Structural Change - Why it’s not too late to consider value done differently

Wealth Management and Private Banking

08 June 2023

fundGeopoliticsInflationInterestMeeting of MindsvalueWealth Management and Private Banking

Expert: Bertrand Cliquet, Portfolio Manager/Analyst, Lazard Asset Management Limited Facilitator: David Barks


  1. Higher inflation, geo-political issues and interest rates increases are making the environment for valuations and earnings growth for many companies unsustainable
  2. Predicting disruption is the key to ensuring that value can be estimated and overpaying can be avoided. There is always the possibility of some seismic shift. But with a tighter universe it’s easier to assess whether and how they can adjust
  3. Valuations are challenging at the best of times but particularly at this time. It’s very easy to misestimate how much a company will make, and equally easy to overpay for it. However, interest rates remain close to historic lows and decent returns can be made. 


Lazard’s approach is to narrow down the stocks within the available universe to those that are easier to forecast and lower forecast error.

They look at five areas where there are limited risks from short term competition and long term or seismic disruption can be more predictable:

  1. Natural Monopoly (Infrastructure) e.g. National Grid
  2. Cost Leadership (Economies of Scale) e.g. Cisco
  3. Network Effects e.g. Mastercard
  4. Brands & Intellectual Property e.g. Colgate-Palmolive
  5. High Switching Costs e.g. Oracle

Forecasting error still exists with this approach but is much more limited. Lazard’s fund holds only 25 stocks in the portfolio and only holds 220 in the investible universe.

The key is that the team don’t fall in love with winners. The fund decreases stakes as price rises towards the expected return and increases stakes in those moving in the opposite direction.

Forecasts are upgraded but it can mean that they sometimes sell too early. Typically, they re-rate within the universe rather than change the universe. If the stock is too expensive it’s just left aside. Stocks tend to be owned for 3-5 years or longer and the focus is on changing portion sizes.

Key takeaways:

  • This has meant that the fund has performed in times when it wouldn’t have been expected to
  • It also makes the fund more predictable and timing of the market is less of an issue - hence the approach remains relevant even during growth or the current unusual scenario