Lazard is launching its emerging markets equity advantage fund in Australia, giving retail investors access to its quantitative strategy in the asset class for the first time.
The global investment firm has announced the Australian launch of the Lazard Emerging Markets Equity Advantage Fund, giving retail investors access to the quantitative strategy which has been managed by the firm since 2011.
Managed by Lazard’s equity advantage team, it combines proprietary quant insights with Lazard’s global network of fundamental investors. The team has been with Lazard since 2007 and currently oversees US$35 billion for clients worldwide.
Its quant strategy assesses each company’s growth potential, valuation, market sentiment and financial quality relative to global peers, with the portfolio typically holding 175 to 300 securities. Portfolio risks are managed by maintaining exposures that are similar to the benchmark, including region, industry and country.
The fund also joins the Lazard Global Small Cap Equity Advantage Fund and the Global Equity Advantage Fund, which was made available to Australian wholesale and retail investors last year.
While the Lazard Emerging Markets Fund has been available in Australia since 1997, this new offering is intended as a complement, using a quantitative approach compared with the existing fund’s active fundamental strategy.
Quant comes back into style
Speaking to Investor Daily ahead of the launch, Lazard portfolio manager and quant researcher Kurt Livermore said the timing of the expansion to the Australian market is no coincidence.
Though his background in quant spans several decades, he said the post-COVID investing environment is very different, with participants now seeking consistency amid geopolitical volatility and sharp market swings. Meanwhile, advances in processing power are allowing far more data to be analysed than was previously possible.
On quant strategies in emerging markets and small caps specifically, Livermore said these areas are often run by a single manager, but investors are increasingly favouring “core, beta-like” portfolios that broadly track the benchmark, complemented by satellite positions aimed at generating additional return and improving consistency.
“The other thing I would add to that is because of people’s familiarity with AI in particular, there’s just more comfort in the marketplace today, for both advisers and for retail investors of quantitative processes.”
He added that Lazard is also uniquely positioned, with a scaled quantitative team working alongside fundamental analysts, allowing the two to complement each other while keeping humans “in the loop”.
Acadian’s senior vice president and portfolio manager Matt Picone described a similar approach for its quant strategy last month, using the term “benchmark-aware” to define a strategy which aims to consistently track the index while outperforming by a few percentage points.
The rise of these kinds of quant strategies also adds a new dimension to the active versus passive debate, with SPIVA’s latest Australia Scorecard showing nearly three-quarters of Australian equity funds underperformed their benchmark last year.
With concentration risk also a growing issue in emerging markets, where semiconductor giants in South Korea and Taiwan dominate benchmarks, the risks of selecting stocks far outside the index are clearer than ever.
Emerging market power
Though questions have emerged after emerging markets’ strong performance last year as the Iran war raised concerns over oil reserves and supply chains, the asset class has again rallied strongly in April, reaching a record high last week.
The MSCI EM index rose more than 15 per cent in the month, outpacing the S&P 500 and pointing to continued rotation out of the US and into other markets.
“There has been this discussion of the end to US exceptionalism, or at least a moderation of it,” Livermore said. “Obviously March was a bit of a hiccup in that, but we do see that people are talking about emerging markets, talking about small caps in ways that they weren’t before.”
He added that the asset class offers an attractive way to gain exposure to the AI theme without relying on expensive US technology stocks. With the MSCI Emerging Markets Index now trading at a 44 per cent discount to the S&P 500, this represents the largest gap since April last year.
Beyond technology, he said the firm is also seeing bright spots in areas such as Korean financials, Brazilian energy stocks and Chinese AI platform companies.
