Fourth Quarter 2016 Portfolio Manager Comments
Small Cap Growth Equity Portfolio
For the fourth quarter our Small Cap Growth Portfolio returned 2.26% versus 3.57% for the Russell 2000 Growth Index, and for the year our Small Cap Growth Portfolio returned 5.90% versus 11.32% for the Russell 2000 Growth Index.
Contributors for the quarter included US Concrete Inc. – USCR +46bps as cement will benefit from increased infrastructure spending from the new administration. Bank of The Ozarks Inc – OZRK +45bps and Ameris Bancorp – ABCB +38bps as post-election the financial sector outperformed due to higher rates and hopes for a more favorable environment for the sector with the new administration. Univar Corp. – UNVR +44bps due to optimism post-election around manufacturing returning to the Unites States. Revance Therapeutics Inc. – RVNC +44bps benefitted from positive interim updates on its main pipeline drug for cervical dystonia.
Detractors for the quarter included Ophthotech Corp. – OPHT -188bps which fell when their drug for wet Age-Related Macular Generation (AMD) failed Phase 3 studies in both trials after previously reporting very successful data in their Phase 2 studies. Zendesk Inc. –ZEN -44bps had a weak earnings report due to a salesforce transition. Digimarc Corp. – DMRC -42bps had a lack of announcements of new Tier 1 customers for use of their new digital watermarking technology. Bellicum Pharmaceuticals Inc. – BLCM – 41bps and MacroGenics Inc. – MGNX -40bps as concerns regarding drug pricing resurfaced causing weakness in the biotech sector.
CONCERNS & OUTLOOK:
2016 was a disappointing year for the portfolio as performance was impacted by several drug trial failures. We continue to believe in our health care positions as they maintain strong pipelines with catalysts through 2017 and as several large pharmaceutical companies have returned to the M&A markets. With the uncertainty of Brexit and the US elections now behind us, we have increased our position in the Financials sector, though maintain an underweight as the sharp increase in rates post the US election made valuations in the sector less attractive. Lastly, our Information Technology exposures are skewed towards growth segments where companies continue to invest aggressively. We believe these companies are seen as marquee assets and could be potential takeover targets as larger software companies look to acquire growth and fill holes in their own product suites.
Portfolio commentary is based on the Small Cap Growth composites. Performance is gross of fees. Contribution detail is based on a representative portfolio. The holdings identified do not represent all of the securities purchased or sold for advisory clients. Past performance does not guarantee future results. Any securities mentioned are provided for informational purposes only and should not be deemed as a recommendation to buy or sell. Portfolio holdings are subject to change at any time. The top contributors and detractors are presented to illustrate examples of the Small Cap Growth Strategy’s investments and may not be representative of the portfolio’s current or future investments. Portfolio holdings are as of quarter end and may change at any time. Security selection shows how individual securities within the portfolio performed relative to the benchmark. It is calculated using Eikon and GICS Sectors. To obtain a list showing the contribution of each holding to the composite’s overall performance at the end of the most recent publicly available disclosure period, contact Keith Graham at 212‐247‐2382.
Suffolk Capital Management, LLC
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