ClearBridge Small Cap Growth Portfolios

Investment Overview

The ClearBridge Small Cap Growth Portfolios (SCG) invest in U.S. companies with business models that offer the potential for long-term growth of capital. The portfolio management team seeks out quality growth companies with large and exploitable opportunities, employs a patient approach to security selection, and carefully manages risk at the security and portfolio levels.

 

Investment Philosophy

We believe that:

  • Small-caps represent a large, inefficient, under-covered universe where a lack of institutional focus and limited analyst coverage create mispricing opportunities for long-term investors.
  • Strong risk controls at the portfolio and security levels are required to help reduce the volatility inherent to small-cap investing.
  • Small-company stocks diversify and potentially enhance returns in the context of a broader portfolio.
 

Portfolio Positioning

Designed for investors seeking long-term capital appreciation through investments in quality small-capitalization companies with the potential for sustained long-term growth.
 

Key Differentiators

Find quality growth companies with large exploitable opportunities

  • Identify category leaders or those with leadership potential. Understand capital allocation discipline and ability to sustain long-term growth through successful reinvestment of cash flow.

Patient approach to security selection and position management, anchored by valuation

  • Seek multi-year opportunities, allowing for compounding effect of earnings; leads to lower turnover than Small Cap Growth peer group.
  • Take deliberate approach to understanding company fundamentals, key competitors, and industry structure. 
  • Focus on cash flow returns minimizes risk of chasing momentum driven-stocks. 
  • Use market volatility to manage position size advantageously.

Defined risk management at securitylevel and portfolio level 

  • De-risk stock via understanding broad range of outcomes, including assumptions in downside case. 
  • Rigorous maintenance review of existing holdings to ensure fundamental and valuation case intact.
 

Diversification does not guarantee a profit or protect against a loss.

 

 

Investment
Process

Generate ideas

  • Investment universe typically in the $500 million to $2 billion market cap range.
  • Focus on companies which are gaining market share due to innovative products and services.

Analyze fundamentals

  • Specific evaluation of business model, financial structure and management. 
  • Work from a skeptical view to identify key risks and thoroughly understand opportunities and strategies.

Apply key valuation measures

Invest in stocks with attractive valuation, based on using various measures.

Construct portfolio and manage risk

  • Build a diversified portfolio of companies with a spectrum of growth, with a bias toward high barriers to entry and recurring/lower volatility of revenues. 
  • Manage risk, with careful attention to sector diversification and individual security weights. 
  • Active share typically above 90%; portfolios generally concentrated in 60-90 stocks.

Review and monitor portfolio continuously

  • Review investment rationale, with continued active reweighting as appropriate.
  • Portfolio reviewed quarterly by independent ClearBridge Risk Committee.

The investment process may change over time. The characteristics set forth above are intended as a general illustration of some of the criteria the strategy team considers in selecting securities for client portfolios. There is no guarantee investment objectives will be achieved.

 

 

meet your managers

Global investment manager with over 50 years of experience and long-tenured portfolio managers who seek to build income, high active share or low volatility portfolios.


Meet Your Managers

Jeffrey Russell, CFA

Managing Director, Portfolio Manager

Aram Green

Managing Director, Portfolio Manager

Active share is a measure of the percentage of stock holdings in a manager's portfolio that differs from the benchmark index.

To find out more about the ClearBridge Small Cap Growth Portfolios, talk to your financial advisor.


 

What I Should Know
Before Investing

All investments involve risk, including loss of principal and there is no guarantee that investment objectives will be met.  Substantial investments may be made in speculative and/or small-cap and mid-cap companies which involve a higher degree of risk and volatility than investments in larger, more established companies. In addition, because the investments may be concentrated in a limited number of industries and companies, the portfolios may involve heightened risk.  While most investments are in U.S. companies, investments may also be made in ADRs and other securities of non-U.S. companies in developed and emerging markets which involve risks in addition to those ordinarily associated with investing in domestic securities, including the potentially negative effects of currency fluctuation, political and economic developments, foreign taxation and differences in auditing and other financial standards. These  risks are magnified in emerging markets. 

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IMPORTANT INFORMATION: Past performance is no guarantee of future results. Management and performance of individual accounts may vary for reasons that include the existence of different implementation practices and model requirements in different investment programs.

Pure Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Net performance includes the deduction of a 3% annual wrap fee for equity and balanced portfolios and a 1.5% annual wrap fee for fixed income portfolios. These deducted fees amounts are the maximum anticipated wrap fees. Actual fees may vary. For fee schedules, contact your financial professional or, if you enter into an agreement directly with Legg Mason Private Portfolio Group, LLC ("LMPPG"), refer to LMPPG's Form ADV disclosure document. Returns reflect the reinvestment of dividends and other earnings.

An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. 

Please see GIPS® endnotes for important additional information regarding the portfolio performance shown and for effects of fees. 

Performance Source: Legg Mason

Hypothetical growth of dollars: For illustrative purposes only. Assumes no withdrawals or contributions. The performance results shown were calculated assuming reinvestment of dividends and income and take into account both realized and unrealized capital gains and losses.

IMPORTANT INFORMATION: Separately Managed Accounts (SMAs) are investment services provided by Legg Mason Private Portfolio Group, LLC (LMPPG), a federally registered investment adviser. Client portfolios are managed based on investment instructions or advice provided by one or more of the following Legg Mason-affiliated sub-advisers: ClearBridge Investments, and Western Asset Management Company. Management is implemented by LMPPG, the designated sub-adviser or, in the case of certain programs, the program sponsor or its designee.


Professional money management may not be suitable for all investors. Factual information relating to the securities discussed was obtained from sources believed to be reliable, but there can be no guarantee as to its accuracy. It should not be assumed that investments made in the future will be profitable or will equal the performance of the securities discussed in the material.

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Portfolio characteristics (Source: FactSet)

Source: FactSet. Portfolio characteristics are based on a model portfolio, not an actual client account. The model portfolio is a hypothetical portfolio whereby the portfolio characteristics are based on simulated trading and account activity of a client account invested in this strategy. The model portfolio assumes no withdrawals, contributions or client-imposed restrictions.

Portfolio characteristics of individual client accounts may differ from those of the model portfolio as a result of account size, client-imposed restrictions, the timing of client investments, market conditions, contributions, withdrawals and other factors. 

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ClearBridge Small Cap Growth SMA GIPS® Endnotes Inception date: November 2008. Composite creation date: November 2008.
Period Total
net
return
(%)
Total
pure
gross
return*
(%)
R2000G
return
(%)
Number
of
portfolios
Bundled
fee
portfolios
(%)
Composite
dispersion
(%)
Composite
3 Yr.
St. Dev.
Benchmark
3Yr.
St. Dev.
Composite
assets
($mm)
Firm
assets
(%)
Total
firm
assets
($mm)
2016 3.56 6.67 11.32 15 100 0.14 16.56 16.91 22.9 0.0 100,936.9
2015 -6.12 -3.28 -1.38 28 100 0.16 15.16 15.16 38.7 0.0 92,536.4
2014 2.21 5.28 5.60 45 100 0.35 13.58 14.02 48.1 0.0 100,721.5
2013 44.11 48.30 43.30 14 100 0.72 15.55 17.52 5.9 0.0 85,024.7
2012 14.55 17.95 14.59 7 100 n/m 18.19 21.01 1.6 0.0 54,624.3
2011 -0.40 2.60 -2.91 <5 100 n/m 19.83 24.65 0.5 0.0 50,870.8
2010 22.38 26.00 29.09 <5 100 n/m n/a n/a 0.5 0.0 55,366.5
2009 36.65 40.64 34.47 <5 100 n/m n/a n/a 0.1 0.0 53,522.7
Nov - Dec 2008 -7.25 -6.77 -7.33 <5 100 n/a n/a n/a 0.1 0.0 50,614.9

*Pure gross of fee returns do not reflect the deduction of any expenses, including transaction costs, and are presented as supplemental to the net of fee returns.

n/m - Information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year.

Compliance Statement:
ClearBridge Investments, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. ClearBridge Investments, LLC has been independently verified for the periods January 1, 1997 - December 31, 2016. The verification reports are available upon request.

Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

Firm Information:
ClearBridge Investments, LLC ("ClearBridge") is a wholly owned subsidiary of Legg Mason, Inc. ("Legg Mason"). The investment advisory business now known as ClearBridge was registered in September 2005 to facilitate Legg Mason's acquisition of substantially all the equity asset management businesses known as Citigroup Asset Management. These former businesses serve as the foundation of ClearBridge and its claim of GIPS compliance for institutional accounts through predecessor firms, effective as of January 1997. In June 2008, ClearBridge combined this business with its retail business to form a single GIPS firm. As of April 1, 2013 and January 1, 2016, ClearBridge's affiliates, Global Currents Investment Management, LLC, and ClearBridge, LLC, respectively, have become part of the ClearBridge GIPS firm.

Composite Information:
The ClearBridge Small Cap Growth SMA composite consists of discretionary wrap accounts with an account minimum of US $25,000. Accounts within the composite seek long-term capital growth by investing primarily in U.S. small capitalization growth stocks. The main risks of this strategy are General Investment Risk, Small Cap Risk, High Volatility Risk and Non-U.S. Investment Risk. Prior to June 2008, the minimum was $5,000. Non-fee-paying seed capital portfolios represented the following percentage of composite assets: 100% as of December 2008 and 2009; 36% as of December 2010 and 2011; 13% as of December 2012.

Input and Calculation Data:
The fee schedule currently in effect is 3.00% on all assets. Net of fee composite returns are calculated by reducing each monthly composite pure gross rate of return by the highest "bundled" fee charged (3.00%) annually, prorated to a monthly ratio. The "bundled" fee includes transaction costs, investment management, custodial, and other administrative fees. Effective January 1, 2013, the number of portfolios reflects a change from prior periods due to an aggregation of accounts as reported by one sponsor. As of January 2014, the internal dispersion of annual returns is measured by the asset-weighted standard deviation of portfolio returns included in the composite for the entire year. For prior years, the equal-weighted standard deviation was used. The composite employed a 10% significant cash flow policy which was discontinued in January 2012. A list of composite descriptions is available upon request. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Past performance is not necessarily indicative of future results.

Benchmark Information:
The Russell 2000® Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.

All investments involve risk, including loss of principal. Past performance is no guarantee of future results. Please see each product’s webpage for specific details regarding investment objective, risks associated with hedge funds, alternative investments and other risks, performance and other important information. Review this information carefully before you make any investment decision.

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