The Lazard Australian Equity Fund takes large active positions, holding generally 25 to 45 securities chosen for their potential to deliver absolute returns over the long term. It is a high conviction portfolio but key benchmark risks are also taken into consideration when constructing the portfolio. The Fund’s objective is to achieve total returns (including income and capital appreciation and before the deduction of fees and taxes) that exceed those of the S&P/ASX 200 Accumulation Index by 3% per annum over rolling three-year periods.
Australian equities fell through September 2023, as investors took a cautious stance during a period where the Australian 10-year bond yields reached the strongest levels since October 2011. The S&P/ASX 200 outperformed the Developed World performance, with a fall of -2.8% in September, while the S&P 500 also fell -4.8% in local currency terms. For the quarter ending September 2023, the S&P/ASX 200 ended down -0.8%. On a sector basis, Energy, Financials, and Consumer Staples outperformed in Australia, and Health Care, IT, and REITs sectors were the relative worst performers during the month. During the quarter ended September 2023, the Lazard Australian Equity Fund returned 1.4% (net of W Class fees), outperforming the S&P/ASX 200 Accumulation Index which declined -0.8%.
Contributors to Performance
• Monadelphous (MND) was a contributor to portfolio performance over the current quarter. The company announced several major construction contract awards in the lithium and iron ore segment, bringing the value of secured contracts since the start of FY23 to nearly A$1bn with over half of this post balance date. Monadelphous Managing Director, Zoran Bebic, stated that these contracts represented the first in a new wave of major construction projects to come to market. We continue to remain shareholders in MND, with the view that the medium-term earnings power of the company is higher than its current share price valuations.
• Costa Group’s (CGC) shares performed strongly during Q3 2023, rising around 15% after the board entered a Scheme of Arrangement with Paine Partners for the sale of the company at a price of A$3.20 per share. This price was disappointingly lower than the A$3.50 level discussed few months earlier before CGC’s most recent earnings downgrade.
Detractors from Performance
• Despite reporting results and guidance in-line with market expectations, Waypoint REIT’s (WPR) underperformance accelerated over Q3 2023 as bond yields rose. The ‘higher for longer’ thesis for bond yields placed pressure on the broader REIT sector, with the key implications being negative asset revaluations and rising debt costs. WPR is relatively well-positioned, with full-year CY23 earnings guidance unchanged being flat versus the prior year, with ~3% rent growth offset by the full-year impact of prior asset sales and higher cost of debt. The balance sheet remains strong with gearing at the low end of the 30-40% target range and 93% hedging for FY24, providing significant headroom. We are still awaiting the competition regulator ACCC’s adjudication of main tenant Viva Energy’s (VEA) acquisition of On the Run (OTR). This will determine VEA’s rollout of the OTR format across the store network, which could be partially funded by WPR and provide redevelopment returns. WPR currently trades at a 7.3% dividend yield and 25% discount to net tangible assets, providing a good valuation support.
• Healius (HLS) was subject to a conditional non-binding offer from another pathology services operator to acquire the company in March 2023, which offered some support to the shares in recent months. However, the stock underperformed the market in Q3 2023 in anticipation and later release of the ACCC’s preliminary finding that the acquisition would likely substantially lessen competition in Australian pathology services. This highlighted that the proposed offer might need to be revised before it is considered again. At current levels, we believe there is still value in the stock as we believe the market is not yet fully appreciating the recovery in diagnostics volumes and the company’s refocusing initiatives.
What is Lazard Australian Equity W Lazard Australian Equity W is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Value Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Lazard Australian Equity W has Assets Under Management of 91.29 M with a management fee of 0.82%, a performance fee of 0.00% and a buy/sell spread fee of 0.4%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Lazard Australian Equity W has returned 5.12% in the last month. The previous three years have returned 12.84% annualised and 14.02% each year since inception, which is when the Lazard Australian Equity W first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Lazard Australian Equity W first started, the Sharpe ratio is 0.36 with an annualised volatility of 14.02%. The maximum drawdown of the investment product in the last 12 months is -6.63% and -55.27% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Lazard Australian Equity W has a 12-month excess return when compared to the Domestic Equity - Large Value Index of -0.47% and -1.21% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Lazard Australian Equity W has produced Alpha over the Domestic Equity - Large Value Index of -0.02% in the last 12 months and -0.09% since inception.
What are similar investment products?
For a full list of investment products in the Domestic Equity - Large Value Index category, you can click here for the Peer Investment Report.
What level of diversification will Lazard Australian Equity W provide?
Lazard Australian Equity W has a correlation coefficient of 0.94 and a beta of 0.96 when compared to the Domestic Equity - Large Value Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Lazard Australian Equity W and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Lazard Australian Equity W with the ASX Index 200 Index?
For a full quantitative report on Lazard Australian Equity W compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the Lazard Australian Equity W to do my own analysis?
To sort and compare the Lazard Australian Equity W financial metrics, please refer to the table above.
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Comments from SMSF Mates
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Performance Commentary - August 31, 2023 The S&P/ASX 200 outperformed the Developed World markets performance, falling -0.7% in August 2023. Weakness in Australian equities was mainly on the back of dull guidance from companies through the earnings season. The Australian 10-year bond yields sold off by 2bps to 4.03%, trading relatively unchanged as the Reserve Bank of Australia (RBA) remained unmoved on the cash rate, however still retained a tightening bias. On a sector basis, Consumer Discretionary, REITs, and Energy outperformed, while Utilities and Consumer Staples sectors were the relative worst performers.
During the month ended August 2023, the Lazard Australian Equity Fund returned -1.5% (net of W Class fees), underperforming the S&P/ASX 200 Accumulation Index which returned -0.7%.
Contributors to Performance
• Bapcor (BAP) announced their results on August 16, 2023 which were in-line with expectations. BAP shares rose 6% over the month, outperforming the ASX200 which declined in August as the market had concerns that BAP may be impacted by the slowing consumer demand in Australia. The largest value driver for BAP remains the ‘Better Than Before’ program, for which management has announced aggressive cost saving targets. If these are mostly realized, we believe there might be a meaningful upside for BAP shares. We remain attracted to BAP’s resilient top line and rational competitive dynamics in key markets with minimal ‘Better Than Before’ upside included in our valuation. We continue to hold BAP shares.
• Ridley (RIC) posted another solid result in August with NPAT increasing 15.5% for FY23. The shares were weak in the last quarter of the financial year as the market was concerned that weaker tallow pricing would derail the company’s earnings growth. We used this share price weakness to add to our RIC positions. While commodity price tailwinds have undoubtedly assisted in previous periods, RIC has numerous growth drivers to depend on, as detailed in management’s “Growth Plan 2” initiative. Confirmation of these growth options across the stockfeed, packaged products and rendering business units saw the shares rise through August and outperform the broader index. We continue to hold RIC shares as we believe that the market is factoring in less than the full upside we believe “Growth Plan 2” provides.
Detractors from Performance
• Towards the end of August 2023, Costa Group (CGC) reported a very disappointing earnings downgrade, with a deterioration in the quality of the citrus harvest. The shares fell 14% as the market was concerned the downgrade could impact the indicative takeover offer Paine Partners made to the CGC board for $3.50 per share from progressing to a binding acquisition proposal. We expect an update on the status of the proposal from the CGC board in mid-late September 2023.
• South32 (S32) underperformed the market in August 2023 as concerns about a slower than expected Chinese economic recovery continued to weigh on sentiment. S32 reported its FY23 result during the month, and while it was broadly in line with consensus, we believe the guidance for FY24 was disappointing. Costs guidance was significantly higher than expected and production growth guidance was also soft. While S32 is investing in growth, these benefits won’t be seen until post FY25. S32 continues to transform its portfolio with 71% of FY23 revenue related to base metals, up from 45% when the business was demerged from BHP almost 10 years ago. In our view, S32 is well positioned to benefit from the significant energy transition demand for base metals in the medium to long term. Despite some near-term headwinds we continue to see S32 as attractively priced.
Performance Commentary - July 31, 2023 Australian equities gained ground in July 2023, lifted by a rally in energy stocks on the back of rising oil prices with the S&P/ASX 200 closing +2.9% for the month. Australian 10-year bond yields sold off by 3bps to 4.05%, trading relatively unchanged as Reserve Bank of Australia’s (RBA) July meeting saw the cash rate paused at 4.10%. On a sector basis, Energy was the strongest performer, while Financials and Information Technology also outperformed. The Materials, Consumer Staples, and Health Care sectors were the relative worst performers.
During the month ended July 2023, the Lazard Australian Equity Fund returned 4.3% (net of W Class fees), outperforming the S&P/ASX 200 Accumulation Index which returned 2.9%.
Contributors to Performance
• Monadelphous (MND) was a contributor to portfolio performance over the month. The company announced two major construction contract awards: the supply and construction of an overland conveyor and transfer station at Fortescue’s Christmas Creek mine and works associated with the expansion of Albemarle’s Kemerton Lithium Hydroxide Processing Plant. Monadelphous Managing Director, Zoran Bebic, stated that these contracts represented “the first in a new wave of major construction projects to come to market.” We continue to remain shareholders in MND, with the view that the medium-term earnings power of the company is significantly higher than its share price is currently capitalizing.
• SmartGroup (SIQ) performed strongly in July, with its share price up by 14%. Whilst there was no company specific news, several industry peers have commented that recent legislation providing fringe benefit tax (FBT) exemption on electric vehicles has driven robust growth in novated lease demand. As a leading salary packaging and novated lease provider, SIQ may be a beneficiary of the expansion in the addressable market. We continue to hold SIQ shares.
Detractors from Performance
• Aurizon’s (AZJ) had a weaker month in July with the share price falling by 3%. On 17 July 2023, the company held an investor day where FY23 earnings guidance was restated and FY24 guidance was issued for the first time. While the guidance was largely in line with consensus estimates the shares fell in response to the news. This may in part be due to the strong run up in the share price since February 2023 but also likely suggests skepticism at the growth drivers the company outlined at the investor day, with the containerized freight land bridging initiative being the prime example. While we remain agnostic on the success or otherwise of this initiative, we don’t believe any success is reflected in the share price and that the capital being invested which may be at risk of impairment is immaterial. We continue to hold AZJ shares.
Performance Commentary - June 30, 2023 Australian equities rallied in June 2023 and closing Q2 2023 in positive territory up by +1% as investors shrugged off recession fears amid a local retail spending rebound and easing of inflation. The S&P/ASX 200 rose +1.8% in June, underperforming the Developed Market World during the month, on softening rate hike expectations. Australian 10 – year bond yields sold off by 0.42bps to 4.02%, as the Reserve Bank of Australia’s (RBA) June meeting saw the cash rate hike by 25bps, to 4.10%. On a sector basis, Materials was the strongest performer, while Information Technology, and Financials also outperformed for the month. The Health Care and Communication Services sectors were the relative worst performers.
During the quarter ended June 2023, the Lazard Australian Equity Fund returned 2.4% (net of W Class fees), outperforming the S&P/ASX 200 Accumulation Index which returned 1.0%.
Contributors to Performance
• Aurizon’s (AZJ) shares rose more than 16% during Q2 2023, outperforming the S&P ASX 200. During the month of May 2023, the company presented at the Macquarie Conference where earnings guidance for the 2023 financial year were confirmed. With an increasing number of earnings downgrades in the market due to an apparent slowing in consumer spending, this earnings stability was welcomed by the market. Positively an increase in Aurizon’s Regulated Asset base from $5.5 billion to $6.2 billion was confirmed as well as an increase in the allowed return expected to significantly increase earnings from FY24. We continue to favor Aurizon’s defensive earnings profile, cash generation ability as well as the growth supplement from the Bulk division. We also note that the company is a clear beneficiary from higher inflation providing attractive diversification benefits and hence we continue to hold our positions.
• SmartGroup’s (SIQ) share price rose by more than 20% over the quarter. In early April 2023, SIQ announced that former The Star Sydney CEO Scott Wharton would be succeeding outgoing CEO Tim Looi. The company then presented at the Macquarie Conference in May and a provided a positive trading update. There was growth across novated leasing leads, orders, settlements, and yields. In mid-June 23, Eagers Automotive (APE) announced that it had acquired an economic interest of above 5% in McMillan Shakespeare (MMS), the key competitor to SIQ in the salary packaging and novated lease sector. The market has subsequently viewed APE’s strategic investment in MMS as a vote of confidence in the potential growth of the novated lease sector, following recent legislation that provides fringe benefit tax (FBT) exemption to novated leases of electric vehicles below ~A$85,000. SmartGroup (SIQ) may be a key beneficiary of this Government legislation, and we remain shareholders.
Detractors from Performance
• South 32 (S32) underperformed on weaker commodity prices. Disappointing growth in China, a key source of commodity demand continued to weigh on sentiment. We continue to see S32 as attractively valued and hold the shares in the portfolio.
• Ridley (RIC) shares fell in the June 2023 quarter, largely retracing the strong gains in Q1’23 on the back of a strong H1’23 result. There was no company specific news, and it appears that weakness in tallow prices was behind the fall in the share price. While RIC does have an exposure to tallow pricing the company has a plethora of other earrings drivers as detailed in the company’s ‘Growth Plan 2’ initiatives. The company reactivated the small buyback program seemingly in response to the share price weakness and CEO, Quinton Hildebrand, signed a longer-term commitment to the company during the quarter. While these are only qualitative factors, we believe that this may suggest the board and management see higher profits in the future. We remain holders of RIC shares and await the FY23 result in August.
Performance Commentary - May 31, 2023 Australian equities fell through May 2023 with the S&P ASX 200 index closing down -2.5% for the month, on continued rate hike expectations from central banks and concerns around US law makers intentions on the country’s debt ceiling. Australian 10-year bond yields sold off by 0.26bps to 3.60%, on the resumption of rate hikes by the Reserve Bank of Australia to 3.85% in the May 2023 meeting. On a sector basis, Information Technology was the strongest performer, while Utilities and Energy also outperformed. The Consumer Staples and Consumer Discretionary sectors were the relative worst performers.
During the month ended May 2023, the Lazard Australian Equity Fund returned -2.4% (net of W Class fees), outperforming the S&P/ASX 200 Accumulation Index which declined -2.5%.
Contributors to Performance
• Costa Group’s (CGC) share price outperformed during the month with the shares rising 3% while the market declined about 3%. On the 25 May 2023, the company gave a positive qualitative update specifically noting strength in the international berry business in China and Morocco as well as in the recently acquired 2PH citrus assets. After several years of disappointing earnings, this positive news was well received by the market. We continue to believe that CGC’s assets can earn profits materially higher than what has been produced in recent history. If this expectation is confirmed through the results we expect, we expect CGC share price to perform strongly. We continue to be invested in the company.
Detractors from Performance
• Metcash (MTS) underperformed in May 2023 on the back of a slowing macro environment in Australia. It’s two main pillars: food and hardware are the markets main concerns. Food has been a strong performer over the last four to five years especially on the back of strong local shopping during COVID-19 years. Now with rising interest rates the concern is that shoppers will look to discounters such as Aldi and reduce the dollars spent at a local IGA. Hardware is Metcash’s fastest growing pillar but again a slowing housing market in both new construction and renovations is likely to see the growth in recent times from both Mitre10 and Total Tools slow. Metcash will report their annual numbers for April 2023 in late June this year as the market awaits an update on these two businesses. We believe there will be some weakness as the economy slows but our estimates remain conservative, and in our view Metcash still trades on a multiple discount to its long run average.
Performance Commentary - April 30, 2023 Australian equities rallied over April 2023, as a slowing inflation rate (Q1 -23 headline 7.0% y/y vs 7.8% previously) prompted a reassessment on the need for any further rate hikes from the RBA at that time. The S&P/ASX 200 Index rose +1.9% during the month outperforming the DM World Index, on the back off with strong Australian consumer sentiment underpinned by an RBA interest rate hike pause to 3.60% in April. Australian 10 -year bond yields tracked sideways as the cash rate remained unchanged, rallying 4bps to 3.34%. On a sector basis, REITs were the strongest performer, while Information Technology, and Industrials sectors also outperformed on a relative basis. The Energy, Utilities and Materials sectors were the relative worst performing sectors.
During the month ended April 2023, the Lazard Australian Equity Fund returned 1.2% (net of W Class fees), underperforming the S&P/ASX 200 Accumulation Index which rose 1.8%.
Performance Commentary - March 31, 2023 The S&P/ASX 200 fell -0.2% during the month of March 2023 and closed Q1 2023 returning 3.5% for the quarter on the back of slowing earnings momentum and continued rate hikes by the Reserve Bank of Australia, raising another +0.25bps to 3.60% during the month of March. Australian 10-year bond yields moved in reaction to slowing inflation, rallying 56bps to 3.30%. During the month, the Materials was the strongest performer, while Communication Services and Consumer Discretionary sectors also outperformed in Australia. The Energy, Financials and REITs sectors were the relative worst performers.
During the quarter ended March 2023, the Lazard Australian Equity Fund returned 1.1% (net of W Class fees), underperforming the S&P/ASX 200 Accumulation Index which rose 3.5%.
Contributors to Performance
• Eagers Automotive (APE) shares rose 24% during Q1 2023 outperforming the market, on the back of a strong CY22 result. The key driver of the positive share price response was the above consensus turnover guidance for CY23. With conservative assumptions, APE expect to earn A$9.5-10 billion of turnover which was 4-10% above prior consensus expectations. Management further detailed their expectations that margins will be ‘stronger for longer’ resulting in much larger increases in profit forecasts than the increase in turnover. Beyond 2023, we believe APE is well positioned to prosper in the transition to (EV) and the company has a balance sheet that provides flexibility to capitalize on opportunities.
Detractors from Performance
• Aurizon (AZJ) underperformed during the March 2023 quarter on the back of a weak H1’23 profit result which was released in February 2023. Heavier than normal rainfall lowered volumes in both the Coal and bulk divisions, which impacted revenues. We view weather related impacts as random and expect a strong recovery in profits as has occurred historically. During the quarter the divestment of East Coast Rail was finalized, improving AZJ’s balance sheet, and additional contract wins in the Bulk business were announced. We believe that the market remains highly skeptical of AZJ’s Bulk growth strategy, and no benefit of success is reflected in the share price. We have modest assumptions for AZJ and believe the company stacks up well on a risk, reward basis. We also note that the company is a clear beneficiary from higher inflation providing attractive diversification benefits and hence we continue to hold our positions.
Performance Commentary - February 28, 2023 February was a weak month for equities, as company results illustrated waning earnings momentum. The S&P/ASX 200 declined -2.4% during February 2023, as the RBA’s 25bps rate hike to 3.35% placed pressure on the already decelerating economy. Australian 10-year bond yields moved in reaction to tightening monetary policy, selling off 30bps to 3.86%. Commodity prices fell across the board. In Australia, Utilities was the strongest performer, while Information Technology and Industrials also outperformed. The Energy, Financials and Materials sectors were the relative worst performers.
During the month ended February 2023, the Lazard Australian Equity Fund returned -2.6% (net of W Class fees), underperforming the S&P/ASX 200 Accumulation Index which declined -2.4%.
Contributors to Performance
• QBE’s share price rose following its 2022 full year results. Continuing premium rate rises that commenced in 2019 and first became visible in the balance sheet in 2021 have started to flow through the P&L. These benefits and higher yields on the technical reserves held suggest that EPS will rise significantly once more in 2023. The hard market in premiums continued into 2023, with affected reinsurance lines experiencing 20-30% rises over the 1 January 2023 renewal season. Reinsurance markets tend to lead primary rates, and QBE is roughly balanced in terms of inward and outward reinsurance. In addition, global rates continue to rise and investment yields expectations are being raised in consequence. The new CEO, Andrew Horton, emphasized stability of results as a focus of his strategy, which might have reassured some that in the past were critical of QBE’s earnings volatility. In our view, the major risks to QBE remain; (1) the possibility of sustained high rates of inflation that would necessitate provision increases on long-tailed liability classes; and (2) the Australian LMI business, which is exposed to mortgage defaults. At a consensus 2024 EPS of $1.63, the stock remains on only 9.2x forward earnings. While the share price is not extraordinarily lowly priced as in 2021, we believe QBE remains an attractive investment in terms of future expected returns.
Detractors from Performance
• AMP’s stock price fell in February following the full year 2022 result. The operational results were soft, but broadly in line with the lower expectations. The market was disappointed, however, with the lack of any commentary or plans to deal with some of the outstanding issues. These include the drag from three loss-making businesses within the group, the very high employee numbers and costs post-AMP Capital divestment and additional capital returns. The price fell to its low on 28 February 2023 as this was the revised due date for the completion of the sale of the final part of AMP Capital to Dexus. The company subsequently announced that the deadline had been extended and that the terms remained unchanged. We continue to engage with the company to address the legacy cost/staffing issues and to expedite capital returns. At A$1.03, AMP traded at an 18% discount to December 2022 NTA of A$1.26 and a 22% discount to pro-forma NTA post settlement of all sales. At the end February price, AMP was once more amongst our more attractive holdings in terms of expected future returns.
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