The Lazard Emerging Markets Equity team, headed by James Donald, seek companies with high and sustainable levels of profitability in which to invest. They place the greatest emphasis on the return on equity, a measure of a company's profitability, while company meetings are also important as the team seek to engage with the companies in which they invest, and to assist their development.
According to James Donald, lead manager of the Lazard Emerging Markets Fund, the overall profitability of emerging market companies has recently declined due to high levels of capital expenditure over the past few years. That said, their level of profitability remains comparable to that of developed market companies, while economic growth in emerging countries looks attractive compared with the rest of the world.
In the short term, the manager recognises the potential for further stress on developing countries, resulting from currency volatility, commodity price uncertainty, and geopolitical tensions. Yet over the longer term he is confident these situations will be resolved. Furthermore, he believes the valuations of emerging market companies look attractive, and are trading at around a 28% discount to their developed market counterparts. This could spell opportunity for patient, long-term investors.
The past year proved a more difficult time for the fund, particularly towards the end of 2014, due to its higher weighting in sectors such as energy and countries such as Russia, which struggled to make gains. However, the team felt these areas of the market represented good value and the fund's exposure to Russia has been vindicated so far this year. Positions including Mobile TeleSystems and Sberbank, a telecom services company and a Russian bank respectively, have rebounded from prior weakness.
Beyond this, exposure to the financials sector has recently had a negative impact, with poor performances from Punjab National Bank and Türkiye İş Bankası, Indian and Turkish banks respectively. On the other hand, holdings including China Mobile, a Chinese telecom services company, gained on increasing use of mobile data and expectations for falling marketing costs and capital expenditure. The manager can also invest in smaller companies which can be more volatile than their larger counterparts.
Our view on this fund
In our view, this fund is supported by an experienced and well-resourced team, who have delivered good long-term returns. James Donald, who has overall responsibility for the fund, has been in charge since the fund's launch in May 1997 and he has ensured the fund's sensible investment approach has remained consistent throughout.
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 adventurous sector of emerging markets, we are currently happy with our existing line up of funds in this sector on the Wealth 150.