Lazard US Small-Mid Cap Equity Portfolio R6

Scorecard
3 / 5 Stars
Lipper
3 3 3 4 1
Zacks Investment Research
2 (Buy)
Standard & Poor's
3 / 5 Stars
TheStreet.com
C- (Hold)

#79 in Small Blend

U.S. News evaluated 228 Small Blend Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Performance

The fund has returned 25.33 percent over the past year, 10.48 percent over the past three years, 25.07 percent over the past five years, and 8.77 percent over the past decade.

Trailing Returns Updated 03.31.2014
Year to date 3.3%
1 Year 25.3%
3 Years (Annualized) 10.5%
5 Years (Annualized) 25.1%
10 Years (Annualized) 8.8%

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Summary

With so much emphasis on sticking to an investment thesis for the long haul, the Lazard U.S. Small-Cap Equity fund offers a counterargument — that a shorter-term strategy can beat the market over the long term. The fund provides exposure to fast-growing small- and mid-cap U.S. stocks and sells shares quickly once short-term goals are achieved.

As of April 22, 2014, the fund has assets totaling almost $336.96 million invested in 86 different holdings. Its portfolio consists of equity holdings in smaller, lesser-known companies.

Management builds a portfolio that’s diversified among sectors and among small- and mid-cap size companies. Although the fund uses a bottom-up stock picking approach, managment does pay attention to the broader market’s movements. In the third quarter of 2010, for instance, management increased the fund’s positions in every one of its top 25 holdings, only to cut back on most of them by the end of the first quarter of this year. The fund has returned 25.33 percent over the past year and 10.48 percent over the past three years.

You won’t recognize many of the 80-odd companies the fund owns. Management uses that to its advantage. These smaller companies, nearly all of which are U.S.-based, fly under the radar of the Wall Street brass, which makes it easier for management to buy shares when it foresees positive impending news. Since fewer analysts track these companies, their share prices can climb quickly once investors discover the company via good earnings reports or other positive data. When such bets pay off, the fund sells the appreciated position immediately.  “We use earnings and our modeling to predict what earnings can be in a 12 to 18 month [investment] horizon,” says portfolio manager Daniel Breslin. “We don’t feel that we can accurately make an assessment beyond that timeframe.” The fund also has built-in agility, with a smaller asset base that hovers between $200 and $300 million. The fund has returned 25.07 percent over the past five years and 8.77 percent over the past decade.

Investment Strategy

Management looks for successful companies with strong balance sheets. Management particularly likes fast-growing stocks that they believe are on the brink of beating earnings expectations. The prospectus says, “The Portfolio may invest up to 20 percent of its assets in equity securities of larger U.S. companies and may invest up to 10 percent of its total assets in securities of non-U.S. equity companies, including American Depositary Receipts and Global Depositary Receipts.”

“When we decide to include a stock in a portfolio, we build an investment thesis, which is based on scenario analysis,” says Daniel Breslin. “Really what we’re trying to do is predict news flow and the stock’s price reaction to the news flow.”

Role in Portfolio

This fund could lend support to a well-balanced portfolio.

Management

The fund has four portfolio managers, including Daniel Breslin. The fund is, however, “driven by analysts,” according to Breslin, since the managers have access to reports by 25 in-house research analysts. Two of the managers started in October 2010. Breslin has been with the fund since 2007, and Andrew Lacy has been a manager since 2003.

Fees

Lazard US Small-Mid Cap Equity Portfolio R6 has an expense ratio of 0.86 percent.

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Risk

The fund’s high turnover rate leads to higher transaction costs for investors, and its expense ratio might push cost-conscious investors toward cheaper competitors.

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