US equities have remained strong performers in recent months in spite of unexpected macro and geopolitical issues, and for Martin Flood, US portfolio manager at Lazard Asset Management, the outlook remains optimistic.
The manager notes: “On the economy, we’re entering the next phase of growth and we’re still bullish on US equities. One part of the economy [that has struggled] has been the working middle class, and there are signs that confidence has improved. We are still on a deleveraging mode that began in 2008 and that will continue, but I think we can grind along at 2-2.5 per cent [growth] for the foreseeable future.”
Of course, strong performance has led to higher valuations, leading some to ask just how many attractive opportunities remain.
Mr Flood acknowledges: “Valuations are not cheap. But we’re not buying the market, we’re buying stocks. The composition, the structural nature of the S&P’s margin has changed. Technology is a bigger component than 30 to 40 years ago. Structurally, margins have edged upwards and the composition of the index makes you feel a little bit more comfortable on valuations.
“It will be a market you have to stockpick your way around. Buying the market now is probably not a good idea, as if you buy the S&P500 then you’re buying all the overvalued stocks,” he says.
After 17 years in the US equity space, Mr Flood should know what he’s talking about. He originally started in public accounting, but his auditing work led to him being introduced to Lazard and after meeting people on the fund management side, he decided to move across.
Initially joining in a hybrid marketing client communication role – “someone who could talk to clients about their investments” – he moved to a purely investment role around 2000.
“We have five US strategies that have scale and I show up as the portfolio manager in every one. I act as the spokesperson for the US platform, but I am actually the portfolio manager for certain strategies, I’m the final decision maker,” he says.
For UK investors, Mr Flood acts as backup to Chris Blake on the Lazard US Equity Concentrated Ucits fund.
He notes: “There are 24 of us that focus on US equities and we run around $24bn (£18.5bn) under a similar investment philosophy. The only difference between strategies is the structure of the fund and the lead manager.”
For Mr Flood, one of the highlights has been the ability to “build the business in a very difficult environment for active management”, especially with the concentrated portfolio.
He explains: “We are growing in a very difficult environment to grow in. I think we can grow because this is a truly actively managed portfolio. Too many funds in the US are considered to be active but the reality is they are closet indexed portfolios charging an active fund, and if you do the likelihood of the client winning consistently is low. We have been able to create a strategy that has performed well in multiple environments and I think the client understands what they’re getting. It’s the way we describe the investment process and performance expectations both good and bad.”