Lazard Japanese Strategic Equity Fund Monthly Commentary
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Lazard Japanese Strategic Equity Fund AUG Commentary 2021 Market Overview Markets were on the weak side for the rst few weeks of the month due to concerns that rapidly increasing delta variant cases around the world would side-track the current global economic recovery following pandemic period lows. However, the market made a strong recovery in the last week-and-a-half, with the TOPIX Total Return index nishing the month up a solid 3.2% in yen terms. Tokyo managed to host a reasonably successful Olympics and Japan even produced a strong showing in the medal count, particularly in gold medals. Portfolio Review During the month, the portfolio underperformed the TOPIX Total Return Index which returned 3.2% in yen terms. Being underweight and stock selection in consumer discretionary, and stock selection in the materials and utilities sectors were top contributors to performance. Being underweight and stock selection in health care, stock selection in communication services, and being underweight and stock selection in information technology sectors were negative. During the month, the top positive contributors to relative performance included: • Nippon Steel, Japan’s largest steel manufacturer, was strong after reporting better-than-expected rst-quarter earnings and raising its full-year guidance. • Mitsui O.S.K.Lines, a leading shipping company, continued to rise due to stronger-than-expected earnings and a better-than- expected dividend increase. • Makita, a leading global manufacturer of power tools, raised full-year guidance as its rst-quarter saw continued strong demand globally. • Dai-ichi Life Holdings, a leading life insurance company, rose as the yield on 10-year U.S. government bonds hit a low in early August, and subsequently rose over the month. • Mitsubishi Corporation a major trading conglomerate, has seen a signicant improvement in coking coal prices which until recently had lagged other commodity prices due to Chinese import restrictions on Australian coal. Conversely, the largest detractors to relative performance included: • Hitachi, an industrial conglomerate, experienced prot taking following extremely strong year-to-date share performance combined with only in-line rst quarter earnings. • Komatsu, a leading heavy equipment manufacturer, was softer as the company delivered slightly better than expected rst-quarter earnings but failed to raise its full-year guidance. • INPEX, Japan’s largest energy exploration and production company, was weaker as oil prices softened over the month. • SoftBank Group, an investment company focused on technology and telecommunications, suffered from continued selling pressure amid investor concerns about its Chinese investments as the Chinese government continues to implement surprise policy changes. • Mizuho Financial Group, a major banking group, was weak as the bank suffered from another system outage as well as an ATM glitch during the month. Recent Activity and Trade Rationale Daikin Industries and Mitsui O.S.K. Lines were newly added to the portfolio during the month. Daikin Industries, a leading HVAC manufacturer, was newly added to the portfolio on continued expectations of solid growth in HVACs over the medium term, as well as optionality in new product areas such as refrigerants for electric vehicles. Mitsui O.S.K. Lines, a leading shipping Lazard Japanese Strategic Equity Fund company, was added to the portfolio as we expect elevated container rates to continue resulting in an aggressive shareholder return policy. Rengo, a leading cardboard manufacturer, was reduced due to lower expectations of improving capital return. We believe the shares remain inexpensive, however shareholder return policy is disappointing and unlikely to change in the near-term. Outlook Unfortunately, the successful hosting of the Olympics has not led to a recovery in sentiment, as the ongoing state of emergency has limited the scope for a more robust reopening dynamic. Prime Minster Suga has been mired in blame and has a meager 26% support rating, according to a recent Mainichi Shimbun poll. While recent announcement of his decision not to run again for the LDP presidency comes as a surprise, he was already facing a challenging LDP election. National elections have to be held by this autumn and a LDP victory seems highly likely nevertheless. But who will become Japan’s next prime minster is a toss-up. However, we don’t anticipate any signicant policy changes given the rumored candidate pool at this time. More importantly, we still believe that a number of the reforms put in place during Prime Minster Abe’s tenure have been institutionalised to a large extent, and as a result, the foundations of improving corporate governance are rm. With 56% of the population having received one dose of a COVID-19 vaccination, the case for a more robust reopening is sound as we head into the winter and the new year. Irrespective of where one lies in placing blame for the current gloom, corporate prots have soared thanks to Japan’s leverage to global growth. Compared to other major markets like the U.S. or Europe, Japan looks inexpensive as this earnings growth has yet to be discounted by market valuations. Important Information This document is provided for information only and is not intended to constitute investment advice. All data contained herein are sourced by Lazard Asset Management or affiliates unless otherwise noted. The Lazard Japanese Strategic Equity Fund is a sub- fund of Lazard Global Active Funds plc, an open-ended investment company with variable capital structured as an umbrella fund with segregated liability between sub-funds incorporated with limited liability and is authorised and regulated as UCITS by the Central Bank of Ireland. Lazard Global Active Funds plc are recognised by the Financial Conduct Authority (FCA) under section 264 of the Financial Services & Markets Act 2000 ("FSMA") and therefore regulates the marketing of the funds within the UK. The Central Bank of Ireland regulates all other aspects of the Fund's operations. There will be no right to cancel any agreement under the FCA cancellation rules. Compensation under the Financial Services Compensation Scheme will not be available. Copies of the full Prospectus, the relevant Key Investor Information Document (KIID) and the most recent Report and Accounts are available in English, and other languages where appropriate, on request from the address below or at www.lazardassetmanagement.com. Investors and potential investors should read and note the risk warnings in the prospectus and relevant KIID. There can be no assurance that the Fund's objectives or performance target will be achieved. Any views expressed herein are subject to change. Past performance is not a reliable indicator of future results. The value of investments and the income from them can fall as well as rise and you may not get back the amount you invested. The portfolio may be affected by changes in the exchange rate between the portfolio's base currency, the currency of your investments and your home currency. The information provided herein should not be considered a recommendation or solicitation to purchase, retain or sell any particular security. It should also not be assumed that any investment in these securities was or will be profitable. Any yield quoted is gross and is not guaranteed. It is subject to fees, taxation and charges within the Fund and the investor will receive less than the gross yield. Issued and approved in the United Kingdom by Lazard Asset Management Limited, 50 Stratton Street, London W1J 8LL. Incorporated in England and Wales, registered number 525667. Lazard Asset Management Limited is authorised and regulated by the Financial Conduct Authority. The contents of this document are confidential and should not be disclosed other than to the persons for whom it is intended. .