- The portfolio depreciated in value during the quarter but generated attractive relative returns as U.S. equities experienced significant volatility and weakness due to the global spread of the COVID-19 virus.
- Market volatility rose to historical levels a month after markets hit new highs; the increased volatility created opportunities for our approach to growth investing, consistent with the general return pattern we have experienced over time.
- Sector weights contributed positively to portfolio outperformance due to an underweight to the more economically sensitive Industrials sector and the more defensive Consumer Staples sector; stock selection detracted marginally with selection in the Information Technology and Consumer Discretionary sectors detracting most, and selection in the Health Care and Real Estate sectors contributing most positively.
- Portfolio activity increased during the period, as we have seen in other periods of increased volatility, with new positions being initiated in Xilinx, Match Group, Intuitive Surgical, and Adobe, and existing positions in Estee Lauder, Novo Nordisk, Mondelez and Automatic Data Processing being sold due to forced attrition; other positions were adjusted as we sought to take advantage of wide fluctuations in stock prices.
- With a gradual and staggered economic recovery expected, we strongly believe that the superior business quality of our companies (better pricing power, recurring revenues, more predictable long runways of earnings growth, strong cash flow generation, and solid management teams) will be rewarded by wary investors in the years ahead.
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 full disclosure presentation 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, 0.75%, employing the U.S. Large Cap Growth 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 performance record presented for periods prior to July 1, 2003 occurred before to the inception of SGA and represents the portable performance record established by two of SGA’s founders (and investment committee members) Gordon Marchand and George Fraise while affiliated with a prior firm. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Upon request, free of charge, SGA can provide a list of all portfolio holdings held in SGA’s U.S. Large Cap Growth portfolio for the past year. SGA’s earnings growth forecast data is based upon portfolio companies’ non-GAAP operating earnings.