Despite the ASX 200 posting mediocre returns over the past year, the asset manager says there are compelling bottom-up opportunities that could allow active managers to outperform over the next 12 months.
While the Australian share market closed 2025 on a muted note, with the S&P/ASX 200 posting a 6.3 per cent gain for the year, Lazard Asset Management (LAM) is optimistic about local opportunities in 2026.
It says this is particularly true during market drawdowns like those seen late last year, which give active managers greater scope to outperform.
Speaking to InvestorDaily, Australian equities analyst Aaron Binsted pointed to the success of LAM’s Defensive Australian Equity Fund during an otherwise difficult 12 months for active fund managers.
According to the firm, the fund is exceeding its benchmark over the last 12 months, over the past five years and since its inception in 2012. In FY24/25, investor distributions rose 17 per cent year-on-year.
“While index return has been a bit mediocre this year, we’ve been able to deliver double digits from that while some of the big index stocks have had a difficult time,” Binsted said.
According to Lazard, much of this has come from value adding: 14 of the 37 stocks held in the Defensive Australian Equity Fund have each contributed at least 30 basis points to performance over the past year.
While the fund is designed for investors in the pension and pre-pension phase, aiming to protect capital in falling markets while delivering steady, long-term returns with lower volatility and drawdowns, he said its success also highlights the breadth of mid-cap opportunities in Australia.
Selective stock picking, he added, can help manage risk and enhance returns against a “lumpy” index.
In particular, Binsted highlighted Eagers Automotive as a standout portfolio performer, citing growth drivers including efficiency gains, cost reductions across its Australian operations, a recent expansion into Canada, and its position as the dominant distributor for Chinese electric vehicle maker BYD.
He also pointed to compelling consumer opportunities in names like Collins Foods, the KFC operator, as well as real estate investment trusts (REITs), adding that profits from those investments have already been redeployed into cyclical transport stocks such as Freightways and Mainfreight.
While the index is typically heavily weighted to mining and banks – a sector that has taken a hit in recent months – he argued that steering clear of highly priced, speculative stocks in favour of selective picks such as Eagers is an effective strategy in the current environment.
“When CBA fell out of bed or WiseTech fell out of bed, we weren’t exposed to that risk. And so our investors fortunately didn’t suffer from that.”
At the same time, Binsted said he broadly agreed with UBS’s forecast of a decent ASX 200 gain in 2026, supported by mining earnings, but maintained that stock-specific opportunities still offer greater potential in the current environment.
He added that the defensive fund also holds exposure to the mining sector through picks such as iron ore royalties company Deterra, which he views as a highly attractive investment with strong cash flows.
Looking into 2026, he argued there is a “lot of gas left in the tank” for handpicked investments to drive value amid large valuation dispersions.
“Typically, when we see these large valuation dispersions…we often have a really strong performance against the index, and that kind of environment we’re sitting in now, with some of the trends we’ve seen in the last quarter, suggest that that may be coming,” Binsted said.
Meanwhile, he noted that risk exposure has been consistently subdued since the fund’s inception.
“Over the almost 15 years that it’s been around, it’s only experienced about 60 per cent of the drawdown that the ASX 200 has experienced in negative months and its volatility, it’s had 20 per cent less volatility at the same time while delivering higher returns.
“When you have these shakes in markets, that’s when the fund really shows its stripes,” he added.
Binsted concluded that while investors often view defensive and growth strategies as at odds, equating defensive with cash and bonds, the two goals can coexist.
“When we use defensive, we’re talking about higher certainty of return via equities where you’ve got the confidence that the return is going to come…in that sense, I think that if you buy equities where you’ve got confidence that the income growth is going to be there, you’re actually going to deliver that growth.”
