The Fund designed to generate income (and alpha) in this new market regime

Aaron Binsted: Hi, I'm Aaron Binsted and I'm here to talk to you about the Lazard Defensive Australian Equity Fund - a strategy that has clear objectives of producing consistent investor outcomes. For those of you not familiar with Lazard, we are a large, experienced and well-resourced team that has been managing Australian equity strategies in this market for more than 20 years. There are four things I'd like to do in this session. Firstly, I'd like to explain who the Lazard Defensive Australian Equity Fund is for. Secondly, I'd like to introduce how the fund operates. Thirdly, I'd like to look back and see how well the fund has gone in terms of meeting its key objectives. And lastly, I'd like to just highlight why we think the Defensive Australian Equity Fund has the right investment approach for the 2020s.

Who is the Lazard Defensive Australian Equity Fund designed for?

This strategy has been specifically designed for pension and pre-pension investors. This is a unique group that has different needs to those in the accumulation phase and hence requires a tailored approach. We think there are some specific objectives this cohort of investors needs, including:

• Lower volatility
• Lower drawdowns in negative markets
• The ability to grow real dollars of income.

Further to the left on the chart, you can see some light green diamonds. These represent "buy-write" strategies. These strategies have generally achieved lower standard deviation of volatility and typically achieve high percentage income returns. However, this is done at the expense of total return and the inability to maintain or grow the capital base results in inferior dollar income for investors. In the top left of the chart, in that dark blue diamond, you can see the Defensive Australian Equity Fund. Not only are total returns the highest in the category, but this has been achieved with the lowest standard deviation or risk amongst the peer set. This has been done through stock selection and our rigorous investment process. 

Defending capital in down markets

This chart here shows drawdowns in the ASX 200 over the last decade - you can see that detailed there in the light blue line. You can also see a yellow and purple line representing an income ETF and a well-known active income fund. The Lazard Defensive Australian Equity Fund is shown by the dark dashed blue line. You can see that the Defensive Australian Equity Fund typically experiences lower drawdowns than both the market and competing investment options and also typically achieves new highs in a shorter timeframe. This has been achieved through only investing in companies that have capital upside by not risking capital, and by holding cash when market valuations are stretched, protecting capital and giving the flexibility to invest at more attractive entry points.

Growing real dollars of income

To grow real dollars of income, both a reasonable percentage of income needs to be earned, and crucially, the capital gains need to come through. Both components of total return need to be actively managed in tandem and not one at the expense of the other. The reason why this is so important is shown on this next slide.

We believe that the 2020s are going to be very different to the 2010s. We are in a new investment regime. The 2010s saw low and falling inflation, low and falling interest rates, continual monetary stimulus, tax cuts, and at the end of the decade, a very large fiscal stimulus. This resulted in elevated and increasing corporate profitability and trending equity markets. The start of the 2020s is looking very different. We have the highest inflation rates in a decade, the fastest rate cycle in living memory, cyclical markets, and talk of tax rises, just to name a few features. We believe that investors won't simply be able to rely on trending markets, that they need to be prepared to defend in downturns, and that income will be a larger part of total returns. 

We've touched on many of these features, but there's one, in particular, I'd like to spend a bit more time on, and that is alpha generation. There has been much commentary that the setup for the 2020s is looking difficult. Economic growth may be challenged, and investors may simply not be able to rely on these underlying trends to drive returns. If this environment does eventuate, it will play to the Defensive Australian Equity Fund's strength. This is due to the fund's top quartile, alpha generation over the last decade. The fund does not need strong economic growth or trending markets to deliver returns, but stock selection outside of market trends has been a key driver.

The Lazard Defensive Australian Equity Fund has clear objectives and has produced consistent outcomes. We'd love to talk to you more about the Defensive Australian Equity Fund and how it can meet the needs of your clients in a pension and pre-pension phase. Thanks for listening.

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Defence is the best form of attack

The Lazard Defensive Australian Equity Fund is designed to provide regular, tax effective income that grows over time. It sources that income by investing in Australian companies with sustainable dividends, or by investing in cash, depending on where the best opportunities exist. To learn more, please visit their website, or the fund profile below. 

Managed Fund

Lazard Defensive Australian Equity Fund

Australian Shares

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