Evaluating the Lazard International Small Cap Equity Portfolio in a Low-Fee Environment

The Lazard International Small Cap Equity Portfolio (LZSMX) occupies a unique niche in the crowded landscape of international small-cap funds. With an expense ratio of 1.28% for its retail shares and 1.03% for institutional shares [1], it positions itself as a cost-competitive option within its category. Morningstar data places it in the second-cheapest quintile of Foreign Small/Mid Growth funds, suggesting a deliberate effort to balance active management with affordability [2]. Yet, in an era where index-tracking ETFs like Vanguard’s FTSE All-World ex-US Small Cap Index Fund (VFSNX, 0.15% expense ratio) and Fidelity’s ZERO International Index Fund (0.00% expense ratio) dominate cost-conscious investor portfolios [3], Lazard’s pricing strategy demands closer scrutiny.

The fund’s active management approach is central to its value proposition. While its active share—a metric quantifying the degree to which a fund diverges from its benchmark—is not explicitly disclosed, Lazard’s investment philosophy emphasizes selecting undervalued non-U.S. small-cap companies with market caps between $300 million and $5 billion [4]. This contrasts with passive alternatives like VFSNX, which tracks broad indices with minimal stock-picking. However, the absence of a concrete active share figure—a metric available for competitors like Brandes International Small Cap Equity Fund (98.9% active share) [5]—leaves a gap in assessing the fund’s distinctiveness.

Cost efficiency alone cannot justify active management unless it translates into superior risk-adjusted returns. The Lazard International Equity Portfolio (a broader sibling fund) outperformed the MSCI EAFE Index by 1.3 percentage points in Q2 2025 [6], but the Small Cap Portfolio’s performance remains less transparent. In contrast, Vanguard’s Strategic Small-Cap Equity Fund (VSTCX) has demonstrated consistent outperformance, beating its benchmark by 1.1 percentage points annually over a decade while charging just 0.21% [7]. This underscores the challenge Lazard faces: justifying its higher fees against passive peers and active rivals with more transparent performance metrics.

The fund’s competitive positioning hinges on its ability to deliver alpha without excessive cost. While Lazard’s cost structure is favorable relative to its active peers, the lack of granular data on active share and information ratio—a measure of risk-adjusted returns—limits a full evaluation. Investors must weigh Lazard’s focus on small-cap international equities against the growing appeal of low-cost index funds, which offer broad diversification and predictable expenses.

For those prioritizing cost efficiency, the Vanguard and Fidelity options are compelling. For those valuing active stock-picking, Lazard’s strategy may justify its fees—if its active management metrics align with its performance claims. The absence of direct comparisons, however, leaves room for skepticism. In a market where fees are increasingly transparent and performance is scrutinized relentlessly, Lazard must close the data gap to retain its edge.

Source:
[1] Lazard International Small Cap Eq Instl LZISX, https://www.morningstar.com/funds/xnas/lzisx/quote
[2] Lazard International Small Cap Equity Portfolio (LZSMX), https://finance.yahoo.com/quote/LZSMX/
[3] 7 Best International Stock Funds to Buy for 2025, https://money.usnews.com/investing/articles/best-international-stock-funds-to-buy-this-year
[4] Lazard International Small Cap Equity Portfolio, https://www.lazardassetmanagement.com/ae/en_us/investment-solutions/asset-class/31
[5] Brandes International Small Cap Equity Fund, https://www.brandes.com/funds/fund/brandes-international-small-cap-equity-fund
[6] Lazard International Equity Portfolio Q2 2025 Commentary, https://seekingalpha.com/article/4817946-lazard-international-equity-portfolio-q2-2025-commentary
[7] Vanguard Strategic Small-Cap Equity Inv (VSTCX), https://www.morningstar.com/funds/xnas/vstcx/quote