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European Equity Select
Lazard European Equity Select ADR seeks to generate strong relative returns over a long-term time horizon by investing in companies with strong financial productivity at attractive valuations. The strategy typically invests in 25-40 U.S.-listed securities of companies, with a market capitalization of approximately $5 billion or greater, that are typically domiciled in those countries that comprise the MSCI Europe Index.
PERFORMANCE
UPDATE (as of
12/31/2011)
Annualized Returns |
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Performance is presented gross and net of all fees. Net of fees performance has been calculated using a 3.0% fee assumption. Gross of fee performance is presented as supplementary information, as performance excludes transaction costs. Please refer to the disclosures for important additional details of this composite. The performance quoted represents past performance. Past performance does not guarantee future results. |
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| Lazard | MSCI Europe Index |
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| Number of Securities | 31 | 466 | |||||
| Current Dividend Yield (%) | 2.6 | 3.3 | |||||
| Average Weighted Market Cap ($ billions) |
68.4 | 55.4 | |||||
| Characteristics |
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| Geographic Allocation | Lazard Weighting % |
MSCI Europe Index Weighting % |
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| Continental Europe | 55.9 | 67.5 | |||
| United Kingdom | 44.1 | 32.5 | |||
| Sector Allocation | Weighting % | |
| Consumer Staples | 18.0 | |
| Finance | 17.1 | |
| Energy | 16.4 | |
| Health Care | 14.7 | |
| Materials | 9.9 | |
| Industrials | 9.4 | |
| Consumer Discretionary | 8.2 | |
| Information Technology | 4.6 | |
| Telecom Services | 1.8 | |
| Utilities | 0.0 | |
| Equity | 95.6% |
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| Cash and Equivalents | 4.4% |
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| Belgium | 3.5 |
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| Anheuser-Busch InBev (ADR) | |
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| Denmark | 3.4 |
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| Novo Nordisk (ADR) | |
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| Finland | 2.5 |
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| Sampo (ADR) | |
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| France | 18.7 |
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| BNP Paribas (ADR) | |
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| Group Danone (ADR) | |
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| LVMH Moet Hennessy Louis Vuitton (ADR) | |
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| Sanofi-Aventis (ADR) | |
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| Technip (ADR) | |
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| Total (ADR) | |
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| Germany | 9.4 |
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| Bayerische Motoren Werke (ADR) | |
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| SAP (ADR) | |
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| Siemens (ADR) | |
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| Italy | 3.4 |
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| Atlantia (ADR) | |
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| Netherlands | 3.1 |
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| ING Group (ADR) | |
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| Sweden | 3.4 |
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| Assa Abloy (ADR) | |
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| Switzerland | 6.0 |
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| Novartis (ADR) | |
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| UBS | |
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| United Kingdom | 42.1 |
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| BG Group (ADR) | |
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| BHP Billiton(ADR) | |
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| British American Tobacco (ADR) | |
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| GlaxoSmithKline (ADR) | |
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| Informa | |
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| Lloyds TBS Group (ADR) | |
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| Prudential (ADR) | |
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| Rexam | |
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| Royal Dutch Shell CL A (ADR) | |
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| Tullow Oil (ADR) | |
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| Unilever (ADR) | |
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| Vodafone (ADR) | |
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| William Morrison Supermarket (ADR) | |
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| Xstrata (ADR) | |
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The first quarter of 2011 was eventful, volatile, and ultimately concluded with a meaningful increase in world equity markets for the period. Specifically, the MSCI Europe Index gained over 6% during the quarter. A number of negative events occurred: the Japanese earthquake, tsunami, and nuclear crisis; unrest and civil war in the Middle East and North Africa; and the ongoing sovereign debt problems of peripheral Europe, Portugal being the most recent focus. Additionally, commodity prices, including oil, rose as did inflation in a number of emerging markets. However, these negative factors were more than offset by better-than-expected economic and corporate earnings growth in many areas, which propelled share prices higher.
Regionally, the United States and Europe were notably strong performers as corporate earnings growth led those markets higher. Japanese equities were volatile, and the market posted a negative return following the tragic events in the country. Emerging markets underperformed the broader market on concerns over inflation, rising interest rates, and turmoil in the Middle East and North Africa.
In currency markets, the euro and British pound appreciated relative to the U.S. dollar due to the perception that European central banks will tighten monetary policy before the U.S. Federal Reserve does the same. The Japanese yen was volatile but depreciated overall versus the U.S. dollar.
Sector leadership was mixed between cyclical and defensive sectors. Energy was among the best-performing sector as oil prices rose due to conflict in the Middle East and North Africa, which could potentially affect supply. Financials and industrials stocks also outperformed the Index due to perceived GDP improvements. However, other economically sensitive sectors, consumer discretionary and materials, underperformed. Consumer staples underperformed on worries that rising input costs would crimp margins.
The European Equity Select ADR strategy outperformed the MSCI Europe Index for the quarter. Stock selection in the energy sector was the largest contributor to performance. All of the strategy's holdings in the sector outperformed the Index, as the price of oil rose. Shares of BG Group, an integrated oil and gas company, rose sharply on the perception that Japan's nuclear crisis improved the outlook for natural gas. Oil and gas exploration and production company Tullow Oil and oil service company Technip have a high sensitivity to the price of energy and were notably strong performers. Strong stock selection in the information technology sector also benefitted the strategy. A position in SAP, a German enterprise software company, rose following better-than-expected software revenue.
In contrast, stock selection in the industrials sector hurt performance. Swedish lock maker Assa Abloy performed poorly following recent strong performance. The stock was negatively impacted by concerns over margin dilution following the acquisition of industrial door maker, Cardo. A high exposure to and stock selection in the health care sector also detracted from returns, as the sector trailed the overall market, and positions in Novartis and GlaxoSmithKline declined.
Most indicators of economic activity are showing signs of stabilization or improvement, with very strong growth in emerging markets continuing to drive global GDP growth despite a stagnating, leveraged consumer in many developed markets. Corporate profitability and balance sheets are currently in good shape, and equity valuations overall do not appear stretched despite some exuberance in the emerging markets and related stocks. Nevertheless, risk remains: monetary policy remains extraordinary, bond yields are implying a cautious outlook for nominal growth, and governments are starting to take measures to rein in unsustainable deficits.
Supply disruptions from Japan are a near-term headwind for some industries, such as automobiles and technology, but we believe long-term economic growth around the world should not be affected by the tragedy. However, turmoil in the Middle East and North Africa has the potential to disrupt oil supply and cause weaker economic growth. The team continues to focus on stock selection, seeking to find stocks with sustainably high or improving returns trading at attractive valuations, and it remains confident that the strategy is positioned to perform well in a variety of market conditions.
1 Investment characteristics are based upon a portfolio that represents the proposed investment for a fully discretionary account. Source: Lazard, MSCI
2 The allocations mentioned are based upon a portfolio that represents the proposed investment for a fully discretionary account. Allocations are subject to change.
3 The specific securities mentioned are based upon a portfolio that represents the proposed investment for a fully discretionary account. Security selection is subject to change. The securities mentioned are not necessarily held by Lazard for all client portfolios, and their mention should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. Please note that cash is not viewed as a strategic asset class.
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one's home market. The values of these securities may be affected by changes in currency rates, application of a country's specific tax laws, changes in government administration, and economic and monetary policy.
Certain information included herein is derived by Lazard in part from an MSCI index or indices (the "Index Data"). However, MSCI has not reviewed this product or report, and does not endorse or express any opinion regarding this product or report or any analysis or other information contained herein or the author or source of any such information or analysis. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any Index Data or data derived therefrom. The MSCI Index Data may not be further redistributed or used as a basis for other indices or any securities or financial products.
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