Lazard's Bold Bet on Active ETFs

Lazard, the venerable financial advisory and asset management firm, has made a significant move into the exchange-traded fund (ETF) market with the launch of its first three actively managed ETFs. This strategic pivot comes at a time when the ETF landscape is rapidly evolving, with active ETFs gaining traction as investors seek more dynamic and differentiated investment strategies. The launch of these ETFs—Lazard Equity Megatrends ETF (THMZ), lazard Japanese Equity ETF (JPY), and Lazard Next Gen Technologies ETF (TEKY)—marks a bold bet by Lazard to capitalize on the growing demand for active management within the ETF structure.

The decision to enter the active ETF space is not without precedent. The global ETF market has seen a surge in assets under management (AUM), reaching $14.6 trillion by the end of 2024, with active ETFs growing at an impressive 52% year-over-year. This growth is driven by investors' increasing recognition of the benefits of active management, particularly in navigating complex and volatile markets. Lazard's new ETFs are designed to offer investors exposure to specific themes and strategies that are not easily replicated by passive ETFs, which track broad market indices.



The Lazard Equity Megatrends ETF (THMZ) is a prime example of this thematic focus. THMZ seeks to capture returns from global megatrends such as technological advancements, demographic shifts, and geopolitical changes. By using a proprietary investment framework, THMZ identifies long-term structural shifts and invests in diversified themes expected to benefit from these trends. This approach contrasts sharply with passive ETFs, which merely replicate market indices without the ability to adapt to changing market conditions.

The Lazard Japanese Equity ETF (JPY) targets growth opportunities and market inefficiencies in Japanese equities. Managed by a local, bilingual team with decades of experience in Japan, JPY leverages on-the-ground insights to identify undervalued companies amidst economic reforms and corporate governance improvements. This regional expertise is a key differentiator, as Japan's market dynamics are often overlooked by global investors but are ripe with opportunities for active managers.

The Lazard Next Gen Technologies ETF (TEKY) focuses on high-growth equities in automation, AI, and productivity-driven technologies. TEKY invests in companies developing AI-enabling technologies, positioning itself at the forefront of the next generation of automation applications. This niche thematic play sets TEKY apart from general tech ETFs, which often lack the targeted exposure to emerging technologies that TEKY offers.

The launch of these ETFs by Lazard is a strategic response to the evolving preferences of investors, who are increasingly seeking active management within the ETF structure. The materials highlight that investors are sensitive to costs and demand quality, which aligns with Lazard's approach of offering lower-cost, actively managed ETFs. This cost efficiency, combined with the transparency and liquidity of ETFs, positions Lazard's new products as competitive alternatives to traditional mutual funds and passive ETFs.

Moreover, the launch of these ETFs reflects a broader trend in the financial industry toward fee-based advisory models, which prioritize transparency and cost efficiency. The Markets in Financial Instruments Directive II (MiFID II) in Europe has shone a light on commissions and retrocessions, requiring advisors to disclose all upfront and ongoing fees to clients. This regulatory shift has created new demand for lower-cost index products, further fueling the adoption of ETFs in advisory portfolios.

In conclusion, Lazard's launch of its first three actively managed ETFs is a strategic move that aligns with the growing demand for active management within the ETF structure. By offering thematic and regional focus, cost efficiency, and transparency, Lazard's new ETFs position themselves as competitive alternatives to traditional mutual funds and passive ETFs. As the ETF market continues to evolve, Lazard's bold bet on active ETFs is poised to capture the growing demand for differentiated investment strategies, driving the firm's growth in the years to come.

Ask Aime: What impact will Lazard's new active ETFs "THMZ", "JPY", and "TEKY" have on the stock market?