Legg Mason explains its themes at Lausanne Summit
InvestmentEurope’s recent Lausanne Summit saw ten management groups outline their unique investment ideas, including Legg Mason Global Asset Management.
European allocators might be sceptical about ‘aggressive growth’ approaches, even when the fund focuses on America, still one of the world’s powerful economic engines.
The Legg Mason ClearBridge US Aggressive Growth Fund has not been all growth but overall it has been sharper, and its falls milder, than both the S&P 500 and Russell 3000 Growth indices over comparable periods. The fund made 3.42% a year, the S&P 500 2.05% and the Russell 3000 Growth 0.79%.
Richard Gillham, Legg Mason Global Asset Management managing director, explained that the fund managed in New York by Richard Freeman and Evan Bauman is not hostage to expected US GDP growth of around 2%.
Indeed, the portfolio’s one- and three-year annualised appreciation to August, exceeded 15% for the US dollar shares. The five-year annualised returns figure, including the credit crunch, falls to 1.9%, but is 7.55% over a decade.
If investors expect ‘aggressive’ to mean ‘high turnover’ they will be surprised by average annual portfolio churn of 5% to 10%, meaning stocks typically stay in the portfolio for ten years. “The team only looks for one or two new ideas every year -last year it added four – although they constantly see opportunities to trim and add what they hold,” Gillham explained.
The 20-member research team seeks “double-digit growth in cashflow and earnings, and companies with differentiated products and services. We want selfsustaining, self-financing companies not beholden to the capital markets”. The quality of management must be high and growth potential of holdings priced attractively. Many positions have price earnings growth rates of 1.5 times and a typical sell trigger is reaching two times.
“We would rather own a company with standard growth rate of 12% and pay a P/E of 20 for that, than a 20% growth rate profile with a P/E of 50,” Gillham said.
The fund is underweight the near-30% technology representation in the benchmark Russell 3000 Growth index. “That is not where we see secular franchise growth, we see it rather in cable, in medicine and energy services companies,” Gillham said.
The fund has a high active share of over 95%, and mid- to high single-digit tracking error. Gillham said “we are naturally benchmark agnostic when we build the fund”.
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