Lazard Global Equity Franchise Fund is an actively managed portfolio of between 25 to 50 securities that seeks long-term, defensive returns by investing globally in a range of franchise companies. The Fund’s objective is to achieve total returns (including income and capital appreciation and before the deduction of fees and taxes) in excess of the MSCI World Index with lower risk over the long term.
Equity markets worldwide retreated in the third quarter of 2023, as investors were forced to reset their expectations for the global interest rate outlook. News of the US Federal Reserve’s (‘the Fed’) “hawkish pause” overshadowed an unexpectedly dovish interest rate-policy environment in the rest of the world. In the eurozone, the European Central Bank lifted interest rates for the 10th consecutive time in September 2023 with a 25 -basis point hike but hinted that rates had reached their peak amid signs that the economic outlook for the common currency bloc was dimming. The Bank of England surprised markets by holding interest rates steady during the month, though left the door open for further hikes.
The Lazard Global Equity Franchise Fund (Hedged) returned -3.88% (net of fees) during the quarter ending 31 September 2023, underperforming the MSCI World Index which returned -2.82%.
Despite no specific company news during the quarter, the Strategy’s top performer was the world’s largest tax agent, H&R Block (HRB). This followed the release of its Q4 results in August 2023 which beat consensus estimates by 10% and lifted its annual dividend by 10%. HRB generates all its annual profit in the six weeks of the US tax return season, which ends 30 June, consequently its earnings are highly seasonal and Q4 sets both the quarterly and annual result for the company. HRB restated its goal to return 100% of free cash flow, estimated to be greater than US$700m, to shareholders through dividends and share buybacks. At the current share price this represents a free cash flow yield of around 15%.
Notwithstanding the strong share price performance as at 30 September 2023, HRB still only traded on 10x FY24 EPS. Leading geostationary satellite owner and operator SES, performed strongly on the back of reporting a solid 1H2023 result, with both major verticals Video and Connectivity exceeding market expectations; and EBITDA beating consensus estimates by 5%. UKTV has expanded its long-standing partnership with the company in a multi-year video (Pay-TV) agreement.
Additionally, SES announced a deal with Starlink to jointly offer the cruise industry’s first integrated MEO-LEO service. For the first time, cruise operators can now rely on a single managed solution to reap the benefits of low -latency, highthroughput satellite connectivity services enabled by integrating Starlink’s low-earth orbit (LEO) and SES’s medium earth orbit (MEO) services. The joint offering – SES Cruise mPOWERED + Starlink – seamlessly integrated, sold, and delivered by SES – will combine the best of both MEO and LEO orbits to provide high-speed and secure connectivity 24/7 to cruise ships and their guests, regardless of their route and location. As of 30 September 2023, SES traded at less than 6x EBITDA and is within a month of receiving US$3 billion in pre-tax compensation relating to C-band US spectrum assets; the equivalent of €5.40 per share or around 90% of the market share price as of 30 September 2023.
IT outsourcer Cognizant reported solid results and maintained guidance for the year, unlike several of its IT outsourcing peers. New CEO Ravi Kumar has been working to articulate a plan to return the company to growth and appears to be gaining some early traction with clients from those efforts.
Tapestry shares fell after the luxury retailer announced the acquisition of Capri Holdings, the parent to Michael Kors, Versace and Jimmy Choo. This deal came as a surprise given the retailer’s momentum with their current strategy. We believe there may be challenges in terms of the debt burden and integration. There are also considerable execution risks in this acquisition, given that consumers in developed markets and China are facing significant pressure.
Europe’s largest merchant acquirer, card issuer and payment processing business Nexi continued to slide as consumer spending data remained weak, particularly in Europe. We believe the crux of the investment thesis for the company lies in the continued increase in electronic payment penetration and the realization of synergies related to consolidation within Italy and the acquisition of Nets in the Nordic countries.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
What is Lazard Global Equity Franchise Lazard Global Equity Franchise is an Managed Funds investment product that is benchmarked against Developed -World Index and sits inside the Foreign Equity - Large Fundamental 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 Global Equity Franchise has Assets Under Management of 162.77 M with a management fee of 1.25%, a performance fee of 0.00% and a buy/sell spread fee of 0.4%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Lazard Global Equity Franchise has returned -0.12% in the last month. The previous three years have returned 10.51% annualised and 13.31% each year since inception, which is when the Lazard Global Equity Franchise first started.
How is risk measured in this investment product? There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Lazard Global Equity Franchise first started, the Sharpe ratio is NA with an annualised volatility of 13.31%. The maximum drawdown of the investment product in the last 12 months is -7.68% and -24.33% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product? Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Lazard Global Equity Franchise has a 12-month excess return when compared to the Foreign Equity - Large Fundamental Index of -6.31% and 0.86% since inception.
Does the investment product produce Alpha over its Peers? Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Lazard Global Equity Franchise has produced Alpha over the Foreign Equity - Large Fundamental Index of NA% in the last 12 months and NA% since inception.
What are similar investment products? For a full list of investment products in the Foreign Equity - Large Fundamental Index category, you can click here for the Peer Investment Report.
What level of diversification will Lazard Global Equity Franchise provide? Lazard Global Equity Franchise has a correlation coefficient of 0.83 and a beta of 1.23 when compared to the Foreign Equity - Large Fundamental Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers? For a full quantitative report on Lazard Global Equity Franchise and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Lazard Global Equity Franchise with the Developed -World Index? For a full quantitative report on Lazard Global Equity Franchise compared to the Developed -World Index, you can click here.
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Has the Lazard Global Equity Franchise been independently verified by SMSF Mate? This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
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Performance Commentary - August 31, 2023 Global equity markets finished lower in August as investors continued to deal with global inflation and high interest rates. Core inflation, despite a meaningful decline, remained well above central bank targets. The ability of the central banks, notably the US Federal Reserve, to avoid a recession and engineer a soft landing remains a critical question heading into the fourth quarter of 2023.
The Lazard Global Equity Franchise Fund (Hedged) returned -1.98% (net of fees) during the month ending 31 August 2023, underperforming the MSCI World Index which returned -1.83%.
One of the top performers for the month was the world’s largest tax agent, H&R Block (HRB), following the release of its Q4 results. HRB generates all its annual profit in the six weeks of the US tax return season, which ends 30 June, consequently its earnings are highly seasonal and Q4 sets both the quarterly and annual result for the company. Its earnings beat consensus estimates by 10% and the company lifted its annual dividend by 10%. HRB reiterated its goal to return 100% of free cash flow, estimated to be greater than US$700m, to shareholders through dividends and share buybacks. At the current share price this represents a free cash flow yield of more than 16%. In spite of the strong share price performance as at 31 August 2023, HRB still only traded on 9x FY24 EPS.
Leading geostationary satellite owner and operator SES, performed strongly on the back of reporting a solid 1H2023 result, with both major verticals Video and Connectivity exceeding market expectations; and EBITDA beating consensus estimates by 5%. There is US$3 billion of pre-tax compensation relating to C-band US spectrum assets proceeds that are set to be paid by the end of 2023; the equivalent of €5.40 per share or around 80% of the market capitalization as at 31 August 2023. In anticipation of this windfall gain, the company has launched a €150 million share buyback program. Its Middle Earth Orbit satellite constellation, O3b mPOWER, is set to be commercialised from the end of 2023, which should see an acceleration in revenue and earnings growth. Finally, the guidance for 2023 was reconfirmed. As at 31 August 2023, SES traded on less than 6x EBITDA.
IT outsourcer Cognizant reported solid results during the month, and maintained guidance for the year, unlike several of its IT outsourcing peers. New CEO Ravi Kumar has been working hard to articulate a plan to return the company to growth, and appears to be gaining some early traction with clients from those efforts.
Tapestry shares fell after the luxury retailer announced the acquisition of Capri Holdings, the parent to Michael Kors, Versace and Jimmy Choo. This deal came as a surprise given the retailer’s momentum with their current strategy. We believe there may be challenges in terms of the debt burden and integration.
Shares in Nexi, Europe’s largest merchant acquirer, card issuer and payment processing business, fell despite a strong set of 1H results that saw margins improve as the cost reduction program linked to the integration of SIA and Nets is starting to feed through. The group decommissioned 5 of 25 IT systems, and are expecting to decommission another 5 by the end of the year. The company also announced that its rationalisation exercise would extend beyond the 2025 strategic plan.
US healthcare company CVS Health shares fell as one of its PBM clients, Blue Shield, decided to leave part of its contract and move across to an Amazon-led consortium, claiming US$500m in potential savings. We note that CVS retains the higher margin specialty drug contracts. While the shares may be impacted by news flow on PBM legislation, we believe they will likely benefit from the ongoing execution of the strategic plan to anchor the group as an integrated healthcare provider.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
Performance Commentary - July 31, 2023 The global equity markets’ 2023 rally continued in July. With the start of a new corporate earnings season and inflationary pressures continuing to exert themselves, the focus during the month was squarely on the two levers that set stock prices—interest rates and company profits. In the US, the Federal Reserve, as expected, resumed its rate -hiking campaign in July. In Europe, where economic uncertainty has gripped the eurozone, the European Central Bank (ECB) lifted interest rates for a ninth consecutive time. While the ECB reported progress in its efforts to rein in price growth, it also acknowledged that inflation in the common currency bloc was expected to remain “too high for too long.”
The Lazard Global Equity Franchise Fund (Hedged) returned 1.89% (net of fees) during the month ending 31 July 2023, underperforming the MSCI World Index which returned 2.84%.
Dialysis provider Fresenius contributed during July in the lead up to reporting a better-than-expected 2Q23 set of results, with margin growth in Care Delivery as the key driver.
US healthcare company CVS Health shares rose after the company posted strong earnings and revenue for the second quarter. We believe CVS offers compelling value today, however we are cautious around their capital allocation strategy.
Leading satellite firm SES rose during July on little company news. SES is due to receive around US$3bn (pre -tax) of Phase 2 cash from the FCC in December 2023 as part of its C-band clearing process and part of the proceeds may be returned to shareholders. The company also confirmed that discussions regarding a possible combination with Intelsat have ceased and this supports the case for additional shareholder returns. Whilst there could still be small inorganic or organic growth opportunities, if the value of the post-tax proceeds were returned to shareholders, we expect it would be around €5 per share. As at 31 July SES shares traded at €5.89.
Nexi, Europe’s largest merchant acquirer, card issuer and payment processing business, performed well as the expectations for 1H results continued to bottom out. The benefits of synergies have resulted in improvement in margins resulting in higher cash generation which we believe is important to reduce leverage and leave room for returns to shareholders.
Omnicom, the world’s second largest advertising and marketing services company, fell after reporting second quarter earnings, despite reporting organic growth of 3.4%, EPS growth of 8% and a very solid 15.3% operating margin. The market appeared to be disappointed in the organic growth, which while lower than recent history, was only 50 bps shy of consensus forecasts. Management made no changes to their 2023 outlook other than raising the lower end of their organic growth guidance range.
Shares in advanced braking systems manufacturer Knorr Bremse suffered in July as the new CEO presented an update to the group strategy. Given the strong share price performance year to date, this update, albeit solid, failed to convince the market. The company’s targets of €8-9 bn in 2026 revenues and 14% operating margins are meaningfully above the numbers incorporated into our valuation.
After performing strongly in Q2, global medical device company Smith & Nephew detracted in July on little news. Some brokers note a positive read-through from orthopedic peers that have already reported whilst others remain skeptical going into Q2 results. We remain constructive of management’s 12-Point Plan, most of which aims to fix the underperforming Orthopedics division. The remaining 60% of the business comprising of Sports Medicine and Wound Management continues to perform well, matching or outperforming market growth since COVID-19.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
Performance Commentary - June 30, 2023 Global equity markets rallied in June 2023, which pulled the second quarter into positive territory. While the overall news on global inflation showed slowing across the globe, the absolute level remained high, despite lower energy prices and slowing economic growth. US markets gained as corporate earnings declined for a second straight quarter but much less than initially feared. European markets rallied as inflation continued to recede and the job market remained strong, though affected somewhat by weak consumer spending.
The Lazard Global Equity Franchise Fund (Hedged) returned 4.83% (net of fees) during the quarter ending 30 June 2023, underperforming the MSCI World Index which returned 6.92%.
The world’s largest operator of lottery concessions and leading gaming machine operator International Game Technology (IGT) performed well during the quarter. In early May 2023, IGT released its Q1 result which underscored several key investment themes, namely resilience in lottery sales, tailwinds from Lotto recovery and ongoing operating momentum in gaming machines. In June 2023, the company announced that it is exploring strategic alternatives for its Global Gaming and PlayDigital segments to unlock the full value of its portfolio. Management noted its belief that the intrinsic value of the company’s market-leading businesses and diversified cash-flow profile are not currently reflected in the stock price and that the timing is right to assess opportunities that may enhance value for IGT’s shareholders. We have noted the discrepancy between the value of IGT and its lottery and gaming peers for some time now and this was part of our investment thesis for IGT. Despite its strong performance, we believe IGT still trades on multiples below its peers.
Dialysis provider Fresenius contributed to performance after some recommendation upgrades from various sell -side analysts in the aftermath of the analyst day in May 2023. Helen Giza, the new CEO (ex CFO) highlighted the lack of profitability for the new Care Enablement division, which manufactures equipment and consumables used in dialysis. The issue was replication of corporate functions across different geographies, and hidden loss making through poor accounting practise. Going forward the company plans to exit loss making businesses, centralise corporate functions and directly procure; with an expectation of return to historic margins for Care Enablement in 2025. In our view the plan to restore margins is credible, the stock remains cheap, and we have been increasing our holdings.
IT service provider Alphabet shares were underpinned by the AI-frenzy that spread through the market this quarter. The market expects AI will help the company improve its advertising yield, cementing market share and growth going forward. US healthcare company CVS Health shares continued to be weak, as the company is yet to demonstrate that its shift towards a more acquisitive expansion is delivering the expected benefits in terms of affordable care and greater long -term growth prospects. In addition, the uncertainty on the legislative reform for pharmacy benefit management (PBM) companies being discussed in Congress was not helpful. We continue to believe that PBM companies are beneficial to the healthcare sector to mitigate the pricing power of huge pharmaceutical companies.
World leading tax agent H&R Block (HRB) fell during the quarter following a press release in May from the IRS discussing a government proposal to let individuals file taxes directly with the government for free. In relation to the announcement from the IRS, HRB do not believe it is a material threat to their business in the near term. The proposal is for the simplest of filers, who already file for free with more than 30 choices that already exist today, including one offered by HRB. Further the IRS already offers ‘The Free File program’ for federal taxes which is not widely used by consumers, serving just 3% of the 100 million taxpayers last year. We believe the key business for HRD is not impacted by this potential proposal from the IRS. The core assisted cohort of HRB clients pay around US$300 to lodge their respective tax returns and receive, on average, tax returns of around US$8,000, representing around 10% of their household income. We have increased our position in HRB across the Strategy during late-May. In June HRB was one of the Strategy’s strongest performers, yet HRB still trades on around 8x earnings and has no net debt.
The world’s largest brewer Anheuser-Busch (ABI) detracted from performance despite producing a strong Q1 result. The organic volume and sales trends of ABI versus its key peer Heineken were strong for the first time in six quarters. ABI’s sales growth also beat Heineken’s 8.9% in Q1, and its 0.9% volume growth was ahead of Heineken’s which fell 3%. The US business continued to lose volume share but experiencing top-line growth from ongoing premiumization trends. Management has chosen to leave FY23 guidance unchanged (4-8% organic EBITDA growth). As of 30 June 2023, we believe ABI is trading on some of the lowest multiples seen in a decade.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
Performance Commentary - May 31, 2023 The global equity markets gave back some of their recent gains in May, with the MSCI World declining by 0.1% and 1.1% in local currency and AUD terms. The broader market was weak, with lower share prices in May for two -thirds of stocks in the MSCI World Index. However, the market was underpinned by very strong performance from large IT companies (including NVIDIA, Google, Microsoft, Amazon and Apple), which more than compensated for the weak performance by the broader market.
During May several concerns weighed on the market, including: (1) significant anxiety over raising the US government debt ceiling in order to prevent a government debt default (the bill was only passed by the House of Representatives after – market on 31 May and by the Senate on 1 June); (2) an increase in US bond yields driven by expectations of further rate hikes by the Fed; and (3) weaker economic data including the Chinese PMI which was reported below expectations at 48.8, causing weaker commodity and oil prices. While inflationary pressures persist in the US, inflation showed signs of receding in several European economies, including Germany, France, and Spain.
The Lazard Global Equity Franchise Fund (Hedged) returned -3.73% (net of fees) during the month ending 31 May 2023, underperforming the MSCI World 100% Hedged to AUD Index which returned -0.27%.
Alphabet shares were underpinned by the AI-frenzy that spread through the market this month. Alphabet has now embedded DeepMind into its Google search and YouTube products, with this business no longer classified as a “bet”. We note that there are now very high expectations that Artificial Intelligence will prove transformational, but little emphasis on regulatory scrutiny, nor the reliability of AI-generated content.
IT outsourcer Cognizant contributed to performance in May 2023 after reporting Q1 2023 results that modestly beat market expectations. New CEO Ravi Kumar (ex Infosys) outlined clear strategies focused on large customers and cost containment. We believe that the stock remains cheap, particularly relative to peers.
Performance Commentary - April 30, 2023 Global equity markets recorded a modest gain in April, as investors adopted a cautious approach amid growing uncertainty
about the global economic outlook. In the US, economic news continued to be mixed as corporate earnings remained
above already low expectations halfway through the reporting season. Economic growth eased but inflation, particularly
wage pressures, remained stubbornly high as US unemployment claims declined in April. Meanwhile, high inflation led to
stagnant consumer spending in the eurozone economy. The European Central Bank matched the rate increases of the US
Federal Reserve and investors expect it will raise rates for the seventh consecutive time in May.
The Lazard Global Equity Franchise Fund (Hedged) returned 2.92% (net of fees) during the month ending 30 April 2023,
outperforming the MSCI World Index which returned 1.61%.
Dialysis provider Fresenius contributed to performance in April 2023 after outlining improved 2025 margin targets at their
Capital Markets Day and the likelihood of beating budget for 1Q23 results to be reported early May.
Global medical device company Smith & Nephew performed strongly in the month on the back of the recovery of its core
orthopedic business. The company reported Q1 results in April 2023 where they re -affirmed full year organic growth and
trading margin guidance. Management also notes good progress made on their 12 -Point Plan, most of which aims to fix the
underperforming Orthopedics division.
Medtronic, the largest medical devices manufacturer in the world, rose after the FDA approved its MiniMed 780G diabetes
product, an important milestone for the company’s Diabetes segment, which has lost market share in recent years.
Subsequently, the FDA also lifted the warning letter it had issued in December 2021 for the company’s diabetes
manufacturing facilities.
Tapestry detracted from performance, as the company, and peers in the mid-range luxury sector, suffered from concerns
surrounding consumer spending. This is in sharp contrast to the higher-end luxury groups that are driven largely by the
recovery in the Chinese market. However, we believe that the commercial and operating performance of Tapestry may
continue to be above peers, has an attractive valuation and high cash flow generation.
The world’s leading tax agent H&R Block (HRB) fell modestly in the month in spite of better-than-expected quarterly
results the prior month. Revenue grew 5% as HRB had a strong ending to the 2022 tax season. Management reaffirmed
FY23 outlook and continue to expect topline growth, EBITDA that outpaces revenue, and EPS that grows even faster. In
addition, HRB remains confident of achieving adjusted EPS growing double digits annually through fiscal year 2025. HRB
continue to be excellent stewards of capital having repurchased US$130M of shares in the quarter, reducing shares
outstanding by another 2%; and announced a US$0.29 quarterly dividend continuing the 60 years of continuously paid
quarterly dividends. Since 2016, HRB have grown the dividend per share over 45% and have returned US$3B to
shareholders through dividends and share repurchases.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity
than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic
value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise
characteristics we seek for all our investments will continue to serve our investors well over the long run.
Performance Commentary - March 31, 2023 In a quarter marred by bank failures and a state-backed bank merger, optimism still won out. Fueling the optimism, many investors believed that central banks would pivot from their hard line, anti-inflation stance. Easing inflationary pressures, especially in Europe, and the sudden fragility in the banking sector after the second largest US bank failure (Silicon Valley Bank) and the merger of Credit Suisse and UBS supported the expectations of a central bank pivot.
The Lazard Global Equity Franchise Fund (Hedged) returned 7.15% (net of fees) during the quarter ending 31 March 2023, outperforming the MSCI World Index which returned 7.07%.
Dialysis provider Fresenius Medical Care (FMC) was a contributor to performance after announcing better than expected 4Q22 earnings, with slightly better growth and margin, and an easing of COVID-19 related excess mortality. Guidance for 2023 was lowered as staffing cost pressures are expected to continue, but they also guided towards increasing margins in 2025 as wage cost pressures ease, reimbursement picks up and cost reductions kick in. Fresenius SE, which owns 32% of FMC also announced it would deconsolidate FMC but would not be selling stock given that would be ‘value destructive’ at current prices.
Luxury brand company Tapestry and advanced braking systems manufacturer Knorr Bremse added to performance during the quarter, as both companies are expected to benefit from the reopening of the Chinese economy. Tapestry and Knorr Bremse’s exposure to China is approximately 20% and 30% respectively. Knorr Bremse, in particular, continued to perform as incoming CEO Marc Llistosella presented the company’s results for the 2022 fiscal year and his initial views on the business. This reassured the market as he placed emphasis on the improvement of the operating performance of the existing business, rather than external growth. In addition, he stressed that all options were on the table for poorly performing units, including disposals.
Leading global advertising firm, Omnicom, rose after reporting strong FY22 results. Organic revenue growth was 9.4% for the year, following on from 10% in 2021, and the company reported record high operating margins. Management expects solid organic growth to continue in 2023, albeit at a slower pace than last year.
Performance Commentary - February 28, 2023 Global equity markets retreated in February, as investors were forced to re -set their expectations for the current global rate-hiking cycle. The optimism that fueled last month’s market rally evaporated and was replaced by concerns that persistent inflationary pressures and a resilient global economy would force central banks to press on with their monetary tightening campaigns. The European Central Bank lifted interest rates by 50 bps and vowed that there would be no let -up in its aggressive efforts to wring high inflation out of the eurozone. The Bank of England also increased interest rates by 5 0 bps as inflation in the UK slowed for a third consecutive month in January, though it remained in double digits. Investors cheered the US Federal Reserve’s announcement that it was raising its benchmark interest rate by 25 bps, its smallest increase since March 2022, and that it was seeing improvements in inflation.
The Lazard Global Equity Franchise (Hedged) Fund returned -1.12% (net of fees) during the month, outperforming the MSCI World 100% Hedged to AUD Index which returned -1.65%.
Omnicom shares rose after reporting strong FY22 results. Organic revenue growth was 9.4% for the year, following on from 10% in 2021, and the company recorded record high operating margins. Management expects solid organic growth to continue in 2023, albeit at a slower pace than last year.
Dialysis provider Fresenius Medical Care (FMC) was a contributor to performance after announcing better than expected 4Q22 earnings, with slightly better growth and margin, and an easing of COVID-19 related excess mortality. Guidance for 2023 was lowered as staffing cost pressures are expected to continue, but they also guided towards increasing margins in 2025 as wage cost pressures ease, reimbursement picks up and cost reductions kick in. Fresenius SE, which owns 32% of FMC also announced it would deconsolidate FMC but would not be selling stock given that would be ‘value destructive’ at current prices.
Fiserv, one of the world’s leading payment processors, rose after reporting strong fourth quarter and FY22 results. Revenues grew 12% organically, while operating margins rose 1.2%. Importantly, there was little sign of any impact from new entrants in the payments space, with Clover, Fiserv’s new payment offering for smaller businesses, growing 23% in the fourth quarter and already a larger business than competitor Square in this category.
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