Lazard Developing Markets Fund - Q3/11

August 2011
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Lazard Developing Markets Fund - Peter Gillespie, co-manager


Growth strategy and process

  • Growth strategies tend to outperform in rising markets
  • Rising middle class and favourable demographics are positive long-term themes
  • Manager seeks trade-off between reasonable P/E valuations and decent underlying EPS growth rate
  • Called Developing Markets fund to differentiate from existing Emerging Markets fund – which has value rather than growth bias
  • EPS growth is most important factor in stock selection

Positive economic and investment cases in region

  • Markets trading at 11x earnings – cheaper than historic levels of up to 15x
  • Companies look attractive and are growing earnings
  • GDP growth and stock market growth not as closely aligned as one would expect

Managing inflationary pressures

  • Rising level of inflation in emerging markets not a reason to panic
    • Slowing GDP growth, slightly higher inflation – these are normal problems in emerging markets
    • Investors should be more concerned about problems in the West
  • Tackle inflation at company level – pick stocks that can pass on higher costs to customers, eg clothing retailers than can pass on higher cotton prices
  • Central banks have done a good job at handling inflation
  • Inflation has been persistent because workers have maintained purchasing power by lobbying for higher wages higher wages
  • Inflation is a short-term negative but reflects a long-term positive – the rise of the middle class

Stock selection and portfolio construction

  • China is key component of universe – c.20% - and important to GDP growth globally
  • But not just about China – also opportunities in Brazil, Russia and eastern Europe
  • Important to get country allocation right but asset allocation in portfolio is a result of stock selection
  • At sector level :
    • Likes consumer discretionary for playing rising middle class theme
    • Does not like materials and energy sectors – looking for secular growth; not cyclical balance in a commodity price

Risk-aware approach and culture behind the fund

  • Process allows for discounting when buying stocks – pricing in political and macroeconomic risk and ESG in corporate governance behaviour
  • Manager does not take active currency positions or use derivatives in the portfolio
  • An experienced investment team, one used to seeing rising and falling trends in emerging markets
     

Important Information

Important Information All data contained herein are sourced by Lazard Asset Management unless otherwise noted as at 30 June 2011. Performance source: Lipper Hindsight, bid-to-bid price, net income reinvested, net of fees. This is a financial promotion and is not intended to constitute investment advice. In the UK this document, which is supplied for information only, is for distribution only to professional investors and advisors authorised to carry out business under the Financial Services and Markets Act 2000. Figures refer to past performance and past performance is not a reliable indicator of future results. Fluctuations in the rate of exchange between the currency in which shares are denominated and the currency of investment may have the effect of causing the value of your investment to diminish or increase. Investors are reminded that the value of shares and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. Securities identified in this document are not necessarily held by Lazard Asset Management for all client portfolios, and should not be considered as a recommendation or solicitation to purchase, sell or hold these securities. It should also not be assumed that any investment in these securities was or will be, profitable. Funds that invest in emerging markets carry an above-average degree of risk due to the undeveloped nature of securities markets in those countries. Investors should consider carefully whether or not investment in emerging markets stocks is suitable for them and, if so, how substantial a part of their portfolio such investments should be. The Lazard Developing Markets Fund is a sub-fund of Lazard Investment Funds, a UK-authorised Open Ended Investment Company and UCITS. The Authorised Corporate Director of the fund is Lazard Fund Managers Limited, which is authorised and regulated by the Financial Services Authority and is a member of IMA. Copies of the Simplified Prospectus, Prospectus and Report & Accounts are available on request. Certain information included herein is derived by Lazard in part from an MSCI index or indices (the “Index Data”). However, MSCI has not reviewed this product or report, and does not endorse or express any opinion regarding this product or report or any analysis or other information contained herein or the author or source of any such information or analysis. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any Index Data or data derived there from. The MSCI Index Data may not be further redistributed or used as a basis for other indices or any securities or financial products. This financial promotion is issued and approved by Lazard Asset Management Limited, 50 Stratton Street, London W1J 8LL. Lazard Asset Management Limited is incorporated in England and Wales with registered number 525667. It is authorised and regulated by the Financial Services Authority

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