CA - ClearBridge Small Cap Value Strategy Q1 2024 Portfolio Manager Commentary

2024-04-27 13:30:00 ET

Summary

• ClearBridge is a leading global asset manager committed to active management. Research-based stock selection guides our investment approach, with our strategies reflecting the highest-conviction ideas of our portfolio managers.
• The surging performance of AI- and bitcoin-related companies is overshadowing the risks of chasing long-term secular trends regardless of valuation.
• The Strategy outperformed its benchmark as strong stock picking in the IT and materials sectors overcame detractors in health care.
• Rather than chasing market trends, we continue to seek companies with strong balance sheets and attractive cash flows, trading at compelling valuations.

By Albert Grosman & Brian Lund, CFA

Picking the Right Odds, Not the Right Horse

Market Overview

Spotting a secular trend and identifying the winners, as many small cap investors are trying to do with AI- and bitcoin-related beneficiaries, is a time-honored investment strategy that has made investors a lot of money but has also failed spectacularly depending on the valuation. People mostly remember the 2000 dot-com bubble as being marked by silly business models like Pets.com and Webvan, but there were also major secular themes in play around rising internet traffic increasing demand for fiber optics, networking equipment, web hosting, etc., supporting companies like JDS Uniphase, Level 3 Communications, Global Crossing, Lucent, Nortel, Cisco ( CSCO ) and EMC. This thesis was entirely correct, but the stocks drastically failed if you bought them near the top. Only one of those companies still remains, Cisco, and it still hasn’t gotten back to its 2000 highs. For many of the others, the problem wasn’t the theme but the lack of competitive advantage necessary to produce long-term excess returns....

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