Large-Cap Stocks: Weathering The Strong Dollar

NEW YORK, May 7, 2015 /PRNewswire/ -- In a video presentation discussing the impact of the strong U.S. dollar on large-cap companies, ClearBridge Investments portfolio manager Margaret Vitrano expressed confidence that a growing U.S. economy could create growth opportunities for large-cap investors. The challenge, as always, is identifying the right names.

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"We're very focused on when the first rise in interest rates is going to happen," Ms. Vitrano said, explaining the view of many market watchers. "More importantly, the question is how strong is the U.S. economy? What's the health of our portfolio companies? What's the health of companies we're looking at? Where might there be inefficiencies or short-term dislocations in price?"

Currency differentials (FX) can impact large-cap companies owing to their multinational characters. "It's interesting because the companies in the Russell 1000 Growth Index get about 60 percent of their revenue from outside the U.S.," Ms. Vitrano said. "It's clearly a headwind."

The ClearBridge team "sees two schools of thought," according to Ms. Vitrano. "Many companies, particularly in the consumer space, try to raise prices in local markets to offset the impact of FX. Then you see other companies, competing against European companies, and they are not raising prices, hoping to use the strength in the dollar as a way to gain share."

With fundamentals rising, Ms. Vitrano is less concerned about the health of the U.S. economy.

"We feel pretty good about the U.S.," she said. "If you asked me what keeps me up at night, it's outside the U.S. And it's not so much Europe as in some of the emerging markets."

To the ClearBridge large-cap team, recent weakness in the industrial sector has piqued their interest.

"Revenue growth is not great," Ms. Vitrano said. "It hasn't been great for the last couple years and most companies are seeing modest revenue growth, but pretty good earnings growth from cost-cutting. You're seeing that again in the first quarter with most of the industrial names.

"One of the things that has been surprising is the ripple effect – or maybe avalanche effect – of energy costs and prices," Ms. Vitrano said, "and the impacts of that on many industrial names."

Energy companies face big questions, but Ms. Vitrano suggested that creates opportunity too.

"When we think about the energy sector, we look at the cost of getting a barrel out of the ground," she explained. "Right now [it's] above the market price. Unless you think the players in this industry are going to remain irrational for a sustained, longer period of time, the price of oil needs to go [up]."

"We've been doing a lot of work on the energy space, trying to invest into that volatility to make it work for the portfolio."

In large-cap portfolio management, the ClearBridge team believes positioning is important and spreads its exposure across stocks with distinct growth characteristics.

"We're really trying to diversify into different kinds of pro-growth names," Ms. Vitrano explained. "Different areas of the portfolio work at different times."

 Asked her outlook for the rest of 2015 and beyond, Ms. Vitrano noted that much of the current focus is on interest rates, and when the next uptick will come. Yet it need not be determinative.

"When I look back at history, rising interest rates don't necessarily mean that PEs are going down or that the market's going down," she cautioned. "What we think is more important right now is the underlying status of the U.S. economy. We think it's pretty good. The U.S. economy is generally getting better, slowly."

Whatever the markets do, ClearBridge will continue to focus on identifying growth opportunities.

"We're bottom-up stock selectors," Ms. Vitrano stated. "There are always things to be done, always inefficiencies. Volatility always creates opportunities to add to existing positions or add new positions."

About Margaret Vitrano

A Managing Director and Portfolio Manager, Margaret Vitrano co-manages the ClearBridge Investments Large Cap Growth and All Cap Growth strategies. She has 19 years of investment industry experience and joined a ClearBridge predecessor organization in 1997. From 2006 to 2009, Margaret served on the firm's 401(k) Investment Committee, which is responsible for choosing and overseeing investments for the firm's employee retirement plan. Prior to her role at ClearBridge, Margaret was a Research Analyst for the Consumer Discretionary sector at Citigroup. She earned her M.B.A. in finance from the University of Pennsylvania and a B.A. in public policy studies and art history from Duke University.

About ClearBridge Investments

ClearBridge Investments is a well-established global investment manager with $117.8 billion in assets under management as of March 31, 2015.   With a legacy dating back over 50 years, our long-tenured portfolio managers and fundamental research team focus on building equity portfolios for clients who seek income solutions, high active share or low volatility.  Owned by Legg Mason, ClearBridge operates with investment independence from headquarters in New York and offices in Baltimore, San Francisco and Wilmington.

About Legg Mason

Legg Mason is a global asset management firm with $703 billion in assets under management as of March 31, 2015. The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).

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