- SGA’s U.S. Large Cap Growth portfolio returned 5.4% (gross) and 5.2% (net) in Q4 2017 compared to 7.9% for its primary benchmark the Russell 1000 Growth Index, and 6.6% for the broad market S&P 500 Index
- Equities responded to improving earnings growth and the rising likelihood for tax reform, generating strong absolute returns; stock dispersion (as measured by the cross sectional volatility of the constituents of the Russell 1000 Growth Index) continued to be low
- The payoff to business quality was mixed; higher return on equity companies and those with higher betas were rewarded while companies with earnings underperformed as did those with lower debt
- The portfolio‘s relative performance was negatively impacted by our attention to valuation and the reallocation of capital to holdings deemed to offer more attractively valued forward looking 3-5 year earnings growth, as price momentum delivered its best performance since 1999 in 2017
- Market volatility, historically a tailwind for the relative performance of our approach, reached record lows in 2017
- The Consumer Discretionary (+10.6%) and Industrials (+10.1%) sectors performed best while Health Care (+0.8%) trailed all other sectors by a wide margin; stock selection in the Consumer Discretionary and Financials sectors detracted most from performance while sector allocations had a marginal impact
- A position in State Street was sold on strength as banks benefited from rising expectations for regulatory relief and new positions in YUM! Brands and Walt Disney were initiated; positions in J.B. Hunt, FleetCor and Alphabet were reduced on strength and positions in Autodesk, Regeneron, Ulta Beauty and Schlumberger 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.