Lazard Australian Equity W is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Large Value Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Lazard Australian Equity W has Assets Under Management of 91.29 M with a management fee of 0.82%, a performance fee of 0.00% and a buy/sell spread fee of 0.4%.
The S&P/ASX 200 outperformed the Developed World markets performance, falling -0.7% in August 2023. Weakness in Australian equities was mainly on the back of dull guidance from companies through the earnings season. The Australian 10-year bond yields sold off by 2bps to 4.03%, trading relatively unchanged as the Reserve Bank of Australia (RBA) remained unmoved on the cash rate, however still retained a tightening bias. On a sector basis, Consumer Discretionary, REITs, and Energy outperformed, while Utilities and Consumer Staples sectors were the relative worst performers.
During the month ended August 2023, the Lazard Australian Equity Fund returned -1.5% (net of W Class fees), underperforming the S&P/ASX 200 Accumulation Index which returned -0.7%.
Contributors to Performance
• Bapcor (BAP) announced their results on August 16, 2023 which were in-line with expectations. BAP shares rose 6% over the month, outperforming the ASX200 which declined in August as the market had concerns that BAP may be impacted by the slowing consumer demand in Australia. The largest value driver for BAP remains the ‘Better Than Before’ program, for which management has announced aggressive cost saving targets. If these are mostly realized, we believe there might be a meaningful upside for BAP shares. We remain attracted to BAP’s resilient top line and rational competitive dynamics in key markets with minimal ‘Better Than Before’ upside included in our valuation. We continue to hold BAP shares.
• Ridley (RIC) posted another solid result in August with NPAT increasing 15.5% for FY23. The shares were weak in the last quarter of the financial year as the market was concerned that weaker tallow pricing would derail the company’s earnings growth. We used this share price weakness to add to our RIC positions. While commodity price tailwinds have undoubtedly assisted in previous periods, RIC has numerous growth drivers to depend on, as detailed in management’s “Growth Plan 2” initiative. Confirmation of these growth options across the stockfeed, packaged products and rendering business units saw the shares rise through August and outperform the broader index. We continue to hold RIC shares as we believe that the market is factoring in less than the full upside we believe “Growth Plan 2” provides.
Detractors from Performance
• Towards the end of August 2023, Costa Group (CGC) reported a very disappointing earnings downgrade, with a deterioration in the quality of the citrus harvest. The shares fell 14% as the market was concerned the downgrade could impact the indicative takeover offer Paine Partners made to the CGC board for $3.50 per share from progressing to a binding acquisition proposal. We expect an update on the status of the proposal from the CGC board in mid-late September 2023.
• South32 (S32) underperformed the market in August 2023 as concerns about a slower than expected Chinese economic recovery continued to weigh on sentiment. S32 reported its FY23 result during the month, and while it was broadly in line with consensus, we believe the guidance for FY24 was disappointing. Costs guidance was significantly higher than expected and production growth guidance was also soft. While S32 is investing in growth, these benefits won’t be seen until post FY25. S32 continues to transform its portfolio with 71% of FY23 revenue related to base metals, up from 45% when the business was demerged from BHP almost 10 years ago. In our view, S32 is well positioned to benefit from the significant energy transition demand for base metals in the medium to long term. Despite some near-term headwinds we continue to see S32 as attractively priced.
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