Investors stand to lose money if they invest in index funds over the next five years, so they need to be more selective with their investments, according global fund manager, Lazard Asset Management.
Lazard Asset Management global equity franchise portfolio manager, Warryn Robertson, said: “The key risk I see today is that quantitative easing has allowed investors to naively invest in benchmarks and receive a decent return over the last five years. [But] over the next five years that will be a recipe for disaster”.
Investors should be more selective about their investments in the hunt for compelling risk adjusted returns, he said. They should invest with fund managers who take concentrated bets on select opportunities.
The Lazard Global Equity Franchise fund eyed 240 of world’s leading stocks but only invested in 25 of those companies.
“You must concentrate your eggs in those baskets today because that’s the only way you can get truly strong risk adjusted returns. Owning an index is simply going to lose you money over the next three to five years,” Roberston said.
He noted that Lazard saw opportunity in “old school tech”, infrastructure stocks, particularly within European utilities and North American rail, and in what he classified as “a basket of call fallen angels”.
Those fallen angles included corporations like International Gaming Technology (IGT), the world’s leading lottery business, and Qualcomm, the patent owner of all 3G, 4G, and 5G mobile phone technology, Robertson said.
Their largest exposures were in tech giants that included Oracle, Intel, SAP and Alphabet Inc, which owned Google. They all not only had extremely strong balance sheets and cash flows for reinvestment, but their share prices were discounted by the market.
“These are the market leading businesses who have dominated their various product categories. We believe over the last 12 to 18 months the market had become overly concerned about the threats that the cloud provided and had not focused on the opportunity”.
The Lazard Global Equity Franchise fund outperformed the benchmark across all periods and provided investors with a return of 11.1 per cent year-on-year, compared to the 2.93 per cent return from the index.
To compare the fund to its peers, or to learn more about the fund, click here.
