Rogers admits slowing growth in China is a concern, but says he’s more optimistic about China than a number of his peers, largely because it is still given too little attention by most. “Asia is the most under researched region in emerging markets. In China especially there are a lot of interesting opportunities,” he said.
Rogers says he recently wanted more information about a consumer discretionary company in China, one sector they feel is on the rise, so he called five brokers, four of whom didn’t cover the stock. The fifth company, the analyst was out of the office.
“This is the largest white good manufacturer in China. And it’s an exporter. I own their toaster,” he said.
Rogers says this lack of information presents an huge set of opportunities to outperform, setting it apart from the developed world – particularly the US – where company information abounds.
Emerging markets have had a difficult time over the last several years while developed markets are reaching ever higher highs.
Over the last year, equities in Europe, the US and the UK are all up more than 13 per cent. Emerging markets have clawed their way back into positive territory from March, but are up less than half as much, at 5.71 per cent.
Performance of indices over 1yr
Source: FE Analytics
Rogers says asking whether the region is due a rally isn’t as important as ensuring investors can withstand both up and down markets.
He says that it is hard for managers to excel in the region at the moment as no particular style is being favoured – stock-picking is everything.
“Value did well from 2002 to 2007, but there hasn’t been a style that’s worked well from 2008,” he said.
In a recent FE Trustnet article, legendary emerging markets investor Mark Mobius argued fundamentals were better than ever in the region, brushing off fears of a crisis.
Rogers tends to agree, but says company fundamentals are more important than they were in previous boom cycles for emerging markets. He doesn’t expect all stocks to be lifted as they’ve been in the past.
“The macro risks are overstated. There’s a lot in the valuation. The micro risks are hard to identify,” he said.
The fund was launched in December 2012, so the mettle of the fund’s process has yet to be tested over the longer term. However, unlike developed markets, emerging markets have undergone extreme volatility, particularly from last summer. The Lazard portfolio has held up well relative to the index.
Since launch, the fund is up 2.45 per cent, ahead of the MSCI Emerging Markets index which gained 1.19 per cent over the period.
Performance of fund vs index since launch
Source: FE Analytics
As you can see from the above chart, while the fund did fall along with the rest of the market in summer 2013 and again toward the end of last year, it didn’t fall as far as the index in either period.
In 2013 the fund returned 0.2 per cent while the FCA Recognised Offshore Equity Emerging Markets sector lost 1.7 per cent. The MSCI Emerging Markets index was down even farther, losing 4.08 per cent.
The fund hasn’t rallied as strongly as the index since the start of the year, picking up 3.95 per cent while the index is up 6.48 per cent, according to FE Analytics.
“We’ve never been more than [1 percentage point] behind the benchmark,” Rogers said. “We’re trying to hit singles every day, we’re not swinging for the fences.”
“A lot of people don’t bother doing it. We do well in volatility. Now that there’s a lot of volatility, you’re seeing the big funds underperform these days.”
Rogers says that’s one advantage of running a fund that doesn’t ascribe to a particular style of management.
Rogers says the fund is also different from Lazard’s other emerging market offerings because it’s a bit of a “best ideas” portfolio, though the fund is comprised of roughly 80 stocks.
“We have a different pattern of performance,” he said. “We’re flexible with valuations, style agnostic and all capitalisations. We’re looking for 80 stocks out of 2,500 that are going to deliver outperformance.”
He adds that the portfolio had a mid-cap bias because they feel there are more under researched and unloved companies in the space which are “mispriced.”
The team look for companies in five different stages of their cycle: startup, which focuses on valutions; growth, which takes into account the earning and price to earnings/sales figures for a firm; stable growth, when companies start to deliver high or improving returns on invested capital; mature, where stable and growing dividends come into play; and rebirth, where companies are undervalued and set for a recovery.
Lazard are currently in the process of rolling the fund out via a number of platforms. Investors can access the fund directly, though the minimum investment is at Lazard’s discretion. Ongoing charges for the fund are 1 per cent.
