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US Growth Stock SMA

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US Growth Stock SMA QUARTERLY SUMMARY As of June 30, 2019 US Growth Stock SMA PORTFOLIO MANAGER: STRATEGY HIGHLIGHTS Joseph B. Fath The portfolio generated positive returns but underperformed the Russell 1000 Growth Index during the three-month period ended June 30, 2019. JOINED FIRM: 2002 Relative performance drivers: . Stock choices in the financials sector detracted from relative returns. Stock selection in the health care sector also hurt relative results. INVESTMENT APPROACH . On the positive side, stock picks in the information technology sector boosted relative . Focus on companies with double-digit earnings and cash flow growth - emphasize performance. sustainable growth, not momentum growth. Additional highlights: . Integrate fundamental research - seek high-quality earnings, strong free cash flow . Domestic equity markets ended the quarter near record highs, although growth, and seasoned management teams with a demonstrated history of thoughtful macroeconomic and geopolitical developments drove significant bouts of volatility capital allocation. during the period. Capitalize on differences between cyclical and secular growth - essential to successful . From a positioning standpoint, the largest overweight sector relative to the growth investing. benchmark is communication services as we feel the changing media, entertainment, . Avoid overpaying for growth, while broadly diversifying portfolios, to help manage and communications landscape is creating clear winners and losers. portfolio risk. Concerns about the strength of U.S. and global economic growth returned in the . Integrate non-U.S. stocks in a measured fashion to add value versus the benchmarks. second quarter of 2019, and U.S. earnings growth decelerated. However, we feel the select firms that are best leveraging innovation will continue to enjoy robust growth in PORTFOLIO CONSTRUCTION earnings and revenues as they exploit new markets and seize share in existing ones. The portfolio maintains positions in 45 to 60 stocks. Indeed, the disruption caused by these innovators is likely to continue widening the . Active position sizes typically range from 0.75% to 8.00% relative to the Russell 1000 gap between winning firms and losing ones, making careful stock selection Growth Index. increasingly important. For primary sectors in the Russell 1000 Growth Index (i.e., those weighted approximately 10% or higher), the portfolio's sector weights vary from 0.25X to 2.5X the index weight. Annualized PERFORMANCE Three Year-to- One Three Since Inception Months Date Year Years 4/30/2016 US Growth Stock SMA Composite (“Pure” Gross)1 3.71% 20.81% 9.48% 21.70% 20.71% US Growth Stock SMA Composite (Net - Wrap Fee)1 2.94 19.06 6.26 18.15 17.17 Russell 1000 Growth Index 4.64 21.49 11.56 18.07 17.61 Value Added (“Pure” Gross) -0.93 -0.68 -2.08 3.63 3.10 Value Added (Net - Wrap Fee) -1.70 -2.43 -5.30 0.08 -0.42 Past performance is not a reliable indicator of future performance. ¹ Net annual returns reflect the deduction of a 3.00% annual wrap fee which is the maximum anticipated wrap fee deducted from the “pure” gross composite returns. Actual fees may vary. “Pure” gross returns are presented before the deduction of expenses and all other fees, but may include transaction costs. Returns include reinvestment of dividends and capital gains. 1 US Growth Stock SMA Composite As of June 30, 2019 Figures shown in US Dollars CALENDAR YEAR PERFORMANCE TOP HOLDINGS %of Rep. 20162 2017 2018 YTD 2019 Issuer Industry Portfolio US Growth Stock SMA Composite (“Pure” Gross)1 8.16% 38.10% 0.57% 20.81% Amazon.com Internet & Direct Marketing Retail 10.8% US Growth Stock SMA Composite (Net - Wrap Fee)1 6.04 34.12 -2.41 19.06 Microsoft Software 6.8 Russell 1000 Growth Index 7.27 30.21 -1.51 21.49 Facebook Interactive Media & Services 6.7 Value Added (“Pure” Gross) 0.89 7.89 2.08 -0.68 Alphabet Interactive Media & Services 6.2 Value Added (Net - Wrap Fee) -1.23 3.91 -0.90 -2.43 Visa IT Services 4.5 Past performance is not a reliable indicator of future performance. Boeing Aerospace & Defense 4.1 ¹ Net annual returns reflect the deduction of a 3.00% annual wrap fee which is the maximum MasterCard IT Services 3.6 anticipated wrap fee deducted from the “pure” gross composite returns. Actual fees may vary. “Pure” gross returns are presented before the deduction of expenses and all other fees, but may include Alibaba Group Holding Internet & Direct Marketing Retail 2.7 transaction costs. Returns include reinvestment of dividends and capital gains. Tencent Holdings Interactive Media & Services 2.5 2April 30, 2016 through December 31, 2016 Stryker Health Care Equipment & Supplies 2.5 RISK RETURN CHARACTERISTICS Active Share* Annualized (as of Std. R- Information Sharpe Tracking 6/30/2019) Deviation Alpha Beta Squared Ratio Ratio Error US Growth Stock SMA 61.9% 13.97% 3.01% 1.01 0.91 0.84 1.43 4.27% Representative Portfolio PORTFOLIO CHARACTERISTICS Russell 1000 Growth Index - 13.21 0.00 1.00 1.00 0.00 1.25 0.00 Representative Russell 1000 *Active Share is a snapshot in time as of the indicated date. Portfolio Growth Index Statistics based on monthly gross returns. Returns would have been lower as the result of the Number of Holdings 49 546 deduction of applicable fees. Past performance is not a reliable indicator of future performance. Investment Weighted Average Market Cap $360,997 $309,498 (mm)(USD) SECTOR DIVERSIFICATION Investment Weighted Median Market Cap $204,803 $112,399 Representative Portfolio Russell 1000 Growth Index Over/Underweight (mm)(USD) Price to Earnings (12 Months Forward) 40 27.0X 23.3X (IBES)1,2 1 30 Price to Book 8.6X 8.9X Projected Earnings Growth Rate (IBES)1,2 15.3% 13.1% 20 Return on Equity (Last 12 Months excl. 27.7% 31.4% charges)1 10 Average Company Yield (Inv Wtd Avg) 0.8% 1.3% Percent Top 20 Holdings as Percent of Total 68.6% 44.9% 0 Percent of Portfolio in Cash 1.7% -- -10 Portfolio Turnover 27.1% -- 1 Investment Weighted Median. 2 Based on the Representative Portfolio’s underlying holdings and is not a projection of future portfolio performance. Actual results may vary. 2 US Growth Stock SMA Composite As of June 30, 2019 Figures shown in US Dollars QUARTERLY SECTOR ATTRIBUTION: US GROWTH STOCK SMA REPRESENTATIVE PORTFOLIO VS. RUSSELL 1000 GROWTH INDEX (Three months ended June 30, 2019) Over/Underweight Percent of Value Added Percent of Over/Underweight 2 10 Total Value Added 1 5 Value Added from Group Weight 0 0 Value Added from -1 -5 Stock Selection -2 -10 Comm. Real Industr. & Cons. Cons. Health Total Info. Tech Utilities Srvcs. Energy Estate Bus. Srvcs. Materials Staples Discret. Care Financials Over/Underweight 0.00% -4.01% 2.09% 7.17% -0.69% -2.35% -2.90% -1.86% -4.53% 6.82% -0.52% -0.88% Portfolio Performance 3.70 7.09 7.93 4.22 0.00 0.00 1.65 -5.44 -9.07 3.98 -1.21 2.35 Benchmark Performance 4.64 6.61 0.00 3.62 -3.32 3.61 2.69 7.96 4.80 5.49 0.18 8.86 Value Add - Stock Selection -0.81 0.14 0.00 0.10 0.00 0.00 -0.10 -0.07 -0.20 -0.26 -0.19 -0.24 Value Add - Group Weight -0.13 -0.07 0.05 -0.05 0.05 0.02 0.06 -0.04 -0.00 0.04 -0.06 -0.03 Total Contribution -0.94 0.08 0.05 0.05 0.05 0.02 -0.04 -0.11 -0.20 -0.22 -0.26 -0.27 Past performance is not a reliable indicator of future performance. Numbers may not total due to rounding; all numbers are percentages. Analysis represents the total performance of the portfolio as calculated by the FactSet attribution model and is inclusive of other assets that that will not receive a classification assignment in the detailed structure shown. Returns will not match official T. Rowe Price performance because FactSet uses different exchange rate sources and does not capture intra-day trading. Performance for each security is obtained in the local currency and, if necessary, is converted using an exchange rate determined by an independent third party. Figures are shown with gross dividends reinvested. Sources: Financial data and analytics provider FactSet. Copyright 2019 FactSet. All Rights Reserved. MSCI/S&P GICS Sectors; Analysis by T. Rowe Price Associates, Inc. T. Rowe Price uses the current MSCI/S&P Global Industry Classification Standard (GICS) for sector and industry reporting. T. Rowe Price will adhere to all updates to GICS for prospective reporting. Figures are shown gross of fees. Returns would be lower as a result of the deduction of such fees. Performance returns are in USD. 3 US Growth Stock SMA Composite As of June 30, 2019 Figures shown in US Dollars 12 MONTH SECTOR ATTRIBUTION: US GROWTH STOCK SMA REPRESENTATIVE PORTFOLIO VS. RUSSELL 1000 GROWTH INDEX (12 months ended June 30, 2019) Over/Underweight Percent of Value Added Percent of Over/Underweight 4 10 Total Value Added 2 5 Value Added from Group Weight 0 0 Value Added from -2 -5 Stock Selection -4 -10 Industr. & Health Real Cons. Comm. Cons. Total Info. Tech Energy Bus. Srvcs. Utilities Care Estate Materials Staples Financials Srvcs. Discret. Over/Underweight 0.00% -4.01% -0.69% -2.90% 2.09% -0.52% -2.35% -1.86% -4.53% -0.88% 7.17% 6.82% Portfolio Performance 9.45 25.85 0.00 12.80 22.66 6.99 10.94 -22.06 4.07 1.04 -1.58 -0.64 Benchmark Performance 11.56 19.52 -24.92 10.21 0.00 6.68 21.12 9.07 15.16 12.06 -1.08 11.19 Value Add - Stock Selection -1.52 1.28 0.00 0.20 0.00 0.15 0.06 -0.19 -0.13 -0.42 -0.06 -2.43 Value Add - Group Weight -0.59 -0.42 0.34 0.05 0.23 -0.05 -0.08 0.03 -0.04 -0.04 -0.45 -0.02 Total Contribution -2.11 0.86 0.34 0.26 0.23 0.10 -0.02 -0.16 -0.17 -0.45 -0.51 -2.45 Past performance is not a reliable indicator of future performance.
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