Highlights:
- Our focus on higher quality and more predictable secular growth companies faced a relative headwind in Q4 as markets continued their rebound led by small-cap, high beta value stocks with lower returns on equity and no earnings; the portfolio generated strong absolute returns but trailed its benchmark for the quarter
- Sector allocations detracted from the portfolio’s relative return while stock selection had a slightly positive impact
- Stock selection in the Communication Services, Information Technology, Materials and Industrials sectors benefited performance while selection in the Health Care, Consumer Discretionary and Real Estate sectors detracted; overweights in Health Care and Materials hurt relative results
- Turnover increased as we took advantage of opportunities, initiating new positions in leading financial services firm American Express, global media leader Walt Disney and MSCI a leading provider of critical decision support tools and services for the global investment community; positions in Becton Dickinson, Ecolab and Xilinx were liquidated
- The portfolio continues to be well positioned to generate revenue and earnings growth meaningfully higher than that of the Russell 1000 Growth Index benchmark over the coming three years with greater predictability and sustainability
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.