February 2024 | Caldwell-Lazard CorePlus Infrastructure Fund Commentary

Market Overview

Global equity markets advanced in February, as a U.S.-led surge in technology stocks bolstered risk appetites.

With the fourth-quarter corporate earnings season in full swing, the focus during the month was squarely on the two levers that set stock prices—company profits and interest rates. The blockbuster quarterly earnings of U.S.-based artificial intelligence (“AI”) chip designer Nvidia reverberated across global stock markets, sparking a strong, broad-based rally that was especially beneficial to shares of technology companies linked to AI and raising hopes that the resultant frenzy would support economic growth worldwide.

The upbeat mood of investors was tempered by ongoing uncertainty about the timing of interest rate cuts from key central banks. All eyes were on the Federal Reserve after the U.S. central bank warned, last month, that it would not lower interest rates until inflation was “moving sustainably” toward its 2% target and minutes from that meeting indicated that monetary policymakers were worried about moving too quickly to lower borrowing costs. Data released early in the month, suggesting that consumer and producer prices in January rose more than expected, raised concerns that inflation was reaccelerating, but those worries eased after the Fed’s preferred gauge of inflation, the Personal Consumption Expenditures (“PCE”) price index, showed prices in January rising in line with expectations. The PCE’s latest reading fueled market hopes that the Fed will keep interest rates steady at their current 23-year high in March and begin cutting them in June. The yield on the benchmark 10-year U.S. Treasury note ended February at 4.26%, 34 basis points (“bps”) higher than a month earlier.

In Europe, speculation was growing that the European Central Bank (“ECB”) would begin retreating from its restrictive monetary policy stance in June after preliminary data suggested that inflation in the eurozone had dipped in February. The ECB, however, reiterated its view that more data, especially in the labour market, was required before it would begin lowering rates from their current record high. Meanwhile, in the U.K., where data indicated that the country fell into an economic recession at the end of last year, the Bank of England held interest rates steady at their current 16-year high but warned that it would need to see domestic inflation fall back to its 2% target and stay there before it would lower rates. In February, the yield on the 10-year German bund, Europe’s principal safe-haven asset, rose 24 bps, ending the month at 2.42%.

The latest results of the fourth-quarter corporate earnings season painted a mixed picture of how interest-rate headwinds have impacted company profits. In the U.S., 75% of the companies in the S&P 500 Index that reported results topped consensus estimates, which was above the long-term average of 66%. The fourth-quarter earnings growth rate is estimated to have increased 4.0% from a year earlier. In Europe, 45% of the companies in the STOXX 600 Index that reported results posted better-than-expected earnings, below the 55% that do so in a typical quarter. The year-over-year fourth-quarter earnings growth rate is expected to have contracted 14.8%. In Japan, 54% of the companies in the TOPIX reported positive earnings surprises, which was below the 56% beat rate over the past four quarters. The fourth-quarter earnings growth rate is estimated to have increased 39.6% from a year earlier.

Against this backdrop, equity markets in both the developed and developing worlds gained in February, with the latter outperforming the former. In the U.S., the S&P 500 recorded its best February performance since 2015. 72% of the stocks in the S&P 500 registered gains, though a handful of mega cap technology stocks accounted for much of the index’s strong performance. In Europe, the STOXX 600 advanced but lagged the broader global market index, as lackluster quarterly earnings results deepened anxiety about the eurozone’s economic health. In Japan, the Nikkei 225 reached a record high, as data suggesting that the Japanese economy had slipped into a recession at the end of last year fueled speculation that the Bank of Japan will maintain its negative interest rate policy stance. Meanwhile, in emerging Asia, the MSCI China Index rose sharply after Chinese authorities announced additional measures to boost confidence in the country’s stock market.

Information technology was the best-performing sector in February, as shares of companies leveraged to artificial intelligence were boosted by the Nvidia’s stellar quarterly earnings. Utilities was the worst-performing sector, as heightened risk appetites led investors to rotate out of defensive stocks and into economically sensitive ones.


There has been a striking difference in share price performance during 2023 between renewable energy and clean technology companies, and real asset-centric utilities, midstream energy, and transportation infrastructure companies. While top line growth still favours much of the renewable energy and clean technology space, and there is plenty of runway ahead, multiple factors have pressured shares in the short run, including decelerating order activity, excess channel inventory, higher borrowing costs and relief from last year’s exceptionally high oil & natural gas prices.

This has led to a meaningful pullback in valuation for companies across an incredibly dynamic and innovative space in both renewable energy and electrification, while the opportunity set ahead remains just as great and the direction of travel in no way changed. The portfolio’s measured exposure to this higher volatility, higher risk category of infrastructure-related services, materials and technologies served us well last year and the portfolio is designed to maintain this defensive posture. But we also believe the valuation pullback for many high-quality companies poised to capture a meaningful share of this growing market represents an exciting opportunity for investors that we expect to take advantage of in 2024.

The share price performance of real asset-heavy, core infrastructure securities also had to contend with the headwind of substantially higher interest rates in 2023, leading to underperformance versus most growth-oriented broad equity market indices. But the combination of defensive business models, highly predictable revenues and cash flows, and strong inflation pass-through characteristics has demonstrated resilience. This leaves the portfolio’s holdings very well-positioned to benefit from an end to the rate-hiking cycle, when we expect eventual lower interest rates will be used to discount cash flows that have been adjusted higher either for regulatory or contractual inflation-adjustment, or the indirect benefit of inflation adjustment that tends to stem from owning and operating high fixed cost, long life assets.

In summary, we believe infrastructure investment allocations have been playing a relatively commendable defensive game in an aggressive and adverse monetary policy tightening phase. With key central banks signaling that interest rates have likely peaked, we are optimistic that market momentum is ready to shift in favour of companies with significant upside potential such as those in our portfolio.

The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.

Information and opinions presented have been obtained or derived from sources believed by Lazard Asset Management LLC or its afflliates (“Lazard”) to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the published date and are subject to change.

Allocations and security selection are subject to change. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Mention of these securities should not be considered a recommendation or solicitation to purchase or sell the securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio.

Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
Securities and instruments of infrastructure companies are more susceptible to adverse economic or regulatory occurrences affecting their industries. Infrastructure companies may be subject to a variety of factors that may adversely affect their business or operations, including additional costs, competition, regulatory implications, and certain other factors.

Certain information contained herein constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “intent,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events may differ materially from those reflected or contemplated in such forward-looking statements.

Published on March 14, 2024.

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