Lazard Emerging Markets is one of the UK's longest-running emerging markets funds. James Donald has sat at the fund's helm since launch in 1997, making him one of the industry's most-experienced emerging markets investors.
It has been a tough few years for Asian and emerging markets, and the past 18 months have proven particularly challenging for the fund. Over this time, James Donald suggests investors have tended to favour companies viewed as higher quality with more defensive characteristics, including the consumer and healthcare sectors. Internet technology companies have also been in vogue, although the manager believes few of these businesses have the high levels of profitability he seeks.
The popularity of these sectors has driven valuations to unattractive levels, in the manager's view, yet investors have continued to buy these stocks regardless. James Donald prefers to focus on undervalued areas of the market, meaning he has missed out on some of the gains made. Furthermore, some of his favoured companies feature in more economically-sensitive sectors that investors have avoided. Over the longer term, the manager believes investing in businesses at more attractive valuations will bear fruit.
The fund's exposure to Brazil also held back performance last year - the Brazilian stock market suffered amid falling demand for its raw materials, currency weakness, and a spate of political and governance issues. However, James Donald maintains longer-term conviction in his Brazilian holdings, which include Banco Do Brasil, Brazil's largest bank.While the majority of the fund is invested in larger businesses, the manager has the ability to invest in smaller companies which are more volatile than their larger counterparts.
Our view on this fund
While the fund has been through a short-term period of disappointing performance, we are encouraged James Donald is sticking to the same investment approach that has proven a success in the past. The manager is also supported by an experienced and well-resourced team.
Following a difficult period for the emerging markets, James Donald suggests emerging market valuations are close to all-time lows, making the area attractive from a valuation perspective. Our analysis also suggests emerging markets represent good value currently. While this could present an attractive entry point to the market, a long-term investment horizon is essential as volatility could persist in the near term in this higher-risk sector.
The fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors. While we view the fund as a sensible choice for broad exposure to the emerging markets, we are currently happy with our existing line up of funds in this sector on the Wealth 150.