- SGA’s U.S. Large Cap Growth portfolio returned 6.5% (gross) and 6.3% (net) in Q2 2018 compared to 5.8% for its primary benchmark the Russell 1000 Growth Index, and 3.4% for the broad market S&P 500 Index
- Higher interest rates and significant repatriation of funds from overseas due to tax law changes pushed the U.S. dollar higher relative to other major currencies
- Market volatility, and the portfolio’s relative performance, declined in May and early June before rebounding consistent with the pattern we would have expected; we anticipate further increases in volatility over the next few years as investors reprice risk
- Concerns over more aggressive U.S. interest rate hikes moderated as Q1 GDP growth was revised downward and strength in the dollar and continued trade tensions negatively impacted export driven sectors; concerns over regulatory oversight in the Technology sector also moderated
- Smaller-cap U.S. growth companies performed best, companies with lower betas outperformed later in the quarter; the return to business quality was mixed with high return on equity companies and those with low debt performing best, but those with no earnings also outperforming
- The Energy, Consumer Discretionary and Technology sectors performed best by a wide margin; all other sectors trailed the Index with Industrials and Financials providing the weakest returns as U.S. exporters came under pressure and expectations for rapid interest rate increases waned
- New positions in Estee Lauder and Microsoft were initiated and the remainder of the portfolio’s position in Facebook was sold; while positions in J.B. Hunt, Ulta Beauty, Nike and others were reduced on strength and positions in Yum! Brands and Alliance Data Systems among others were added to on weakness
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.