In the third quarter of 2025, the ClearBridge Large Cap Growth Strategy experienced a period of underperformance relative to its benchmark, the Russell 1000 Growth Index. This divergence largely stemmed from the pronounced market split between companies benefiting from the AI surge and those perceived as lagging. Despite robust absolute returns since \"Liberation Day\" in April, the strategy's comparative performance was impacted by its lower exposure to leading AI beneficiaries and its holdings in companies considered AI laggards.
During this quarter, the strategy undertook significant portfolio reallocations. New investments were made in infrastructure software providers like Oracle and Datadog, and existing positions in custom silicon developers such as Broadcom were expanded. These moves were strategically aimed at enhancing exposure to the burgeoning AI sector, particularly companies offering essential infrastructure for generative AI workloads. Concurrently, the strategy reduced its holdings in application software firms like Workday and Accenture due to concerns over slowing growth and AI-related risks. Furthermore, a cautious stance on the healthcare sector, influenced by spending uncertainties and regulatory pressures, led to the divestment of UnitedHealth Group, Eli Lilly, and Novo Nordisk, with a reallocation towards Vertex Pharmaceuticals, which presented a more attractive valuation for its pipeline.
Looking ahead, the investment team remains committed to its long-term growth philosophy, emphasizing disciplined entry points, rigorous valuation assessments, and strategic position sizing. The portfolio's structure, built on a framework of stable, innovative, and cyclical growth companies, is designed for resilience across various economic cycles. While acknowledging the current market's enthusiasm for AI-driven momentum, the strategy focuses on building a balanced portfolio prepared for a range of future scenarios, including potential market shifts and economic fluctuations.
The ClearBridge Large Cap Growth Strategy exemplifies a prudent and adaptable investment philosophy. By consistently focusing on intrinsic value and diversification, the strategy not only aims to capitalize on emerging opportunities but also to mitigate risks during periods of market exuberance or uncertainty. This proactive approach ensures a resilient portfolio, poised for sustainable growth and long-term value creation for investors.