Fund of the week ‘We swapped Lloyds for AstraZeneca in lockdown’

Alan Custis of Lazard tells Jonathan Jones how he reacted when the pandemic began and why Covid-19 is a bigger threat to investors than Brexit

Brexit and the Covid-19 pandemic have made investing in Britain a daunting task. For those who pick stocks with a “value” approach, buying cheap companies in the hope they rebound, it has been a nightmare.

Alan Custis, who runs the £215m Lazard UK Omega fund, knows this only too well. He invests only in the largest British stocks and aims to pick out cheap businesses. The fund has struggled over the past five years, languishing among the bottom of its peer group, but has done well over longer periods. Mr Custis tells Telegraph Money why he is confident the value approach will eventually come back into fashion and why coronavirus could be the catalyst.

WHAT MAKES YOU DIFFERENT FROM YOUR PEERS? Ours is a focused fund, so we hold just 25 to 35 stocks. It is predominantly invested in larger companies and that is quite different from my peers, who invest across the market. Working at Lazard also helps. I work with 17 analysts in London responsible for looking at the British market but also have colleagues in America, Japan, Australia and elsewhere. Communicating with them helps, as larger companies tend to be international.

WHO IS THE FUND FOR? Most investors tend to buy the fund as part of a broader portfolio and will blend us with a medium-sized or smaller companies fund. Investors find that if they buy two funds they can double up on some holdings, so doing something different is important.

WHY HAS YOUR PERFORMANCE BEEN SO POOR RECENTLY? In 2016 we were near the top among our peers and we had a good year as medium-sized and smaller companies struggled after the Brexit referendum. Being honest, that was the last good year we had. What has affected us is our focus on value, which has been a challenging style to invest with, but

Markets Hub

See live financial data and build your own portfolio with our interactive investment tool

telegraph.co.uk/ markets-hub we stick to the belief that valuation is important. Currently the portfolio has a price-to-earnings ratio [a common measure of value] that is two points less than the market. Our stock picking, however, has been good.

WHAT WILL HAVE THE BIGGER IMPACT: BREXIT OR COVID? The pandemic has meant that the Jan 1 cliff edge we have all been talking about is less important. If output is going to fall by 10pc this year, as expected, irrespective of how we exit Europe at the end of the year the economy should still grow by 5pc or 6pc next year. Had we not had Covid-19, the impact would almost certainly have been more pronounced. What concerns me more is the pandemic. I worry that at the end of the furlough scheme 10pc of the workforce will be unemployed.

We need to get the economy moving again or we will get mass unemployment at the tail end of the year – and that will be a big challenge.

HOW HAVE YOU MANAGED THE FUND DURING THE PANDEMIC? We did not see the significance of Covid-19 early enough but we have pivoted the fund, selling Lloyds Banking Group, for example, and buying AstraZeneca. We bought things that hitherto we would have said were too expensive. What Covid-19 did was allow us to get some great companies on board at attractive valuations.

WHY ARE YOU CONFIDENT VALUE WILL COME BACK? This is not 2000 (height of the dotcom bubble) but there is a veneer of it. You are seeing more outlandish justifications for valuations for companies that are doing well in challenging conditions but are they worth the extreme valuations? Realistically, the only way out of Covid-19 will be inflation, as governments and central banks will continue to pump money into the economy. My hope is that when we move to that situation you will not need to pay over the odds for companies.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS? The one that stands out to me is payment company Worldpay. Over the course of a year its share price doubled and it was ultimately bought out by Fidelity Services in America. On the duff ones, I will ’fess up to London Mining, which was an iron ore producer in west Africa. We sold it a few days before it went bust but still lost a good 95pc on our investment.

HOW ARE YOU PAID AND DO YOU OWN THE FUND? I am paid a base salary and then a performance-related bonus. A big chunk of that is deferred into Lazard shares or funds and I have always deferred as much as I can into my own fund. My family and I also own it directly.

What £1,000 invested at launch would be worth now

WHAT WOULD YOU HAVE BEEN IF NOT A FUND MANAGER? I enjoy going on safari, so I’d like to have been a ranger.