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Lazard Alpha bits into Europe & UK

LAZARD ASSET MANAGEMENT

LAZARD ALPHA ISA

Type: Oeic maxi Isa

Aim: Growth by investing in the UK alpha and European alpha funds

Minimum investment: Lump sum £2,000

Maximum investment: £7,000

Catmarked: No

Investment choice: UK alpha fund and European alpha fund

Charges: Initial 3.75%, annual 1.5%

Special offer: Initial charge reduced to 3.5%

Offer period: Until April 30, 2002

Commission: Initial 3%, renewal 0.5%

Tel: 0800 374810.

The panel: Gillian Colsell, Financial adviser, Positive Solutions,
Michael Both, Proprietor, Michael Philips,
John Cornelius, Director, Fraser Anderson & Partners

Suitability to market 6.4

Investment strategy 7.7

Past performance 7.4

Company&#39s reputation 7.4

Charges 7.0

Commission 7.4

Product literature 7.0

The Lazard alpha Isa consists of two funds, Lazard UK alpha and Lazard European alpha. The Lazard UK fund invests in a concentrated portfolio of between 40 and 50 UK stocks. The Lazard European alpha invests in a slightly larger portfolio of 45 to 50 stocks.

Looking at how the Isa fits into the market Colsell says: “The Lazard Isa gives subscribers the opportunity to invest in a mixture of UK and European stocks within one Isa wrapper.” Both thinks the Isa is confined to a specialised niche because it only has two funds. He is surprised that Lazard&#39s wide range of funds is not mentioned in the product literature. Cornelius says: “The concentrated portfolios make these two funds ideal core holdings for more experienced investors.”

Identifying the types of clients the Isa may suit Both says: “Because the fund range within this Isa is so restricted, the actual Isa itself is likely to appeal only to investors who already hold a range of funds elsewhere and are simply looking to round off their portfolios with one or two extra funds.”

Cornelius suggests clients looking for longer-term equity growth. Colsell says: “The Isa is suitable for those investors looking for growth in both the UK and Pan-European markets over the next five to 10 years. It is for clients who are not looking to select individual stocks themselves, instead favouring the services of a professional fund manager.”

Turning to the marketing opportunities for the Isa Cornelius says: “It can demonstrate to clients the advantage of a concentrated portfolio, rather than spreading investments too widely.” Colsell says: “Many Isa holders have invested in the UK only and this Isa is ideal for those considering their first step into overseas markets. the European fund can only invest in the 200 largest companies in Europe excluding the UK. But it is limited to 45-50 of those 200. This selection can increase the overall risk factor.”

Both says: “Very few for the Isa itself. Fidelity has such a bewildering range of funds so its seasonal selections can be a welcome simplification. But Lazard adopting the same strategy for its Isa seems faintly ridiculous. It may make more sense for Lazard to push the funds as an element of someone else&#39s fund supermarket, being available under most, including Fidelity, Skandia and Transact.”

Considering the main useful features and strong points of the product, Colsell says: “Lazard aims to bring about outperformance by concentrating on its best ideas. If this strategy is successful, then the performance will follow. The decision to limit the European fund to the top 200 Pan-European companies should reassure any investor who is new to overseas investment.” Both says: “There is nothing distinguishing about the Isa per se, but the funds are worth considering.”

Cornelius says: “Both funds clearly state their objectives of outperforming their benchmarks by 2.5 per cent a year over a rolling market cycle. This objective has been achieved, so far.”

Discussing the investment strategy and investment options, Cornelius says: “The investment strategy is to identify value while strictly controlling risk, a demanding task. This is achieved by over or under weighting sectors and stocks compared to the benchmarks.” Both says: “It is refreshing to find a fund manager that offers a relatively concentrated portfolio, while most of its competitors are still closet index trackers. This puts its stock picking skills on test, but this is precisely what an active manager should be doing.”

Colsell says: “Past performance figures show that Lazard Asset Management has been successful in meeting its investment objectives. Naturally, there is a close correlation between the funds&#39 performance and the respective benchmarks. But as far as the fund managers are concerned, they are on the right side of the line. The long-term strategy of both funds appears to be well placed, by looking at companies with sound business models, experienced management teams and growing cash flow.”

Examining the Isa&#39s disadvantages, Both says: “It has a very restricted range of funds within the Isa wrapper as promoted, which isn&#39t on any better terms than Lazard&#39s standard Isa which offers all its funds.” Cornelius says: “A concentrated portfolio can be a higher-risk investment, especially if the manager gets the sectors and stock weightings wrong.” Colsell says: “If a client is looking for further global diversification then this is not the Isa for them.”

Examining the company&#39s reputation Both says: “The loss of its portfolio management team in March 2001 to Jupiter removed a significant wealth of experience in one fell swoop, so it doesn&#39t have a terribly high profile.” Colsell says: “Lazard is a well known and respected investment house in the institutional sector with emphasis being laced on risk management and stock selection. It is less well known to the retail investor.” Cornelius says: “Lazard has a well deserved reputation for research and is primarily a stockpicker and value investor.”

Looking at the company&#39s investment past performance record Cornelius says: “Lazard has a good long-term reputation which was well deserved. The medium-term performance has been unexciting and the short-term returns are much more encouraging.” Both says: “For a manager with such a narrow range, it needs to have more star performers. Having said that, the fact that so many of its funds have been round for over 15 years is exceptional.” Colsell says: “Lazard has a steady track record with both funds meeting their objectives.”

Nominating products which look likely to provide competition for the Isa, Both says: “We prefer to select the Isa plan manager as a supermarket separately from the underlying fund. The main funds providing competition would be ABN Amro UK growth, Artemis UK growth, Fidelity UK special situations, HSBC UK growth & income, Newton income and SocGen UK growth.”
Colsell says: “If a client does not recognise Lazard, then one of the relatively new funds may provide competition such as the Gartmore UK focus fund or, in the European sector, the MFS fund managed on a best ideas basis.”

Both thinks the charges are very competitive. Colsell thinks they are in line with the market average. Cornelius thinks they are reasonable for such a concentrated portfolio that requires special attention.Colsell also thinks commission is in line with the market and Cornelius feels it is the industry standard. Both thinks the commission is fair and reasonable. He adds: “It is refreshing to find a fund manager which has reduced client charges without simply sacrificing the IFA&#39s marketing and servicing allowance.”

Looking at the product literature, Colsell says: “The literature contains good investment information that can be used to illustrate aims to clients. However, it could be better set out for those looking to access online.” Cornelius says: “The literature is good. the layout is attractive and very informative.”

Summing up Both says: “This Isa offering leaves Lazard more the under-dog than the Alpha to which they aspire.”

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