Investment Universe, Process, Strategy and Benchmark – How does the Fund Manager invest? (ISIN: DE0005319016)Lazard’s general investment philosophy and process are based on:
- Financial markets are not entirely efficient
- Only active management can seize the opportunities that arise from inefficiency
- Focus on proprietary fundamental research
- Selection and risk management are key performance drivers
- In-house global research is key for superior risk-adjusted outperformance.
Our investment philosophy is mirrored in our investment process for credit markets:
The focus is on proprietary in-house research via our European credit research capabilities. Our portfolios consist of a large number of diversified positions, predominantly derived from our in-house research (credit/equity) and proprietary decision-support tools. The results of the various analyses are distributed in-house only. The most important source of our research is management meetings. As often as possible, we meet with the management of companies in credit meetings, frequently together with our equity portfolio managers/analysts. External research is secondary and may support decisions, but will never be our sole source of an investment thesis.
Each change within the portfolio reflects a change in the investment thesis. After the re-evaluation of the investment thesis, if the thesis does not convince any longer, the security in question will be underweighted or sold. Smaller changes in relative attractiveness might also lead to weighting adjustments.
Holger Mertens: "The benchmark reflects our Pan-European investment universe and includes financials, as well as non financials. Outperformance vs. benchmark is not our main objective. Portfolio management is focused on outperformance vs. peer group, avoidance of defaults and delivery of steady absolute return."
Performance Review 2006
Holger Mertens: "A positive economic environment supported further tightening in the European High Yield market. Because of a more cautious positioning than the overall market, the Lazard European High Yield fund underperformed in 2006."
Performance Review 2007
Holger Mertens: "With the US subprime crisis as the turning point, the positive performance trend in European High Yield ended in summer 2007. In the second half of the year, investors took a more cautious stance on the credit markets. The fund’s performance was below its benchmark and peer group, as exposure to cyclical sectors (i.e. consumer goods) hurt performance."
Performance Review 2008
Holger Mertens: "In the aftermath of the bankruptcy of Lehman Brothers, the European High Yield market sold off in the 4th quarter, as default rates soared. The capital markets saw a massive flight to quality into German and US government bonds. Our value oriented approach helped us to avoid defaults. We were overweight more conservative business models (i.e. cable) and were able to outperform the benchmark and peer group."
Performance Review 2009
Holger Mertens: "In 2009 the European High Yield market recovered from the strong sell off in the 4th quarter of 2008. A strong recovery of distress bank bonds and lower than expected default rates were the main drivers of performance. The Lazard European High Yield Fund took a cautious stance on the banking sector and was overweight defensive names (i.e. cable). The fund performed inline with its peer group, but below the benchmark."
Performance Review 2010
Holger Mertens: "On the back of significant credit quality improvements, the European High Yield market was able to continue its positive performance trend. The market was less affected by the sovereign debt crisis than other markets. The Lazard European High Yield Fund increased its exposure to cyclical issuers (i.e. basic materials) and selectively participated in attractive new issues. The fund outperformed its peer group and its benchmark."
Performance Review 2011
Holger Mertens: "2011 was a year of two halves. After a positive first half, with strong inflows and improvements in credit fundamentals of most issuers, the market turned negative in the second half. Main trigger for weaker market conditions was the fiscal deterioration of peripheral countries. A sell off in Spanish and Italian government bonds led to massive weakening for risky asset classes. The Lazard European High Yield Fund outperformed its peer group and benchmark in H111 but gave up its advantage in H211, as some of our positions were negatively impacted by the deteriorating market conditions (i.e. overweight banks)."
Performance 2012 - Year-to-Date
Holger Mertens: "The two tranches of the LTRO 3 stabilized the European High Yield market, which rallied massively in Q1.European High Yield was able to significantly outperform its US peer. The Lazard European High Yield market significantly benefited from the market recovery and was able to beat its benchmark and peer group."
Performance since 2007
Holger Mertens: "Since the beginning of the credit crisis in 2007, our bottom-up driven investment approach has delivered a solid absolute return. In addition, the fund achieved a top quartile position relative to its peer group. In a volatile credit market with high default rates (i.e. 2009) a bottom up approach is superior to other strategies, as credit risk is asymmetric rather than normally distributed."