European allocators might be sceptical about the words ‘aggressive growth' when applied to funds these days, even when the fund in question focuses on America, still one of the world's preeminent economic engines.
European allocators might be sceptical about the words ‘aggressive growth’ when applied to funds these days, even when the fund in question focuses on America, still one of the world’s preeminent economic engines.
The path of one such fund – the Legg Mason ClearBridge US Aggressive Growth fund – has not been all growth over the past decade to August, admittedly.
But the portfolio’s growth has been sharper, and its falls milder, than both the S&P 500 and Russell 3000 Growth indices over the period. The fund made 7.56% a year, the S&P 500 6.5% and the Russell 3000 Growth 7.19%.
Richard Gillham, managing director Legg Mason Global Asset Management, explains the fund managed in New York by industry veterans 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, exceed 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 ideally stocks typically stay in the portfolio for 10 years. The team only looks for one or two new ideas every year – last year it added four – though they constantly see opportunities to trim and add what they hold,” Gillham explains.
Freeman’s and Bauman’s long experience mean they were early investors in now-large companies. They bought Amgen when it was just a microcap, and IDEC Pharmaceuticals, which merged to become Biogen Idec, at IPO in 1991.
Gillham says the managers and their 20-member research team seek “double digit growth in cashflow and earnings, and companies with differentiated products and services. We want self-sustaining, self-financing companies not beholden to the capital markets”.
The quality of management must be high. The fund bought Facebook shares, for “low $20’s”, as the company hired in experienced management from other sectors.
Growth potential of holdings must be 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 PE of 20 for that, than a 20% growth rate profile with a PE of 50,” Gillham says.
He concedes reasonably priced growth was not easy to find in 1999 and 2007, but Freeman concentrates on “the long-term dynamics of the company”.
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