- The portfolio returned +3.3% (gross) and +3.1% (net) in Q4 and +15.4% (gross) and +14.4% (net) in 2021 reflecting the underlying double-digit earnings and cash flow growth of our companies.
- The portfolio underperformed its Russell 1000 Growth Index benchmark in Q4 due to a combination of weakness in payment and software stocks owned, and strong returns from a few select companies with high benchmark weights that weren’t owned due to less attractive growth or fit with our approach. Market leadership was narrow with the 10 largest companies in the Russell 1000 Growth Index contributing 65% of the index return for the quarter.
- In Q4, stock selection and sector weights detracted from relative returns with selection in the Information Technology sector accounting for virtually all of the performance shortfall; selection in the Health Care sector was strong.
- For 2021, a strong pro-cyclical headwind and stock selection primarily in the Information Technology sector negatively impacted relative returns due to weakness in payment stocks owned and strong returns from stocks not owned due to fit.
- A new position was initiated in Danaher and the portfolio’s position in Abbott was liquidated due to valuation.
- Co-Founder, Portfolio Manager, and Analyst Gordon Marchand has announced that he will retire from the firm at the end of Q2 2023 as he turns 68 years old. Gordon will relinquish his portfolio management responsibilities to HK Gupta who will join Rob Rohn and Kishore Rao on the U.S. Portfolio Management Team effective July 1, 2022. Further details regarding the change are provided at the end of this commentary.
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.