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 market has humbled the clear majority of participants who thought they could predict the future and bet strongly on one outcome. We prefer to stick to the odds of a company performing better than the market expects, based on a fundamental assessment of its competitive strategy and valuation, and let our process provide our alpha at the stock level, not the macro level.
To that end, we prefer to diversify our portfolio across as many vectors as we can. However, health care, particularly small-cap pharmaceutical and biotechnology stocks, is an area where it is very hard to achieve diversification, because of very low intra-sector correlation.
The Russell 2000 Index rose 3.58% in the third quarter, while our portfolio rose roughly 8%, beating the index by over 400 basis points (bps) and snapping an unpleasant streak of underperformance in each of the four previous quarters. Over those four losing quarters, health care was by far our biggest detractor, costing us 333 bps in relative performance.