09 14 Legg Mason ClearBridge

0914
Monthly Commentary
Legg Mason Global Funds plc
Legg Mason ClearBridge
US Aggressive Growth Fund
Performance1 to 30/09/2014
Legg Mason ClearBridge
US Aggressive Growth Fund
Russell 3000 Growth Index
QUICK VIEW
Key performance drivers
 The Legg Mason ClearBridge US Aggressive
Growth Fund fell 1.93%1 in US dollar terms in
September, underperforming its benchmark, the
Russell 3000 Growth Index, which was down
1.75%.
 The Fund has outperformed its benchmark for
the third quarter and year to date.
 Energy detracted at both the sector and stock
levels.
 Healthcare exposure was positive both in
September and the third quarter as a whole.
 Stock picking in information technology
detracted over the quarter.
Views and positioning
 The Fund’s largest overweights remain in the
healthcare and energy sectors.
 The largest underweight exposures are in
consumer discretionary, industrials and
financials.
 The Fund maintained its lack of exposure to
companies in utilities, telecommunication
services and consumer staples.
Current activity and manager outlook
 The manager will be taking advantage of recent
volatility to add to some of the Fund’s holdings.
 The manager continues to expect the merger
and acquisition environment to be robust, as
companies starved for growth seek to find it
through accretive acquisitions.
 The manager, as it always has, seeks to invest
where it finds growth in earnings and cash flow,
as well as good management teams and solid
balance sheets.
1 Month
3 Months
YTD
-1.93%
-1.75%
1.16%
0.88%
12.91%
6.91%
Past performance is no guide to future returns and may not be repeated.
Market Review
US equities struggled slightly in September amid widespread concerns
amongst investors about the health of the global economy, especially in Asia
and Europe, as well as persistent fears regarding geopolitical issues in the
Middle East and Ukraine. Oil prices fell over the month with markets
anticipating that lower growth would mean a weaker demand for oil despite a
steady supply. As a result, energy company shares were particularly badly
affected, although almost all areas of the US equity market were down over the
month. Defensive sectors proved most resilient, with consumer staples and
telecommunication services (telecoms) the only sectors in the Russell 3000
Growth index in positive territory. Against this backdrop, the index was down
1.75% in US dollar terms in September, underperforming the S&P 500 index,
which fell 1.40%.
Fund Review
The Legg Mason ClearBridge US Aggressive Growth Fund fell 1.93%1 in US
dollar terms in September, underperforming its benchmark, the Russell 3000
Growth Index, which was down 1.75%. However, the Fund outperformed its
benchmark over the third quarter as well as the year-to-date period.
In September, energy was the single biggest detractor at both the sector and
stock levels. The sector was by far the worst performer during the month,
against a backdrop of falling oil prices, and overweight exposure here was
detrimental. In terms of stock selection, Anadarko Petroleum and Weatherford
International declined heavily over the month. Nonetheless, both are up
significantly year to date.
Healthcare exposure was positive, despite top holding Biogen Idec being down
over the month (although it is still up considerably year to date). UnitedHealth
fell only slightly, while Actavis and Vertex were up approximately 6% and 20%,
respectively. The Fund’s considerably overweight allocation also added value.
Within information technology (IT), Broadcom, Citrix and Autodesk were up
while SanDisk was flat over the month in absolute terms. However, Seagate
Technology fell in September, while Cree, which released disappointing
earnings and warned on its fiscal first quarter due to weakness in LED products
segments, was down in September and the third quarter. However, the
manager’s long-term investment case is intact, with LED lighting continuing to
gain market share as unit costs continue to fall.
For the third quarter, healthcare, the best-performing sector, added value,
owing to the Fund’s overweight exposure and strong stock selection particularly
in biotechnology. Conversely, stock picking in IT (e.g. Cree, Nuance
Communications) and overweight exposure to energy weighed on relative
performance in the July to September quarter.
The Fund’s largest active overweight allocations continue to be in the
healthcare and energy sectors, while its largest underweight exposures
included the industrials, financials and consumer discretionary segments
(although the Fund still has a significant exposure to cable and media
companies within this space). The manager maintained the Fund’s lack of
exposure to companies in the utilities, telecoms and consumer staples sectors.
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0914
Monthly Commentary
Legg Mason Global Funds plc
Legg Mason ClearBridge
US Aggressive Growth Fund
Outlook
The recent pullback was expected by the manager and it has been keeping “dry powder” for precisely that purpose. As such, the manager
will be taking advantage of recent volatility to add to some of the Fund’s holdings. It is also worth noting that, despite recent weakness, a
number of the Fund’s holdings have performed well for the year to date, with the Fund increasing 12.9 % against the benchmark’s 6.91%
and the S&P 500’s 8.34% returns over this period.
Looking further ahead, the manager continues to expect the merger and acquisition environment to be robust, as companies starved for
growth seek to find it through accretive acquisitions. Although interest rates remain at historically low levels, cues from the US Federal
Reserve about a rising-rate environment may be helping to pull forward deals. So far, the Fund has seen increased levels of takeovers,
both on the acquisition side (e.g. Comcast and Time Warner Cable) and the target side (e.g. Forest Laboratories and Actavis).
In the manager’s opinion, large segments of the market (such as utilities and telecoms) appear expensive, while healthcare, energy, media
and some parts of information technology continue to offer the best combination of attractive valuations, solid fundamentals and the
potential for consolidation. The manager believes that many of the names that have been added to the portfolio recently should benefit from
lower oil prices. Many of the energy names held are still profitable at $60 & $65 per barrel so the manager does not think low oil prices will
impact the business as much as it will their stock prices. The manager believes that, as the consumer benefits from the lower cost of
capital and lower costs of energy, global growth will ultimately benefit over the long term and that near-term global concerns are already
priced into these energy names.
The market this year, as expected by the manager, is proving much more challenging, against a backdrop of disappointingly subdued
economic recovery. Nonetheless, the manager continues to see compelling opportunities. Due to the manager’s bottom-up, fundamentaldriven stock selection process, the Fund tends to look very different to the benchmark index. The manager, as it always has, seeks to
invest where it finds growth in earnings and cash flow, as well as good management teams and solid balance sheets. On the whole, the
manager believes that the market is actually becoming more and more attractive in light of recent downside volatility events.
This Fund is managed by ClearBridge Investments
1
Source: Legg Mason as at 30/09/2014 for Class A Distr. (A) US Dollar shares. Cumulative performance is calculated on a NAV to NAV basis, with gross income reinvested and after deduction of
annual fund expenses. Past performance is not a reliable indicator of future results.
This is a sub-fund ("fund") of Legg Mason Global Funds plc (“LMGF plc”), an umbrella fund with segregated liability between sub-funds, established as an open-ended investment company with
variable capital, organised as an undertaking for collective investment in transferable securities (“UCITS”) under the laws of Ireland as a public limited company pursuant to the Irish Companies Acts
and UCITS regulations. LMGF plc is authorised in Ireland by the Central Bank of Ireland (the “Central Bank”).
It should be noted that the value of investments and the income from them may go down as well as up. Investing in a sub-fund involves investment risks, including the possible loss of the amount
invested. Past performance is not a reliable indicator of future results. An investment in a sub-fund should not constitute a substantial proportion of an investor’s investment portfolio and may not be
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“Prospectus”).
Individual securities mentioned are intended as examples only and are not to be taken as advice nor are they intended as a recommendation to buy or sell any investment or interest. Opinions
expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or needs of investors.
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or region, and will be more affected by these events than other funds that invest in a broader range of regions.
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October 2014