By Lewis Braham

If you're bargain hunting for international stocks after the Iran war slide, you'd be hard-pressed to find a better choice than the Lazard International Dynamic Equity exchange-traded fund. You'll get all of the country and sector exposure of foreign index funds, but with better stocks.

The $878 million ETF has an 11.1% 10-year annualized return, beating 91% of its peers in Morningstar's foreign large blend fund category as well as the behemoth $606 billion Vanguard Total International Stock ETF's 10.6% return during the same period.

The Lazard ETF began trading on the New York Stock Exchange after converting from a mutual fund -- the Lazard International Equity Advantage Portfolio -- on May 12, 2025. But the fund's history dates back to 2015.

Its 0.40% expense ratio, while higher than the Vanguard ETF's 0.05%, is low for an actively managed fund. In fact, in its previous mutual fund form, it had a 0.80% expense ratio for its institutional share class and 1.05% for its retail one. This significant fee reduction should make it even easier for the ETF to beat its peers and the benchmark in the future -- and the ETF structure is more tax-efficient.

By comparison, most mutual funds that convert to exchange-traded funds do so because they're struggling to compete with index ETFs. But Lazard's co-manager Paul Moghtader attributes this ETF's success to its balanced approach, as opposed to focusing on a single investment style. His quantitative team "has a philosophy of building strategies that are designed to perform in different types of market environments," he says. "We've researched a number of different signals to identify companies. Those signals broadly fall into the categories of value, growth, quality, and sentiment."

Moghtader leads quantitative analysts and other investment professionals on Lazard's 25-member Equity Advantage team. Collectively, they manage some $31 billion, including this ETF.

Instead of favoring any particular signal, "the goal is to have a balanced exposure to all of those all of the time," he says. "That is really important, because what we're not trying to do is figure out when value is going to work versus when growth is going to work."

In fact, the strategy is so balanced that it's largely sector and country neutral to its benchmark, the MSCI ACWI ex USA Index. As of Dec. 31, for example, the index had 25.6% in financial-services stocks as its largest sector weighting and the ETF had 25.5%, and both had about 14% in Japan, their largest country weighting.

The ETF wins by selecting the best stocks in the index's sectors and countries instead of making tactical sector and country overweights, as other active funds often do. Such neutrality helps prevent the ETF from being a laggard if market moves are based solely on a specific sector or country. It will have the same broad exposures as the benchmark.

But beneath the surface, on the individual stock level, a lot is happening, especially if one considers that the MSCI ACWI ex USA index holds 1,971 stocks versus Lazard's 230. "All of the risk we're taking is in choosing the right stocks," Moghtader says. In aggregate, "the portfolio looks like the benchmark from a risk point of view, but it has exposure to stocks that are attractive from our proprietary [factor] signals."

More nuanced quantitative valuation analysis helps explain why companies such as Swiss pharmaceutical giant Novartis and Dutch semiconductor equipment maker ASML Holding -- both of which have valuable patents -- are top positions in the fund. ASML alone has some 38,000 patents.

Recently, the Lazard team has been applying a "life cycle score" in its valuation analysis for companies, whereby its quant models value younger companies with more room to grow differently than older, more mature companies.

So, for instance, Scout24 runs an online real estate marketplace in Germany. According to Morningstar, Scout24 has a trailing price/earnings ratio of 22, which would be high if it were a mature company with limited growth expectations. HSBC Holdings, with a 15 P/E ratio, is a mature British bank that was established in 1865. With a more nuanced approach toward their valuation, both companies have a found a place in the portfolio.

That nuance gives this ETF its edge. Unlike a "smart beta" ETF that screens for stocks with fixed rules for growth or value, Lazard's factor definitions aren't static, but rather are evolving and sometimes vary depending on a stock's industry.

"Seventy percent of our team's time is spent on research, and what we're doing is looking to come up with better definitions of value, growth, quality and sentiment," Moghtader says. "The result is that our signal definitions not only have higher expected returns than what I'd term naive factors, but they also have more consistent returns."

For instance, the classic value factor as defined by academics has long struggled to measure the worth of tech and healthcare companies. Software and drug companies seem expensive because much of their worth is in their intellectual property, which doesn't show up on a balance sheet like industrial plants or equipment would. But the Lazard team has developed proprietary valuation screens that analyze a company's patents and hiring data. "These are essentially ways that we can reverse-engineer information on a company's intellectual capital," Moghtader says.

There was a question as to whether an active mutual fund's investment strategy can port effectively over to an ETF. But problems generally occur only if the fund's manager has a highly concentrated portfolio, trades aggressively, or invests in illiquid securities that are difficult to trade, such as microcap stocks.

"We did a lot of research into the liquidity issues, but we didn't find that we needed to make any significant adjustments in the ETF," Moghtader says. "This strategy looks substantially similar to the non-ETF versions of it that we run in [private] separate accounts and for other clients." The ETF invests primarily in large, liquid stocks and is well diversified, so the strategy's transition has been smooth.

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March 06, 2026 21:30 ET (02:30 GMT)

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