Investing, like football, is about it is about getting consistent players at the right valuation, says Darius McDermott, managing director at FundCalibre.
As I write, my beloved Chelsea Football Club have a lot to play for in the final few days of the season as they chase Champions League football and a potential European trophy*.
But in a few days’ time it will all be about the transfer window and who we can sign to improve the squad. And, importantly, how much do we have to spend? This is something we have not excelled at in recent times.
It’s a harsh lesson learned – it’s not just about the money, it is about getting consistent players at the right valuation.
That is something this week’s fund places at the heart of its investment process, getting the right companies but at what they believe is a fair and attractive price.
Lazard Global Equity Franchise looks for companies that have an edge in their respective business sectors. The fund can invest in any business around the world, but because the managers are looking for industry leaders, there is a natural bias towards larger-sized companies.
The fund is run by the four-strong team of Bertrand Cliquet, John Mulquinley, Matthew Landy and Warryn Robertson. Two of the team are based in Sydney, one in New York, with Bertrand the London-based manager.
Stock selection sees the team filter out companies with low revenue visibility. Step two is to search for desirable factors such as natural monopolies, cost leadership, strong brands, intellectual property or high barriers to competition. This results in an investable universe of around 230 stocks.
Fundamental analysis follows to allow the team to calculate a company’s intrinsic value, based on the current value of future cash flows. The team will also meet company management as part of its combined research trips. This allows the managers to rank the stocks based on their potential upside versus the current share price. This then drives which stocks are added to the portfolio and position sizes.
The result is a value portfolio which offers something very different to what is often seen in a very proliferated market, with some 550 global funds to choose from. For example, the fund currently has only 40% in US equities, well below the 71% sitting in the MSCI World Index*.
Bertrand says the fund has held an average of around 60% in the US over the long term, but says the almost safe-haven status it has seen in recent years – courtesy of a strong currency and lower interest rates – has been replaced by one undergoing a change in policy and a lack of visibility.
“We are all about good franchises but being picky on valuation. The opportunity set in the US is drying up and increasing elsewhere. There is also rising uncertainty (the likes of tariffs) and it would be foolish of us to predict the outcome,” he says.
Some would argue the Magnificent Seven (to which the portfolio currently has no exposure) are franchise businesses. Bertrand acknowledges they are financially productive, but says it’s all about getting exposure at a reasonable price. For example, the fund held 40% in technology back in 2017 and also bought Alphabet following a sell-off in late 2022, becoming one of the biggest contributors to performers in 2023, before being sold last year.
“I think the approach is about finding companies that are inexpensive on a realistic but conservative scenario. In other words, we are trying to find asymmetries, tilted to the upside. If a stock is cheap on those conservative assumptions, the most likely outcome will be a positive surprise,” he says.
Emotion is a big buzzword too – but as a red flag. Strategies like this are all about patience and using processes to avoid the herd mentality when it comes to buying or selling stocks. Remember, it works both ways – those mass-market sales can often give them opportunities to invest in good businesses at discounted valuations.
The current underweight to the US means stronger exposure to the likes of Europe (30%) and the UK (20%), while the fund has Japan for emerging market exposure. Bertrand says the fund also has a good allocation (around 30%) in monopolistic infrastructure companies, which have no exposure to the ongoing threat of tariffs.
I was keen to ask what a global franchise actually constitutes in their view. Bertrand says the aim is to target companies with the ability to predict future earnings and cashflows with a much lower margin for error than the broader market.
Examples he points to include monopolies like The National Grid or Severn Trent Water, which have scale to do research and development, improving their productivity versus their peers to strengthen their position.
He says: “You also have companies that have brands with strong intellectual property. The likes of Colgate or Heinz – they are the most expensive version of their items in the shop, but they have the power of brand. This gives them a steady business flow, which is what we want.”
Patience matters – this fund will produce performance vastly different to its benchmark. It lagged in both 2020 and 2024, producing negative returns when markets performed well. Conversely, the value focus made it one of the few strategies to produce a positive return in 2022**.
What matters most is the long term and this is where performance has held up. Bertrand says the crux of the process is what do they think is a sustainable return in the long run?
He says: “We ask ourselves what growth will a business achieve and is it commensurate with the long-term risk-free assumptions. That’s really, really important when it comes to thinking about valuation because the minute we break this discipline, valuation becomes an irrelevant factor and we believe valuation is one of the key features of investment and certainly one of the key sources of risk that we, as fund managers, need to understand and control.”
This fund offers investors a different route to global equities but with excellent long-term results. It is a strong consideration for anyone looking for a core, global value strategy.
* Chelsea FC both achieved a place in the Champions League next season and won the European trophy, by winning the Conference League cup.
**Source: MSCI World, 31 March 2025
***Source: Lazard
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.
Main image: chaos-soccer-gear-Cjfl8r_eYxY-unsplash
