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Product Commentary CLEARBRIDGE SELECT FUND 2Q 2021 Product Commentary CLEARBRIDGE SELECT FUND Aram Green Portfolio Manager Average annual total returns and fund expenses (%) Key takeaways as of June 30, 2021 • The Fund outperformed in a second-quarter rotation Since Incept. Expenses into growth stocks, fueled by a comeback in the higher-growth disruptors we have owned for a Class A 3-mo 1-yr 5-yr 10-yr (09/23/13) Gross Net Excluding sales number of years. 11.46 57.45 33.02 N/A 21.76 1.40 1.34 charges • We took advantage of attractive entry points and a Including effects robust new issue market to increase our exposure to of maximum 5.05 48.40 31.46 N/A 20.83 1.40 1.34 sales charges disruptors, participating in several IPOs and a private Russell 3000 8.24 44.16 17.89 N/A N/A - - placement in companies using technology to increase Performance shown represents past performance and is no guarantee of future efficiency across industries. results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, so shares, when redeemed, may be • Over the last year, the market has overlooked what we worth more or less than the original cost. Class A shares have a maximum front-end sales view as compelling opportunities among steady charge of 5.75%.Total returns assume the reinvestment of all distributions at net asset value and the deduction of all Fund expenses. Total return figures are based on the NAV compounders, an area where we are looking to add per share applied to shareholder subscriptions and redemptions, which may differ from more exposure. the NAV per share disclosed in Fund shareholder reports. Performance would have been lower if fees had not been waived in various periods. Returns for less than one year are cumulative. For the most recent month-end information, please visit www.leggmason.com. Market overview Gross expenses are the Fund's total annual operating expenses for the share class(es) Growth stocks reasserted themselves in the second quarter shown. after an accelerated run for cyclicals post the COVID-19 Net expenses are the Fund's total annual operating expenses for the share classes indicated and would reflect contractual fee waivers and/or reimbursements, where these vaccine approvals. Performance was particularly strong among reductions reduce the fund's gross expenses. These arrangements cannot be terminated larger-cap growth companies, many of which had moved prior to December 31, 2022 without the Board’s consent. In periods of market volatility, assets may decline significantly, causing total annual fund operating expenses to become sideways since an initial performance spike in the early days higher than the numbers shown in the table above. of the pandemic. The S&P 500 Index rose 8.6% for the quarter The Gross and Net Expenses listed include 0.01 of Acquired Fund Fees and Expenses while the benchmark Russell 3000 Index advanced 8.2%. The (“AFFE”) that are required to be shown in the Fund’s prospectus. AFFE reflects the Fund’s Russell 3000 Growth Index gained 11.4%, outperforming its pro rata share of fees and expenses relating to its investments in acquired funds; however, AFFE are not incurred directly by the Fund. Therefore, AFFE are not reflected in value counterpart by over 600 basis points (bps), but it still the Fund’s audited financial statements or financial highlights. trails year-to-date by nearly 500 bps. Style dispersion was less pronounced among smaller-cap stocks. The Russell 3000 Index is a market-capitalization-weighted equity index maintained by the FTSE Russell that provides exposure to the entire U.S. stock market. Investors cannot The reversionary nature of equity markets is why we focus in invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. the ClearBridge Select Fund on individual companies we believe are well positioned on their own for the current environment. The Fund outperformed in the second quarter, INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE fueled by a comeback in the higher-growth disruptors we have stock positions, not including SPACs, as well as two private owned in the portfolio for a number of years. This was placements. reflected by the performance of our holdings in the The new-issue market remains an attractive source of new information technology (IT) sector, where portfolio names ideas and we participated in four IPOs in the latest period. gained 20.3% for the quarter compared to 11.4% for the Paymentus is a payment company using invoicing in more benchmark, as well as in the consumer discretionary sector, consumer-friendly channels. The company’s services allow a where portfolio companies rose 12.8% versus 6.7% for the utility to send a customer a text message to connect a bank benchmark. account and pay their bill. Paymentus is expanding its DocuSign illustrates the above-average secular growth streamlined payment process to SMBs like gardeners and local characteristics we seek in disruptors. The company delivered merchants. Confluent sells and distributes a commercialized first-quarter results that blew past expectations, quelling fears version of open-source software called Kafka created by former the e-signature provider was simply a COVID-19 beneficiary executives at LinkedIn. The solution allows enterprise users that would struggle to beat tougher comparisons. Instead, the ability to capture data in real time as it is streaming. A DocuSign highlighted new cloud-based functionality covering prime use case is capturing real-time inventory across retail the full lifecycle of agreements that doubles its addressable stores and distribution centers to enable omni-channel market. The company has already made the investments to commerce. We believe it is early days in the company’s expand from its initial business of streamlining the signing of commercialization of this technology, which can capture data contracts to offer business intelligence and analytics that can in both on-premise and hybrid cloud environments. Global-e help companies run their operations more efficiently. We Online, meanwhile, removes many of the frictions around expect revenues from this new market will begin to ramp up cross-border e-commerce by handling the different tax in 2022. structures, languages, currencies, local logistics and fulfillment/returns for any size retailer. The company’s initial Shopify and Sprout Social, companies that have become go-to customers have been mostly mid to higher end retailers but an platforms for small and medium-size businesses (SMBs) investment by Shopify should enable Global-e to significantly engaged in e-commerce and social media marketing, increase merchant reach. Private placement purchase Klaviyo rebounded strongly in the quarter after being caught in the also targets the retail industry through a customer data sell-off among high-multiple growth names since Vaccine platform that allows businesses to analyze all their customer Monday. These and the portfolio’s other disruptors had thrived information to understand what customers they should target, through the first part of the pandemic, leading us to trim when and with what message. positions into strength and reallocate cash into more attractively priced evolving opportunities and steady In addition to these disruptors, we added exposure in evolving compounders that had been overly punished by lockdowns opportunities through the IPO of Endeavor Group. Endeavor and a drop in economic activity. While some of our evolving owns sports leagues like UFC and Pro Bull Riders, which names continued to perform well in the second quarter as should benefit from the return of live events, as well as leading consumers resumed discretionary spending, like Crocs and sports agency IMG and its IMG Academy training franchise. American Eagle Outfitters, others such as Performance Food Streaming companies are hungry for content and rights prices Group sold off after surging in prior quarters. for programming owned by Endeavor are rising. Endeavor, as a representative to many of the world’s most well-known Portfolio positioning athletes, should also benefit from soaring sports salaries. While the active repositioning we have done since the onset of The Fund remained engaged in the SPAC market as well. Most the pandemic has created good balance in the portfolio, we of our recent activity involved selling out of common stock continue to leverage our research of both public and private positions in SPACs that announced acquisitions that we either markets to identify new investment opportunities. The recent didn’t like or where the valuation had become stretched. We value rotation improved the risk/reward among disruptors, held onto the warrants in most of these SPACs to continue to and we sold some positions that had either run up in price participate in the upside for these newer-to-market companies. where the forward-looking risk/reward had become more neutral or were facing commodity cost pressures. Using these Other new additions included the repurchase of disruptors proceeds to fund new purchases, we added eight new common Twilio at a lower multiple that provided a good entry point, and Unity Software through an options strategy. Twilio's 2 platform provides developers with the toolkit and building Teladoc Health were the greatest individual detractors from blocks to incorporate capabilities across voice, messaging, absolute returns. video, customer data, email and additional applications, while In addition to the transactions mentioned earlier, the Fund Unity provides development tools for 3D and virtual reality initiated positions in Compass in the real estate sector, SPACs content on digital devices. Both stocks are up strongly since SVF Investment, Altimeter Growth and Edify Acquisition and the trades, and we are holding our positions.
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