- Portfolio returned -6.9% (gross) and -7.1% (net) versus -3.6% for the Russell 1000 Growth Index as sharply rising interest rates negatively impacted longer duration growth companies in August and September
- Higher business quality characteristics that SGA portfolio companies possess such as high margins, sales growth stability, and low debt underperformed for the quarter
- Strong performances by Apple and Tesla, which were not owned in the portfolio, cost about 1.3% in relative return
- UnitedHealth was sold due to forced attrition after being a strong contributor to the portfolio since its purchase in December 2020 to make room for a new position in Intuitive where we took advantage of market volatility to purchase the leader in robotic surgery at an attractive valuation
- Higher interest rates are likely discounted in current stock prices, but a recession and its impact on corporate earnings is not yet factored into consensus earnings forecasts
- Coming downward earnings revisions for the index and eventual moderation of interest rate pressure should be a powerful tailwind to our relative performance in coming quarters as they have been historically (see Russell 1000 Growth 2-Year EPS % Change chart on Page 2)
The opinions expressed herein reflect the opinions of Sustainable Growth Advisers, LP and are subject to change without notice. Past performance is no guarantee for future results. This information is supplemental and complements a GIPS Report that can be found with composite performance. The securities referenced in the article are not a solicitation or recommendation to buy, sell or hold securities. This commentary is provided only for qualified and sophisticated institutional investors.
Results are presented gross and net of management fees and include the reinvestment of all income. The Net Returns are calculated based upon the highest published fees. The net performance has been reduced by the amount of the highest published fee that may be charged to SGA clients, 0.85%, employing the U.S. Focused equity strategy during the period under consideration. Actual fees charged to clients may vary depending on, among other things, the applicable fees schedule and portfolio size. SGA’s fees are available upon request and also may be found in Part 2A of its Form ADV. The largest contributors and detractors are determined using a ranking of the absolute contribution to portfolio return by each security held over the period under consideration. Policies for valuing investments, calculating performance, and preparing GIPS Reports are available upon request. Upon request, free of charge, SGA can provide a list of all portfolio holdings held in SGA’s U.S. Focused portfolio for the past year. SGA’s earnings growth forecast data is based upon portfolio companies’ non-GAAP operating earnings.