Overstocking on Healthcare Didn’t Work Well for SHRAX in 2015


Jan. 21 2016, Updated 7:21 p.m. ET

Performance evaluation

The ClearBridge Aggressive Growth Fund – Class A (SHRAX) fell 2.2% in December 2015 from a month ago. In the three-month period ended December 31, the fund has risen by 4.5%. In the six-month period, it has tanked 7.0%. In the one-year period, the fund is down 4.4%, making it the only fund in this review that has fallen in 2015. Meanwhile, from the end of December until January 20, the fund is down 11.0%.

If you’re invested in SHRAX, there’s not much about its 2015 performance that would make you happy. It has figured at the bottom of the pack of 11 funds in all the periods under review, including the one-year period. Let’s look at what has contributed to the fund’s poor performance.

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Portfolio composition and contribution to returns

The SHRAX has been around since October 1983. The latest complete portfolio breakdown declaration for the fund is from September 2015. Thus, we will take that portfolio as our base and consider valuation changes as they stand at the end of December 2015 for our analysis. All portfolio percentages mentioned from here on refer to their weights as per changes in valuation from September to December.

The energy sector was primarily responsible for dragging the fund’s returns into negative territory in 2015. Among the stock holdings, Anadarko Petroleum (APC) was by far the biggest negative contributor. National Oilwell Varco (NOV) was a distant second. The stocks’ negative contribution was high enough to offset the positive contribution from Newfield Exploration (NFX).

The materials sector was a surprise. Though stocks from the sector formed less than 1% of the fund’s portfolio, the sector emerged as the second biggest negative contributor to returns due to Freeport-McMoRan (FCX). Industrials were sizable negative contributors as well, having been driven down by Tyco International (TYC).

Healthcare, the largest sectoral holding, did do its bit in reducing the drag on the fund. However, given its size, its contribution was not very meaningful. UnitedHealth Group (UNH) and Allergan (AGN) were the biggest positive contributors, not only from the sector but among all holdings as well.

Reasons for poor showing

When the sector in which you’ve bet on has a lackluster year, it would be hard to post a strong performance. Add to it the drag by energy and materials, and you get enough good reasons to explain the poor showing by SHRAX. The fund might also find 2016 challenging as well if energy stocks continue to remain suppressed. Its decision to leave staples completely out of the portfolio picture may also be an overly defensive stance. If 2016 goes as central bankers in the US predict, the fund may find itself under further pressure this year.

In the next article, we’ll look at the T. Rowe Price Blue Chip Growth Fund (TRBCX).


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