Lazard’s streak of underperformance with Mid Wynd continues

Mid Wynd International’s interim results show another period where new fund management group Lazard struggled to keep up with the ‘unusually narrow’ benchmark. 

For the six months ending 31 December 2024, shareholders saw just a 0.1% gain while the net asset value of the underlying portfolio rose by 0.8%. This compares with a total return from the MSCI All Country World index of 6.5%. 

Lazard won the £341m trust from Artemis in 2023, and portfolio managers Louis Florentin-Lee and Barnaby Wilson represent a continuation of the ‘quality growth’ investment style. The pair focus on ‘compounders’ capable of generating consistently high returns on capital and reinvesting in their businesses to drive growth.

However, since Lazard took over, the portfolio has returned just 11.6%, well below the global benchmark’s 21.1%.

Peel Hunt analyst Anthony Leatham said the ‘disappointing period of returns’ must be viewed ‘against a market backdrop of narrow stock and sector leadership, which has proved challenging for a high-conviction global equity strategy with a focus on high-quality compounders’.

Florentin-Lee and Wilson joined many other active managers in bemoaning ‘unusually narrow’ markets. In the results, they pointed out that just 27% of S&P 500 constituents had beaten the US index in 2024, with a similar figure for 2023. Such a backdrop reduces the chance of stockpickers outperforming.

They added: ‘A second factor, which is harder to explain, is that, although the portfolio generates a higher return on capital than the market both in aggregate and across sectors, and has kept up with the market in terms of growing earnings, it has lagged the multiple expansion seen elsewhere.

‘Some of our disappointing stocks have been working through inventory issues but still managed to generate stronger earnings power than average. It is a reminder that the market in the short term is a voting machine and in the long term a weighing machine. We are long-term investors and look forward to the scales tipping.’

During the half-year, Mid Wynd had to buy back 4.2 million shares for £34m at an average discount of 2.1%.

Last July, after buying back more than 6.6 million shares to keep its discount within its 2% target, the trust was forced to renew its share buyback authority to avoid running out of capacity to repurchase more.

Despite this, trust chair David Kidd said he retains confidence in the trust’s overall investment strategy and believes its long-term approach will deliver results. 

‘At a time when equity indices have become dangerously concentrated, we continue to support our manager’s approach of holding a well-diversified portfolio of quality businesses,’ said Kidd.

Portfolio changes during the six months included replacing Google owner Alphabet with Apple due to concerns US regulators may force the former to break up.

Meanwhile, the managers noted the iPhone maker has ‘built a diversified and growing high-margin revenue stream of software and services, which together account for more than 20% of total revenues and close to 70% of gross margins. This has become a significant growth driver and has reduced the business’s cyclicality from hardware product cycles.’