Investments  

Fund Review: Legg Mason Clearbridge US Aggressive Growth fund

The market turbulence in the US has not derailed the consistent top-quartile $718.9m (£476.87m) Legg Mason Clearbridge US Aggressive Growth fund, which in five years to July 3 has returned 100.1 per cent.

The fund, which targets capital growth in the long term, has a phenomenal track record, outperforming its Russell 3000 Growth index benchmark across one, three, five and 10-year time periods.

Co-manager Evan Bauman, who manages the fund alongside Richard Freeman, says: “Many of our positions, the companies that we own, have been in the fund for longer than 10 years.

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“In fact, some of our best performing this year have been companies we have held for between 15 and 20 years. That makes us quite unique in the growth space.

“We focus on sustainable growth companies and secular growth business models – innovation over the longer term.

“If you look at our positioning, we have a very high active share against the benchmark; a very differentiated approach to growth.”

Process

Mr Bauman explains that in identifying potential investments for the fund, the management team looks for “innovative companies that have disruptive technologies that are targeting large addressable audiences”, and cites biotechnology company Isis Pharmaceuticals and technology firm Cree as prime examples.

“Cree is an LED and energy-efficient lighting company. It is an emerging growth type company in the tech space,” he says.

Mr Bauman adds that they try to concentrate on companies that are in the “very early stages of growth” and says a lot of opportunities like this exist in the technology, or more specifically, data and social media sectors.

“We don’t own device makers, but enabling technologies like storage companies – Seagate, for example – and connectivity companies like Broadcom or Citrix, a remote-

computing company,” he says.

“Another thing we look for is something that I call ‘self-financing business models’ – those companies that have a lot of free cash flow that can sustain that growth. Every company has a degree of cyclicality, but you can limit that with dominant franchises that can sustain the ups and downs of the economic cycles,” Mr Bauman adds.

Performance

Year to date to July 3, the fund has outperformed its Russell 3000 Growth index by 5.54 percentage points, with a return of 25.99 per cent, continuing the good performance that has become second nature to this fund.

According to the latest fund commentary, there was a “clear shift from defensive sectors which had been leading throughout the year”, with performance contribution coming from allocations to the technology and healthcare sector, as well as having zero weightings to consumer staples and the telecoms services sector.

One area that Mr Bauman is keeping an eye on is that of social media. However, an investment in Facebook – made months after the IPO when the stock had already plummeted in value – was a key detractor recently.

In spite of this, the fund remains firmly in the top quartile of the IMA North America sector, and advisers looking for a stable product for exposure to the US growth story would not be wrong in allocating to the Legg Mason Clearbridge US Aggressive Growth fund.