- Late in the cycle I'm especially interested in defensive investments.
- Infrastructure tends to hold natural monopolies.
- Prices are often regulated but interest rate or inflation linked.
- With these defensive characteristics they should withstand a market drawdown better.
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As part of my research into Lazard (LAZ) I looked at Lazard Global Listed Infrastructure Portfolio Institutional Shares (MUTF:GLIFX). A very nice find. Often the first thing I do is to look through a fund's portfolio to see what they own. The table below show this fund's largest positions:
Right off the bat I like the many unfamiliar European and foreign sounding names. National Grid (NGG), Edison International (EIX), Red Electrica Corporation (OTC:RDEIF), Fraport (OTCPK:FPRUF) and Societa Iniziative Autostradali e Servizi Siasspa AZ ADR (OTC:SIZAY) are music to my ears. These all sound like proper infrastructure which you want if you're looking at this fund.
I'm less thrilled with the CSX Corp (CSX) and Norfolk Southern Corp (NSC) in this specific portfolio. It's not that I don't like these stocks. In fact I've laid out a bullish case for CSX in May of this year. It's just that the U.S. railroads do have infrastructure type characteristics but also lots of transportation stock characteristics. These companies are exploiting their railroads for their own benefit while I'm more comfortable with infrastructure companies that get paid by others to use whatever monopoly-like infrastructure they own.
-Concentrated: I like the fact 25% of assets have been poured into the top four positions.
-Only about 50% of the portfolio is allocated to the Americas.
-Value bent to the portfolio.
-Turnover isn't too high at 33%.
I've concluded there's a value bent as Morningstar estimates the portfolio trades at 5.5x cash flow, 14x P/E and 2x book value. That's not a demanding average valuation for quality infrastructure type assets.
-I don't like the fund has 46% of assets in utilities.
-Only about 50% allocated to the Americas but virtually nothing to emerging markets.
-Managers have less than a million invested in the fund.
After looking at the portfolio myself I started reading a bit more about the fund, its strategy and what they say they do.
The Lazard team likes to buy monopolistic industries with steady demand, regulated and/or inflation-linked revenues and aren't overburdened with leverage. They restrict themselves to developed economies which I think is a shame but it's probably an easier sell.
It values a universe of stocks that pass the above test, based on fundamental analysis and concentrates into the ones that offer the best prospects.
The fund is mainly invested in by institutions. For institutions it's priced below average. For retail investors it's a bit more expensive. Given the concentration and strong value bent and strong performance (up next) these can be justified. For institutional investors it seems a bargain.
Mark Twain already said it best with "lies, damned lies and statistics" but let me repeat: Performance statistics are very treacherous and not something you want to give much credit to.
This Lazard fund performed quite well against its benchmark the MSCI ACWI (MSACWNTR). This year it didn't do so hot but that's when I like to get into a fund. If recent performance has been hot there are too much inflows.
This looks like a really good option if you are looking for publicly-traded infrastructure. We are currently moving into the final quarter of 2018 and I'm very interested in infrastructure this late in the cycle. I'd love to be able to access the less liquid (private) kind. If I can't find that I'll be paying close attention to this fund.
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This article was written by
Bram de Haas brings 15 years of investing experience to the table and has over 5 years of experience managing a Euro hedge fund. He is also a former professional poker player and utilizes his bundle of risk management skills to uncover lucrative investments based on special situations.He is the leader of the investing group Special Situation Report where he offers his community several features, including: a portfolio of actionable special situations, weekly updates on current ideas, ideas across sectors for diversification, select foreign investment ideas in addition to the majority of US market ideas. Learn more.
Analyst’s Disclosure: I am/we are long LAZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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