Lazard's Warryn Robertson is being highly selective and keeping some powder dry (plus 2 stocks he likes)

The recent market volatility should hardly be considered a surprise. Whilst a global trade dispute has been the spark that lit the fuse of the meltdown, stretched valuations, mindless pouring into a handful of stocks, and inflated asset prices all around the investment universe were the powder keg.

And whilst the mini-melty has been uncomfortable, there is potentially more on the way according to Lazard Asset Management’s Warryn Robertson, who looks after the Lazard Global Equity Franchise Fund.

To be clear, Robertson is not a herald of doom times, but he does believe any trade dispute will be inflationary and that rates will remain higher for longer. ‘But we’ve just seen rate-cuts’, I hear you exclaim (I know, because I said the same thing). And therein lies the rub.

If tariff policies prove to be inflationary, as many suspect, and that puts pressure on the Fed and other central banks to raise interest rates, there is likely going to be some abrupt repositioning that will have to take place – in other words, there’s a lot of money pointed in the direction of further cuts.

That abrupt shift and associated volatility, however, will create opportunities, according to Robertson. In the following Q&A, he shares a little more about how he and his team are thinking about the world and the opportunities they are pursuing. 

Q: How are you navigating the current market volatility?

A: While we haven’t made direct changes to our portfolio based on the election result, we do consider its impact on GDP growth and valuations. 

Our long-held belief is that interest rates have been too low and should normalise around 5% for the US and 6% for Australia. 

The US Administration’s policies could accelerate this shift, leading to higher inflation and increased volatility. Investors should prepare for a different environment than the one they’ve grown accustomed to over the past decade.

Q: Do you think interest rates will stay higher for longer?

A: Absolutely. Even though we’ve seen recent rate cuts, our long-term view has always been that interest rates should reflect long-term GDP growth. 

The world has been used to emergency-level rates since the Global Financial Crisis, but that disconnect is starting to correct itself. 

Markets have been expensive for a long time because they were pricing in unsustainably low discount rates. 

The higher rate environment we are entering will have broad implications for valuations, corporate borrowing, and overall economic growth.

Q: What does this mean for stock selection?

A: It means we need to be highly selective. Two-thirds of the 240 companies we track —businesses we consider the most predictable and high-quality — are still expensive. 

The market remains overpriced, and there’s likely a reckoning coming where valuations adjust.

That said, market volatility creates opportunities. 

When fear grips the market, we often find that high-quality businesses temporarily trade at attractive valuations. We see these periods as buying opportunities.

Q: With so many stocks overvalued, how are you positioning your portfolio?

A: We are running relatively high cash levels (around 5%) and being highly selective.

We are focusing on individual stocks that offer strong economic franchises and compelling valuations. Our disciplined approach allows us to wait for dislocations in pricing rather than chasing momentum or market trends.

Q: Can you give examples of stocks you've invested in recently?

A: Certainly. One example is the French company Edenred (EPA: EDEN), which provides employee food vouchers and benefits. There were market fears around French tax policy changes, but we believed the impact would be minimal on their core business. We took a small position after Christmas, and it has performed well.

Another key investment is International Game Technology (NYSE: IGT). They are spinning off their struggling gaming machine business and focusing entirely on lotteries, which make up 80-85% of their earnings. Right now, the market values the remaining lottery business at just 4.5x EBITDA, while a comparable Australian peer – The Lottery Corporation (ASX: TLC) - trades at 15x EBITDA. That valuation gap represents a huge opportunity. 

When the market misprices such businesses, we take advantage.

Q: What sectors are you overweight and underweight?

A: We are overweight utilities, industrials and healthcare. Our utilities are exclusively in the UK and Europe, where they benefit from full inflation protection. Given our concerns about inflation, we see these businesses outperforming expectations. Interestingly, our utilities are expected to deliver better earnings growth than the MSCI World Index, despite trading at historically low multiples. Industrials also offer opportunities, particularly in companies tied to long-term infrastructure spending. We see certain industrial names as undervalued despite strong earnings potential.

On the flip side, we are significantly underweight technology and consumer staples. 

We don’t invest based on sectors — we invest in businesses — but these sectors currently lack compelling opportunities given their valuations. 

Many technology stocks remain priced for perfection, and any earnings slowdown could lead to significant multiple compression.

Q: With your current portfolio positioning, do you expect major changes in the next year?

A: The portfolio will likely evolve over the next 6-12 months. We typically hold stocks for three to five years, but we adjust our weightings aggressively based on valuation opportunities. The market is extremely volatile, and that means stocks are moving dramatically — sometimes irrationally. We take advantage of those moves to buy low and sell high. Market corrections often create the best long-term buying opportunities.

We anticipate opportunities to emerge as interest rates continue to impact equity valuations. 

Companies with weak balance sheets may struggle, while those with strong pricing power and sustainable earnings will be the winners.

Q: How do you define a great investment opportunity?

A: We focus on companies with strong economic franchises — businesses that dominate their markets through brand power, intellectual property, scale, or network effects. Once we identify these companies, we invest when they are attractively valued.

Our job as investors is simple: forecast cash flows and assign a fair valuation. 

The key is identifying businesses with predictable earnings. When those stocks experience market-driven volatility, we take advantage of it by buying aggressively. Our historical track record shows that this approach has consistently generated 2-3.5% additional annual returns just from disciplined buying and selling.

Q: How do you manage risk in this environment?

A: Managing risk is crucial, especially in a volatile market. We do this in a few key ways:

1. Maintaining a long-term perspective – We don’t react to short-term noise. Instead, we focus on the underlying fundamentals of businesses.
2. Holding a concentrated portfolio – We invest in a limited number of high-conviction ideas rather than diversifying excessively.
3. Keeping cash available – Having liquidity allows us to take advantage of mispricings when they occur.
4. Focusing on balance sheet strength – We avoid highly leveraged companies that could struggle in a higher interest rate environment.

Q: Any final thoughts on the market outlook?

A: With volatility comes opportunity. We are keeping cash levels slightly elevated and concentrating our portfolio in names that we believe are significantly undervalued. Over the next 12 months, we expect continued volatility, but that’s exactly what creates buying opportunities.

Patience is critical in investing. Many investors feel pressure to be fully invested at all times, but sometimes the best move is to wait. 

Our strategy is to remain patient, selective and ready to act when the right opportunities arise. By staying disciplined and focusing on valuation, we believe we can continue to generate strong long-term returns despite the current market uncertainty.

Managed Fund

Lazard Global Equity Franchise Fund

Global Shares

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