- The portfolio generated strong absolute returns in Q4 but trailed the Russell 1000 Growth Index as markets rose sharply on expectations for a trade war truce, new monetary accommodation and improved profit growth.
- For the year, the portfolio generated a return of 34.6% (gross) and 33.6% (net) while the market returned 36.4% driven by Price/Earnings multiple expansion as Index earnings remained roughly flat.
- Stock selection was the primary detractor from relative returns for the quarter and year; in Q4 selection in the Information Technology sector detracted most due mainly to positions in Intuit, Workday and FleetCor; conversely Autodesk, one of last quarter’s detractors, was one of the portfolio’s largest contributors.
- Not owning Apple cost the portfolio about -1.4% of relative return for the quarter and -2.6% for the year; the level and predictability of our forecast earnings growth continues to look less attractive than other opportunities on our Qualified Company List.
- Sector allocation effects detracted from performance; market leadership was very narrow for the quarter with only the Health Care, Information Technology, and (to a much lesser extent) Communications Services sectors outperforming the overall Index.
- A new position in Ulta Beauty was initiated with proceeds from the sale of Lowe’s; positions were trimmed in ADP, Alphabet, Autodesk, Estee Lauder and Novo Nordisk while we bought additional shares in Amazon, Intuit, Illumina, PayPal, Salesforce.com, and YUM! Brands.
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.