Secrets for achieving aggressive growth

Nov 12, 2013 @ 12:00 am

Runtime: 4:49

Richard Freeman, co-portfolio manager of the Clearbridge Aggressive Growth Fund, discusses why he focuses on delivering good absolute returns over time instead of benchmarks.

Video Transcript

This week on WealthTrack, ClearBridge Aggressive Growth Fund Manager Richard Freeman has been on the fast track for 30 years with no signs of slowing down. Where is this Great Investor driving the portfolio now? That's next on Consuelo Mack WealthTrack. I began our conversation by asking Freeman why in retrospect he thinks the fund should never have been labeled "Aggressive Growth." -We started it as the Shearson Aggressive Growth Fund back in 1983 and it's not managed in an aggressive manner. -Okay. -I think it scared off a lot of people when they heard the word "aggressive." It had negative connotations, rapid turnover, buying very risky stocks. If we could turn back the clock, which you can't do, it probably should have been the Shearson Growth Fund. We've been asked very often why don't you change the name of the fund? I think after 30 years it has an identity. People realized the ClearBridge Aggressive Growth Fund is what it is. It should have been called the passive-aggressive growth fund. -Okay. Passive-aggressive. I love it. -That's what it should have been. Why passive-- what's passive about it? -The management style-- if you look at the companies, they clearly could be called aggressive companies. They're state of the art. They're lifesaving companies, companies that have products that can serve unmet needs, managed aggressively, but the way we manage the portfolio, we don't have a lot of turnover. That's passive-- -Right. 8 percent turnover, where is your growth competitors-- -Yeah. -the annual turnover is 96 percent. -That's the-- -So that's incredible. -That's the passive part of it. -Right. -I mean we're not reticent to change the portfolio, but give us something that we like more than what we have in the portfolio. And this has really been constant over the 30 years of the fund. -So what is your mission at the ClearBridge Aggressive Growth Fund? We know-- What-- -Yeah. -If I'm looking at you and I'm saying, you know, should I invest with Richie Freeman and Evan Bauman, you know, what is it that I'm gonna get from you? -The only mission that we have is to try to deliver good absolute returns over time. There's a big preoccupation on the street with relative returns, benchmark investing. We're benchmark agnostic. We could care less what's in the benchmarks. -So you don't care what's in the Russell 3000? -No. The top-- -You're not comparing your performance to that? -Well, we do. You have to be compared to something. -You have to, right? -That's the report card, but we're not gonna set up the portfolio looking to see what's in the Russell. I guess the top ten holdings in the Russell, we own none of them. I mean Evan reminded me that our passive-- our active share, which is the amount that's not in the benchmark, is 95 percent, which is said to be very, very high. -I'm just thinking of-- when I look at the profile of the fund, you know, we talked about the fact that there's a very low turnover. But the other thing that is really unusual about the fund is that it's so concentrated. I mean you've got what? Half of the fund is in the top ten holdings. 35 percent is in the top five. A third of the fund is in healthcare right now, 20 percent is in technology. You know, why are you running such a highly concentrated portfolio? -When a lot of those companies started out in the portfolio, they were very, very small. They were microcap. Idec Pharmaceuticals, in 1991, was a microcap name. -And it's now Biogen Idec. -Now, it's Biogen Idec. -It's now, what, 11 percent of your portfolio? So tell us the story of-- and this is kind of the story of how you invest as well. -Okay. -Of how it happened that it's now 11 percent of the fund. -It said it gets emblematic of how we look at companies. -Right. -The CEO of Idec had come out of Genentech. Genentech was our first stock that we ever bought, October 24th of 1983. -Genentech, right. -So, I saw Bill Rastetter was over at Idec Pharmaceuticals. We looked at it. We liked the product that they were involved in. It turned out that the initial product of theirs failed. They then teamed up with Genentech to design clinical trials on Rituxan, as it turned out, which is a blockbuster drug. We bought the bulk of our stock in 1995, because it had the characteristics of what we like. They were serving an unmet medical need. It could really make a difference in people. The company can serve a very large market, a top-tier management team, backed by a very, very strong partnership in Genentech. And in retrospect, we got awfully lucky, because they executed merged with Biogen in the early 2000s. And it's been a very, very fortunate stock. But then, again, it has the characteristics, not just in healthcare, but be an oil company like Anadarko, or a cable company like Comcast. -Right. Again, these are your top five holdings. -It throws off a lot of free cash flow. I don't understand why any investor would make an investment if he didn't think over time the company would not generate cash, because that's what you're left with. At the end of the day, you want companies to generate cash, and the biotech companies had that ability. Not early on, when they were consumers of capital, but over time, there have been enormous generators of cash.

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