With Australian investors currently overexposed to risks in the domestic equity market, adopting a global and predictable investment strategy is essential, says Lazard Asset Management.
Speaking in Sydney yesterday, Lazard Asset Management portfolio manager and analyst Warryn Robertson said investors need to place greater importance on predictability.
“We aim to reduce the uncertainty in global equity markets by only investing in companies that have historically shown higher revenue certainty.
“For us this predictability means they are easier to forecast and therefore less likely to produce the negative shocks that diminish shareholder value,” he said.
Mr Robertson – who recently launched Lazard’s global equity franchise fund – argued that looking for companies that can be defined as “economic franchises” helps to protect and grow capital.
He said in the current environment characterised by heightened volatility, investors should not be “speculating on the hope of a possible outcome”.
“The power of predictability is so vitally important," he said.
According to Mr Robertson, the investment world has become too focused on short-term earnings and speculation.
“Investing is about, in my view, limiting uncertainties and looking to generate a decent return on capital while protecting that capital over the long term.”
Mr Robertson said that banks, resources and energy companies, which make up the majority of the ASX, are not economic franchises.
"We don't believe that you can predict with any degree of certainty the future of those stocks."
Moreover, Mr Robertson pointed out that finding value as well as quality is equally as important when investing in economic franchises.
“It’s not just right to buy good quality companies; you have to buy them at the right price,” he said.
However, finding value in addition to quality has become difficult over the past two years, with Mr Robertson adding: "You've got to have an eye for value within a universe of quality."