Summary
Seeking to invest in companies with persistently high financial productivity and trading at attractive valuations is a long-established hallmark of Lazard Asset Management’s approach to fundamental active investing.
Ten years ago, we published a white paper called Relative Value Investing, in which we examined the relationship between financial productivity and shareholder returns. Today we are publishing an update, assessing the most recent decade for global equity markets. We draw three main conclusions from this long-term study:
- Financial productivity remains a critical driver of companies’ share prices. Over time, companies with leading levels of financial productivity should outperform the global index.
- Incremental outperformance is afforded to investors who can identify companies that maintain high levels of financial productivity into the future.
- Valuation discipline continues to be important—not only to avoid overpaying for companies, but also to prevent being seduced by optically "cheap" valuations.
In short, we believe that the central tenet of our investment philosophy, namely buying companies with the highest levels of financial productivity and trading at attractive valuations, remains as true today as it was 10 years ago. This study demonstrates why while also sharing some new findings from the past decade.
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