Lazard Emerging Markets – US and China to reach a trade truce?
Kate Marshall | Fri 10 January 2020
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- Run by one of the most experienced fund managers in the Global Emerging Markets sector
- Recent performance has been held back by a focus on lowly valued companies
- The manager thinks the US and China and could reach a trade truce this year
Our View
James Donald is one of the longest-serving fund managers in the Global Emerging Markets sector. He's managed the Lazard Emerging Markets Fund since launch in 1997 and is able to draw upon the analysis and resources of a team of 70 people based across the globe.
We think the team uses a sensible approach to investing in the emerging markets, though it hasn't worked all the time. Their value-focused approach has recently been a headwind and means the fund hasn't performed as well as the broader emerging stock market for several years.
The manager's shown an ability to outperform in the past though, and his value focus could provide some diversification to a portfolio focused on funds with a different style of investing. Please remember past performance isn't a guide to future returns and investing in emerging markets is high risk, so investors should expect periods of volatility.
The fund doesn’t feature on the Wealth 50 list of our favourite funds across the major sectors. We currently favour other funds for broad exposure to the emerging markets, which are also available at a lower ongoing fund charge. The HL platform fee of a maximum of 0.45% per year also applies.
Value focus holds back returns
Over the past three years the fund has grown 15.0%*. This is an attractive return, but it compares with 29.6% for the broader emerging stock market.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Dec 14 -
Dec 15 |
Dec 15 -
Dec 16 |
Dec 16 -
Dec 17 |
Dec 17 -
Dec 18 |
Dec 18 -
Dec 19 |
|
| Lazard Emerging Markets | -15.6% | 46.2% | 16.5% | -13.3% | 13.9% |
| FTSE Emerging | -10.3% | 35.4% | 21.1% | -7.6% | 15.9% |
Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2019
Donald and his team look for companies whose shares they think can be bought at a price below their true worth. They should have the potential to grow and be supported by higher future profits, which hasn't yet been recognised by other investors. This value style of investing has been out of favour in recent years though, and has held back the fund's performance.
Instead, many investors have preferred companies expected to offer higher rates of growth, even if their earnings haven’t been growing as fast. Examples include some of China's largest tech firms, like Alibaba and Tencent. Donald hasn't invested in these businesses because he thinks their share prices are too expensive and aren't justified by high enough levels of profit potential.
The fund faced some other individual stock issues last year as well. Shares in YPF, an Argentine energy company, fell along with the wider Argentine stock market after a surprising election result. The company was hurt after President Macri announced a 90-day freeze on oil prices.
Manager outlook
Donald has focused on areas of the market he thinks offer greater value, along with attractive profit potential. This includes financials, industrials and energy companies. If this potential is recognised by more investors, the fund could be in a position to benefit, though there are no guarantees.
Turning to the broader economic picture, the US/China trade war remains one of the biggest weights on investors' minds. But the manager thinks the world's two largest economies will eventually reach a truce in 2020. He says it's in Donald Trump's best interests to secure a deal ahead of the US presidential election this year, while China may also be more willing to reach a deal, especially as productivity and foreign investment into the country has been slowing.
The manager's also positive in his outlook for Brazil, where 8.5% of the fund is currently invested. He says recent pension reform should be seen as a real positive for the country and could restore confidence in the economy. Without the reform, Brazil's debt levels were expected to rise significantly over the coming years.
Other areas where he sees value and good growth potential include Russia and India, which make up 9.6% and 11.0% of the fund, respectively.