At The Motley Fool, we understand that it often pays to zig when Wall Street zags. Still, that doesn't mean we blithely ignore what leading fund managers are buying and selling. And hedge funds, which aren't always in lockstep with the broader market, can be a particularly valuable source of insight.

Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing SEC Form 13-F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets. To help us make use of 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that tracks hedge fund public disclosures and develops investment strategies based on them.

Q4 2010 update
Pzena Investment Management is a New York-based institutional money manager founded by Richard Pzena in 1995. Pzena's philosophy is focused on classic value. The fund seeks to invest in businesses that are currently underperforming based on their historical earnings power. The total market value of Pzena Investment Management's disclosed equity holdings for the quarter ended Dec. 31, 2010, was $11.1 billion across 119 holdings. Here's a snapshot of the portfolio's industry allocations.

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The fund's 10 largest positions and associated changes in number of shares held as of Dec. 31 were:

  1. ExxonMobil (NYSE: XOM) -- reduced 7.4%.
  2. Northrop Grumman (NYSE: NOC) -- increased 1.2%.
  3. Hewlett-Packard (NYSE: HPQ) -- increased 61.5%.
  4. Tyco Electronics -- reduced 20.6%.
  5. Allstate (NYSE: ALL) -- reduced 1.7%.
  6. J.C. Penney (NYSE: JCP) -- reduced 29.8%.
  7. Omnicom Group -- reduced 24.3%.
  8. CA -- reduced 23.8%.
  9. Masco -- increased 0.3%.
  10. L-3 Communications (NYSE: LLL) -- increased 7.2%.

In addition, the fund sold out of its positions in several companies, including Regis, Baker Hughes, SFN Group, and Armstrong World Industries.

Following Pzena's lead
Is it worth paying attention to Pzena Investment Management's moves? Though Pzena is greatly respected, according to AlphaClone's back-test simulation, anyone who invested in Pzena Investment Management's 10 largest holdings at the time they were disclosed publicly each quarter would have lost 25.2% since August 2002, versus 69.0% for the S&P 500 (including dividends) as of March 23. So the index has hugely outperformed the top 10 holdings of the fund. Here's a look at AlphaClone's back-test model.

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The strategy above buys and sells its holdings each quarter, five trading days after the SEC's filing window for Form 13-F closes.

Selected Q4 2010 commentary
Pzena Investment has been focusing on the financial sector. In the fourth quarter, financials comprised 36.2%, a bit higher than the 34.7% allocation from the previous quarter. Technology and services constituted 19.3% and 11.0%, respectively, of the portfolio. Pzena also had 9.2% of assets in energy, 6.3% in health care, and 5.9% in capital goods. Following are some stocks where the firm is winning and losing, and where it's making new bets.

Current winners
Tyco Electronics and JC Penney were both up 20% or more during the quarter ended Dec. 31.

Tyco Electronics, now known as TE Connectivity, is a global provider of engineered electronic components, network solutions, and wireless systems. In the past 12 months, the company reported total revenues of $12.4 billion and is currently trading at a price-to-earnings ratio of around 13. The stock also has a four-star (out of five) rating at Motley Fool CAPS.

J.C. Penney operates a network of more than 1,100 department stores in the United States and Puerto Rico. It sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products, and home furnishings. Recently, J.C. Penney's board approved a new $900 million share-buyback program. Motley Fool CAPS isn't as optimistic on the stock; CAPS members give it just one star.

Current loser
L-3 Communications was a loser in the fourth quarter, dropping 2%. The company is a prime system contractor in aircraft, defense, and government services, and it also supplies high-tech products and systems. L-3 reported total revenue of $15.7 billion in the past 12 months and has a price-to-earnings ratio of 9.7. The stock has a four-star rating in Motley Fool CAPS.

New bets
The largest new addition, Becton Dickinson (NYSE: BDX), comprises 0.7% of the total portfolio. Becton Dickinson makes all sorts of medical devices and instruments, including scalpels, syringes, and diagnostic equipment. The company has a market cap of $17.2 billion and reported revenues of $7.35 billion over the past 12 months. The stock is trading at a price-to-earnings ratio of 14.2. The stock has a five-star rating at Motley Fool CAPS. During the quarter, the fund also started new positions in MetLife and Mueller Water, among others.

So there you have it, the blow-by-blow of Pzena Investment Management's latest moves and the reasons it can matter to your portfolio. Tell us what you think in the comments section below.

Company data provided by AlphaClone LLC, a San Francisco-based research and investment-management firm that tracks hedge-fund public disclosures. For more information on the firm's investment approach, visit AlphaClone.

IMPORTANT DISCLOSURES FOR BACKTEST PERFORMANCE RESULTS

Backtesting is the process of evaluating a core strategy by applying it to historical data. Backtested performance results are provided for purposes of illustrating historical performance had a core strategy had been available during the relevant period. Backtested performance results are hypothetical and have inherent limitations. AlphaClone makes no representation that any core strategy will achieve performance similar to any backtested performance results. Actual results could differ materially from backtested performance, and future results could differ materially from backtested performance. Past performance is no indication or guarantee of future results.

Becton is a Motley Fool Inside Value selection. Mueller Water Products is a Motley Fool Hidden Gems recommendation. Masco is a Motley Fool Income Investor pick. The Fool has written puts on L-3 Communications and owns shares of ExxonMobil, L-3 Communications, and Northrop Grumman. Motley Fool Alpha LLC owns shares of L-3 Communications. The Motley Fool has a disclosure policy.