dollar of their intrinsic value when their competitive is stable or expanding.
"The front end of that statement tells you we are value investors seeking a margin of safety," Deryck notes. "The back end tells you we are laser-focused on competitive advantage." In Deryck's framework, competitive advantage is the single most important assessment of quality, second only to the management team.
In today’s fast-paced economy, a lost competitive advantage can lead to a meaningful drop in value as cash flows are re-evaluated. While industry shifts used to take decades, technology accelerates these shifts. Deryck seeks to avoid these value traps by focusing on the sustainability of cash flows over the long term.
That same acceleration applies at the market level. Just as industries move through distinct phases of disruption and maturity, market environments also move through cycles. Deryck views the economic landscape through a framework of four seasons, adjusting the portfolio's "footing" based on which part of the cycle the economy is in and the ideas the market is offering with good risk/reward:
Deryck explains that understanding these seasons is fundamental to accurate intrinsic value calculations. "If your discounted cash flow model does not have a recession in the first 10 years, you’re being too optimistic," he says, adding that economic cycles typically only last an average of four to five years. “By incorporating these inevitable cyclical shifts into our research, we seek to ensure Channing’s valuations remain grounded in economic reality.”
In Spring and Summer, Deryck favors companies that demonstrate high operating leverage to capture rising profits. However, as the cycle moves toward Fall, he shifts capital into areas like staples, utilities, or healthcare — sectors with low operating leverage where the unit reward per unit level of risk has become more attractive as higher-operating leverage names become exhausted. The ability to adapt quickly, such as moving from a "summer footing" to a "winter footing" during sudden shifts like the pandemic or major Fed policy changes, is a hallmark of the strategy. It is the kind of active management designed to protect our clients’ assets.
Deryck spends his time looking for opportunities when competitive advantage, capital allocation, and the economic cycle start to turn before the broader market takes notice. Today, two dynamics stand out as especially compelling. One is a reset taking shape inside legacy semiconductor leadership. The other is a recovery beginning to take shape across Main Street banking. While they sit in very different parts of the market, both reflect the same pattern: businesses coming out of extended pressure with improving fundamentals and valuations that still don’t reflect what’s changing.
Take Intel, for example. After a difficult number of years that culminated in a $18.8 billion net loss in 20241 — its first annual loss in years — we saw signs that the company was approaching an inflection point. It appointed a new CEO with an extensive technological background to right the ship in early 2025. Deryck believes this technical experience provides the CEO with a distinct vantage point to navigate the current semiconductor landscape and help Intel reclaim the throne.
Deryck sees Intel as offering an underappreciated hedge against today’s AI spending boom. While the U.S. is spending over $500 billion on AI compute, he is seeing signs that more efficient compute techniques may soon slow the growth of insatiable GPU demand, a shift that ultimately may benefit Intel’s investments and processing architecture.
Another dynamic Deryck is keeping his eye on is the revitalization of the banking sector and its impact on smaller-scale businesses.
For years, Main Street businesses were starved of capital because an inverted yield curve made it difficult for regional banks, their primary source of funds, to lend profitably. "Banks lend long and borrow short," he explains. "When the curve is inverted, they lose money. So they don't lend." This effectively cut off the lifeblood of capital to many domestic businesses for an extended period.
Now that the curve has normalized, banks can potentially generate profits and extend loans again. Deryck identifies a massive valuation gap here; while the value indices often trade at 20 times earnings, large-cap banks like Wells Fargo and Bank of America are trading at roughly 10 to 11 times earnings. "Wells Fargo, in particular, has its regulatory issues in the rearview mirror and is finally ready to grow its balance sheet again," he notes. As capital flows back to domestic Main Street businesses, he believes these banks are poised to deliver meaningful earnings growth.
Value hasn’t disappeared. It’s simply been overlooked. And in a market that has overwhelmingly favored growth— and passive management — our Large Cap Value strategy has managed to stand apart.
"If you can outperform growth indices in a growth market without any style drift, like we have, imagine what happens when the switch flips," Deryck says. He draws a parallel between today’s emerging economic landscape and that of the 2002–2008 period, when capital flowed out of growth and into basic industries. With the transition to an electrified economy, a similar rotation into value stocks, driven by a desperate need for copper, cobalt, and infrastructure, may be on the horizon.
"You want someone who can defend you in a growth market and thrive for you in a value market," Deryck concludes. “A strategy that can respond to opportunities and risks in real time, rather than waiting for a passive index to reflect them.”
1 Intel Corporation, “Intel Reports Fourth-Quarter and Full-Year 2025 Financial Results,” press release, January 22, 2026, Intel Investor Relations.
IMPORTANT DISCLOSURE
This article reflects the opinions and views of the Firm and its authors which are current as of the date of publication but are subject to change. The information provided is for illustration and discussion purposes only, and this article does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. This material has been prepared from original and third-party sources and data believed to be reliable generally and as of the date of publication. The Firm does not assume any responsibility for, or make any representation or warranty, express or implied as to the adequacy, accuracy or completeness of any information contained herein or for the omission of any information relating thereto and nothing contained herein shall be relied upon as a promise, representation and/or warranty as to past or future performance. Past performance does not guarantee future results.
DEFINITIONS
The Russell 1000 Value Index represents the Large-Cap Value segment of the U.S. equity universe as a subset to Russell’s 1000 Value Index. The Russell 1000 Value Index measures the performance of those Russell 1000 Value companies with lower price-to-book ratios and lower forecasted growth values.