Lazard Emerging Market Fund

El_Selb

Stick or Fold?

History suggests it will come good again but strong temptation to sell up and buy into Mr Woodford!

Obviously that wouldn't do wonders for the balance of my portfolio.

I suppose I really should just sit on my hands...

Unless of course the worldwide markets Lazard target going to be depressed for a prolonged period of time. In which case would the FM just target new EMs performing better...

george4064

I would stick, or buy more.

bowlhead99

Yawn. Are you going to ask every few months until we tell you yeah dump the fund or whatever answer you think you want.

forums.moneysavingexpert.com/showthread.php?t=5202802

HardCoreProgrammer

I have the fund as well and it has fallen a lot in the last couple of months. However, this is nothing unusual in investing. My Japan fund and UK smaller company fund fell up to about 15% last year but they have since recovered.

With US interest rate increase imminent, emerging market funds will probably not do too well in the near future, so I would consider bailing out if you need the money in the next couple of years.

On the other hand, if you are in for the long term (>10 years) like me, I would just continue to add money each month and then rebalance once a year or so. Nothing will underperform forever and every dog will have its day.
However, I would think carefully before adding more than the regular monthly payment, because the markets can keep going down. Last month, I added some money to Aberdeen Latin America fund thinking it cannot go much lower, and go lower it did!

That said, the management charge of the fund is much higher than JPM Emerging Markets, especially as Hargreaves Lansdown recently negotiated a further discount for the latter. I am seriously considering moving the money to JPM Emerging Markets...

El_Selb

Bowlhead - well done on your good memory and superior investment knowledge and experience.

Harcore - thanks for your comments, food for thought. I've got a 3-4 year horizon so I will consider this some more.

bowlhead99

El_Selb wrote: »

Bowlhead - well done on your good memory and superior investment knowledge and experience.

Why thank you

I tend to agree with the above about emerging markets not being well placed for stunning short term growth. As Lazard wrote in their interim report on the fund for the six months to March, which I guess you've seen,

... In the short term, we recognise the potential for stresses that can result from credit concerns in China, lacklustre economic growth outside the United States, currency volatility (including a rising US dollar), prolonged commodity price uncertainty, and further geopolitical tensions, including in Russia, Ukraine and the Middle East...

Emerging markets should do well over the longer term because these sorts of things will resolve themselves over time. However, in a low interest rate environment, people are happy to seek risk. As rates rise, less so.

If you can't get low interest rates to fuel investment, and the stellar GDP growth rates in China etc are well known to be tapering off, reducing demand (or at least, demand growth) for consumer goods and raw materials, then riskier emerging markets are perhaps less attractive than a more "slow and steady" traditional developed market.

You asked whether the fund manager would just reallocate to target new EMs which might perform better. The answer is, not really. They can certainly target the company types and countries which they feel best suit the objectives of the fund, and the mix of countries and holdings are going to be different than, for example, the JPM fund. But this is not a frontier markets fund so they are not just going to slap all your money into Nigeria and Romania and then wait a few decades for them to upgrade from frontier to emerging and become a "new EM". The investors are investing on the basis that the money is being deployed into more "established" emerging markets like BRIC, South Africa etc, so that's what you'll get.

Of course, as mentioned last time around, nobody really knows what really lurks around the corner for the next five to twenty years, so it's good to have a mix of everything and rebalance from time to time. If your investing horizon is only three to four years, a large exposure to Lazard emerging markets doesn't make a lot of sense unless you're a risk-taker, though the same could be said for Woodford or any other high-equities fund.

HardCoreProgrammer wrote: »

That said, the management charge of the fund is much higher than JPM Emerging Markets, especially as Hargreaves Lansdown recently negotiated a further discount for the latter. I am seriously considering moving the money to JPM Emerging Markets...

JPM with the HL sweetener is about 0.7% OCF but you only get the HL sweetener by paying their astronomic 0.45% platform fee, so the overall charge is still over 1.1%.

Meanwhile the class I version of Lazard's EM fund is under 1.1% OCF so by the time you add on a cheap platform (say 0.2% or 0.25% at Youinvest or Charles Stanley Direct), it's not costing you more than a quarter of a percent extra.

The two funds only share one "top 10" holding, with JPM having twice the allocation to India, twice the allocation to South Africa, half the allocation to Indonesia, a fifth of the allocation to Korea, more in HK/ Taiwan etc etc. The differences in asset allocation will likely affect results a lot more than a quarter of a percent or a fifth of a percent per year in fees. It is the performance after fees that's actually important.

But as I hinted at earlier, an EM fund could drop 50% in a year so if you're looking for the exit in 3 years it might pay to de-risk now. It doesn't sound like you have a couple of decades to wait around to see if the discount valuations in emerging markets will correct themselves over time. However, other single sector single region developed markets funds (e.g. UK equity income) could also suffer painful drops too if the markets don't do what you'd like, so there's no simple solution to having a short term investment timeline. Other than, get a longer one.

TrustyOven

Just like to add, thanks Bowlhead99 for your insightful and enlightening posts.

bowlhead99 wrote: »

Inspired by Masonic's post saying to ignore short timescales and also to diversify I have run some numbers showing how that would work with rebalancing - will post on a new thread.

(the above is from your reply in the other thread that got linked in post #3)

I was very close to asking you for more information to help me track down that post, but I found it and here's the link: https://forums.moneysavingexpert.com/discussion/5208032

If I get some time tonight I'll have a re-read of it. It's worthy of a sticky or a frequent re-post; it's evident that a lot of your time, thought and effort went into it.

masonic

HardCoreProgrammer wrote: »

On the other hand, if you are in for the long term (>10 years) like me, I would just continue to add money each month and then rebalance once a year or so. Nothing will underperform forever and every dog will have its day.
However, I would think carefully before adding more than the regular monthly payment, because the markets can keep going down. Last month, I added some money to Aberdeen Latin America fund thinking it cannot go much lower, and go lower it did!

I must say that's quite a change of tune, given that you stated last month:

HardCoreProgrammer wrote: »

3 years is more than enough. I would dump a fund if it underperforms the benchmark for 3 years with no rational explanation.

Both of the funds you mention above have underperformed the market over 3 years, the former by about 8% and the latter by almost 15%.

That said, the management charge of the fund is much higher than JPM Emerging Markets, especially as Hargreaves Lansdown recently negotiated a further discount for the latter. I am seriously considering moving the money to JPM Emerging Markets...

VFEM charges 0.25% and has performed even better than the JPM fund over the past 3 years. It seems like the logical option for someone who takes the view:

HardCoreProgrammer wrote: »

Money does not come easy for me. Why should I give it (as management charge) to a fund manager who does worse than a tracker fund?

masonic

El_Selb wrote: »

I've got a 3-4 year horizon so I will consider this some more.

If you really have a 3-4 year horizon then you should not be invested in a fund like this.

bowlhead99

TrustyOven wrote: »

I was very close to asking you for more information to help me track down that post, but I found it and here's the link: https://forums.moneysavingexpert.com/discussion/5208032

If I get some time tonight I'll have a re-read of it. It's worthy of a sticky or a frequent re-post; it's evident that a lot of your time, thought and effort went into it.

Cheers - it got about 50 'thanks' and a 'post-of-the-month' at the time which is some achievement given MSE is not primarily an investment site and does not promote stuff related to investment (a regulated activity) versus general savings or money savings or maximising benefits etc which is open season.

A sticky would be a bit OTT as there are way more than 40 threads over the years worthy of reading so everyone would have to scroll through a couple of pages or more before they could find any new content.

The general thrust of it is that funds should not be dumped just because they have some underperformance in certain market conditions. The idea of a 'portfolio' approach is to hold uncorrelated assets which don't all perform the same in the same market conditions. Otherwise you have to constantly guess what is going to be 'top dog' for the current year and move all your assets into that, in advance. Nice idea and mathematically the best return, but not humanly possible.

masonic wrote: »

I must say that's quite a change of tune, given that you stated last month:
[etc]

Its nice when that happens even if 'they' don't acknowledge that their opinion has been swayed on the threads where they're fighting from a losing corner.

masonic

bowlhead99 wrote: »

Its nice when that happens even if 'they' don't acknowledge that their opinion has been swayed on the threads where they're fighting from a losing corner.

I was going to write something applauding the new enlightened view on short term underperformance, but I still fear that the intended switch from the Lazard fund to the JPM fund shows that there is more work to be done. The Lazard fund takes a value based approach, which in general has not done well of late, especially when value leads one to overweight economies such as Russia, which the fund did. However, value investing is the antithesis of chasing short term performance as mean reversion is not generally something that happens overnight.

So, this proposed switch from a value-based strategy into the JPM fund, which seems to have a focus on large established companies and has characteristics of a closet tracker, represents quite a switch in investment strategy after a few years underperformance of the value fund, from a fund that is likely to do rather worse in a bear market to a fund that would do rather better. It also represents a switch in fund managers from one whose performance has been in the first or second quartile over all rolling 3 year periods except the current one, to a pair of managers who have consistently found themselves in the third or bottom quartile in terms of performance versus their peers (owing to their more defensive investment style).

Perhaps the adverse conditions in EM will persist for several more years, although I personally think that is unlikely, in which case it might make sense not to wait for mean reversion and a switch from the Lazard fund into something less sensitive to market sentiment. However, if short term performance is important, then the strategy of chasing the investment style that has done better over the past 3 years is likely to leave one switching regularly, but missing the boat and being forced to rinse and repeat during the next part of the economic cycle.