Rayner Spencer Mills Research (RSMR) is an independent research company specialising in rating, comparing and analysing the full range of funds and products available in the UK. The following extracts are from the firm's review of the Legg Mason ClearBridge US Aggressive Growth Fund, the full version of which may be read here
The fund seeks to generate long-term capital appreciation by investing in the securities of US companies of any market capitalisation that the investment manager believes are experiencing, or have potential to experience, above-average growth of earnings and/or cashflow.
The fund is focused on aggressive growth names with a value overlay and co-managers Richie Freeman and Evan Bauman are long term investors with a broad market capitalisation capability. They are bottom-up stockpickers, focused on ‘sustainable growers’ – companies that have the ability to grow over 10 or 15-year time periods. They like business models that have sustainable competitive advantages, are cash-generative and can grow these on a sustainable basis.
"The management team strongly believe the price you pay is critical to creating value for investors."
The strategy is about finding companies that can continue to grow in any environment, even when growth is hard to come by – in other words, businesses that can generate growth in excess of the markets without being reliant on growth in the underlying economy. Over the long term, the annualised turnover rate has been less than 10% and the average number of holdings in the portfolio is typically in the 50 to 70 range.
The stocks selected have to have a dominant product or service, a strong balance sheet and good-quality management before they can be considered for the portfolio. Particularly attractive, for example, might be stocks that are selling at less than 2x projected earnings growth.
The portfolio managers determine individual security weightings, based on their estimation of an individual holding’s risk-reward relationship. Benchmark weighting or overall portfolio sector allocations are not factors in determining position size and, typically, cash positions range from of 0% to 10%, with an average cash position of approximately 2% to 5%.
Another core focus or strategy is valuation. The management team strongly believe the price you pay is critical to creating value for investors and that the best way to minimise risk and maximise potential upside is not to overpay for growth. The fund will often look very different to the peer group in terms of sector weightings because the managers are agnostic to the benchmark and will invest where they believe the best long-term growth opportunities are. The fund is not currency hedged.
Rayner Spencer Mills Research comments
This is a well-established strategy managed by a long-running team that have seen several market cycles. They have built a process that has been consistent with a low-turnover and longer-term view. The term “aggressive” is misleading in suggesting this is a higher-risk strategy than alternatives in the peer group.
The fund seeks aggressive growth stocks that have sustainable franchises that are often undervalued rather than taking aggressive allocation or stock positions. The managers have a strong and clear strategy with a high degree of conviction in their process, which can lead to different positioning relative to the benchmark and sector. Overall this fund would work as a good diversifier for a more benchmark-driven or index portfolio.