Investment Series: The Goldman Sachs Growth and Income Plan

Transcription

1 Investment Commentary 3Q 2015 Goldman Sachs Growth and Income Fund Class A: GSGRX Class C: GSGCX Class R: GRGRX Class R6: GRGUX Class I: GSIIX Class S: GSGSX Class IR: GRGTX Market Overview Following a volatile August, global equity markets tumbled further in September, with the third quarter erasing gains from earlier in the year in many markets. The S&P 500 Index fell -2.47% in September, returning -6.44% during the quarter and leaving year-to-date returns of -5.29%. The quarterly performance was the worst since In a widely watched decision, the US Federal Reserve (Fed) elected not to raise interest rates in September, affirming continued concerns about many sources of instability and slowing global growth. As a result, equity markets continued to trade with heightened volatility over further weakness in Chinese macroeconomic data and its associated implications worldwide. However, domestic news was more positive. US economic growth for 2Q15 was revised up further to 3.9%, annualized, led by stronger consumer and construction spending. Job growth for August was slightly below consensus expectations, but the unemployment rate fell further to 5.1%. During the quarter, the Materials and Energy sectors notably underperformed the broader market on the continued weak near-term outlook for commodity prices, including oil. Only the Utilities sector managed to gain throughout the quarter. Portfolio Attribution During the third quarter of 2015, the Goldman Sachs Growth and Income Fund underperformed the Russell 1000 Value Index (net). Our investments in the Financials and Consumer Discretionary sectors detracted from results, while our investments in the Information Technology and Industrials sectors contributed positively to results. During the quarter, Viacom Inc. (1.5%), a global entertainment content company, was a top detractor to relative performance. We believe consolidation among content distributors, concerns about signing new affiliate agreements, and ratings weakness all pressured the stock. We see these concerns as largely overdone, and believe ratings pressure will begin to subside against easier comparisons. Viacom is the largest cable network by viewership, and we believe the company is set to benefit from a long-awaited move toward a new advertising ratings Performance History as of 9/30/15 15% 10% 5% 0% -5% -10% -15% Q 2015 One Year Three Years Five Years Ten Years Since Inception For periods one year or greater, performance is annualized. The returns represent past performance. Past performance does not guarantee future results. The Fund s investment return and principal value will fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted above. Please visit to obtain the most recent month-end returns. Standardized Total Returns for Period Ended 9/30/15 Class A Shares Class I Shares One Year % -4.79% Five Years 9.02% 10.68% Ten Years 4.09% 5.08% The Standardized Total Returns are average annual total returns or cumulative total returns (only if the performance period is one year or less) as of the most recent calendar quarter end. They assume reinvestment of all distributions at net asset value. Class A shares reflect the maximum initial sales charge of 5.5%. Because Institutional shares do not include a sales charge, such a charge is not included in the standardized total returns. Expense Ratios GS Growth and Income Fund Total Returns Class A (at NAV), Since Inception 2/5/93 GS Growth and Income Fund Total Returns Class I (at NAV), Since Inception 6/3/96 Russell 1000 Value Index Current Expense Ratio (Net) Expense Ratio Before Waivers (Gross) Class A Shares 1.14% 1.23% Class I Shares 0.74% 0.83% The expense ratios of the Fund, both current (net of any fee waivers or expense limitations) and before waivers (gross of any fee waivers or expense limitations) are as set forth above. Pursuant to a contractual arrangement, the Fund s waivers and/or expense limitations will remain in place through at least July 31, 2016, and prior to such date the investment adviser may not terminate the arrangements without the approval of the Fund s Board of Trustees. Goldman Sachs Asset Management 1

2 model that captures the currently unmeasured and fast growing over-the-top content consumption trends. Additionally, we are encouraged by the company s attractive valuation and its new cost restructuring program, which we believe will support stable profitability throughout the company s transition. Devon Energy Corp. (1.8%), a US-based oil and natural gas exploration and production company, was a top detractor from relative returns during the quarter. Lower oil prices weighed negatively on Devon Energy s shares and overshadowed the company s strong results. Despite recent underperformance, we continue to believe the value of Devon Energy s large North American asset base is not fully recognized at current market values. Finally, we believe the company s strong balance sheet should help expedite the development of its oil properties and facilitate shareholder-friendly actions. Our investment in the Altria Group, Inc. (1.3%), a USbased consumer products company, was a top contributor to relative performance during the quarter. The stock performed well following better-than-consensus expectation second quarter results, coupled with announcing a new $1 billion share repurchase program. The stock also reacted favorably to Anheuser- Busch InBev s announced plans to acquire SABMiller, of which Altria owns a 27% stake. We believe the deal would be a net positive for Altria, although we maintain a favorable view on the company s fundamentals irrespective of the outcome of the transaction due to our confidence in management s long-term strategy and commitment to returning excess free cash flow in a shareholder-friendly manner. United Parcel Service, Inc. (UPS) (1.7%), a global provider of package delivery and supply chain management services, was also a top contributor to relative returns. Shares rallied after the company demonstrated strong execution and reported better-thanconsensus expectation results, with improving margins despite macroeconomic headwinds. Later in the quarter, shares of UPS rose after announcing plans to acquire Coyote Logistics, a technology driven, truckload freight brokerage company. We believe the acquisition will be accretive to earnings and cash flow in 2016, and it may help UPS manage peak season operations. In our view, management has shown great progress with network efficiency in Europe and is now positioned to do the same in the US, where the company previously experienced execution issues during the last two peak seasons. Overall, we continue to have conviction in the management team s ability to execute and generate strong returns on capital, and believe the company s valuation is attractive relative to peers. Top Ten Holdings Company Portfolio General Electric Co. 6.1% JPMorgan Chase & Co. 5.3% Exxon Mobil Corp. 5.1% Pfizer Inc. 4.3% AT&T Inc. 3.7% Prudential Financial, Inc. 3.1% American International Group, Inc. 2.7% Medtronic Plc 2.6% Cisco Systems, Inc. 2.4% AllianceBernstein Holding L.P. 2.2% Sector Weights GS Growth and Income Fund Financials Health Care Industrials Energy Information Technology Utilities Consumer Staples Consumer Discretionary Telecommunication Services Materials Russell 1000 Value Index % 10% 20% 30% 40% Data as of 9/30/15. Fund holdings and allocations shown are unaudited, and may not be representative of current or future investments. Fund holdings and allocations may not include the Fund s entire investment portfolio, which may change at any time. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. Current and future holdings are subject to risk. Goldman Sachs Asset Management 2

3 Portfolio Review During the quarter we initiated a position in BlackRock, Inc. (1.0%), a provider of investment management services to institutional and retail clients. In our view, BlackRock, a leader in ETF s globally, is well-positioned to benefit from a market trend of investor flows into passive products. The stock lagged the market after a weaker-than-expected second quarter flow result and global equity sell off which provided an attractive entry point. In addition, we believe BlackRock's valuation is compelling, given it is a high quality business with industry leading growth. We also initiated a position in BP Plc (1.0%), an integrated oil and gas company. We favorably view the company s efficient use of capital, evidenced by production growth despite capital expenditure reductions. With the July announcement of a U.S. civil settlement for BP s 2010 oil spill, we believe a large overhang on the stock has been removed. In our view, the legal settlement improves BP s financial flexibility because a key liability has been defined, and cash payments can be managed with strong free cash flow generation. Overall, the capital discipline of BP s management gives us confidence in the sustainability of the company s dividend, and we believe the company is attractively valued relative to peers. We sold out of our position in Verizon Communications, Inc. (0.0%) during the quarter. Although there were no fundamental changes that altered our investment thesis, we found other opportunities within the company s peer group relatively more compelling on a valuation basis. As such, we decided to exit our position and reallocate the capital to ideas with which we hold greater conviction. We also sold out of our position in Liberty Global Plc (0.0%) during the quarter. We decided to exit the position in favor of securities in the Media industry which had a more attractive risk vs. reward profile, in our view. Top/Bottom Contributors to Return Top 10 Gross Return Contribution Altria Group, Inc. 12.4% 21 bps United Parcel Service, Inc. 2.6% 17 bps General Electric Co. -4.2% 16 bps Pinnacle West Capital Corp. 13.8% 15 bps New York Comm. Bancorp, Inc. -0.4% 14 bps PG&E Corp. 8.5% 12 bps Hartford Fin. Services Group, Inc. 10.6% 12 bps Maxim Integrated Products, Inc. -2.5% 12 bps Eli Lilly and Co. 0.8% 11 bps Brixmor Property Group, Inc. 2.5% 10 bps Bottom 10 Gross Return Contribution Devon Energy Corp % -69 bps Viacom Inc % -45 bps Navient Corp % -43 bps Gap, Inc % -43 bps Southwestern Energy Co % -40 bps Mylan N.V % -33 bps NRG Energy, Inc % -18 bps Staples, Inc % -14 bps E. I. du Pont de Nemours and Co % -12 bps Prudential Financial, Inc % -11 bps Data as of 9/30/15. Past performance does not guarantee future results, which may vary. The returns presented herein are gross and do not reflect the deduction of investment advisory fees, which will reduce returns. Fund holdings and allocations shown are unaudited, and may not be representative of current or future investments. Fund holdings and allocations may not include the Fund s entire investment portfolio, which may change at any time. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. Current and future holdings are subject to risk. Strategy/Outlook As we enter the fourth quarter, we continue to believe US equities have further upside potential as the US economy expands and as real earnings growth serves as a fundamental driver of performance going forward. Consumption, which accounts for approximately 70% of US Gross Domestic Product (GDP), could benefit from a more confident consumer and lower energy prices. While we are cognizant of potential headwinds, such as the risk of a global economic slowdown or unanticipated changes The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. Goldman Sachs Asset Management 3

4 in monetary policy, we remain constructive on the direction of US equity markets. Looking forward, we believe continued improvements in US economic fundamentals can lead companies to invest in future growth by increasing capital expenditures, research and development, hiring, and through merger and acquisition activity, rather than keeping excess cash on balance sheets. In our view, equity valuations are fair, considering the positive US macro environment, and inexpensive relative to fixed income. We believe focusing on company fundamentals, while being aware of the potential impact of various macroeconomic factors, is a process that generates compelling, long-term returns. Regardless of the market direction, our fundamental, bottom-up stock selection continues to drive our process, rather than headlines or sentiment. We maintain high conviction in the companies that we own and believe they have the potential to outperform relative to the broader market regardless of the growth environment. We continue to focus on undervalued companies that we believe are in control of their own future, such as innovators with differentiated products, companies with low-cost structures, or ones that have been investing in their own businesses and are poised to gain market share. We maintain our discipline in identifying companies with strong or improving balance sheets, led by quality management teams, trading at discounted valuations, and remain focused on the longterm outperformance of the Fund. Goldman Sachs Asset Management 4

5 Risk Considerations The Goldman Sachs Growth and Income Fund invests primarily in U.S. equity investments. The Fund s equity investments are subject to market risk, which means that the value of the securities in which it invests may go up or down in response to the prospects of individual companies, particular sectors and/or general economic conditions. Different investment styles (e.g., value ) tend to shift in and out of favor, and at times the Fund may underperform other funds that invest in similar asset classes. A summary prospectus, if available, or a Prospectus for the Fund containing more information may be obtained from your authorized dealer or from Goldman, Sachs & Co. by calling (retail: ) (institutional: ). Please consider a fund s objectives, risks, and charges and expenses, and read the summary prospectus, if available, and the Prospectus carefully before investing. The summary prospectus, if available, and the Prospectus contains this and other information about the Fund. General Disclosures Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentat ion and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other nee ds of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject t o significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Cas e studies and examples are for illustrative purposes only. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of Morgan St anley Capital International Inc. (MSCI) and Standard & Poor s, a division of The McGraw-Hill Companies, Inc. (S&P) and is licensed for use by Goldman Sachs. Neither MSCI, S&P nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to suc h standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, complet eness, merchantability or fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, a ny of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequenti al or any other damages (including lost profits) even if notified of the possibility of such damages. The Russell 1000 Value Index is an unmanaged market capitalization weighted index of the 1,000 largest U.S. companies with lower price-to-book ratios and lower forecasted growth values. The Index figures do not reflect any deduction for fees, expenses or taxes. The S&P 500 Index is the Standard & Poor s 500 Composite Stock Price Index of 500 stocks, an unmanaged index of common stock prices. The Index figures do not reflect any deduction for fees, expenses or taxes. A basis point is 1/100th of a percent. It is not possible to invest directly in an unmanaged index. This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by GSAM and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and GSAM has no obligation to provide any updates or changes. Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice. Goldman, Sachs & Co. is the distributor of the Goldman Sachs Funds Goldman Sachs. All rights reserved. Date of first use: November 2, MF.MED.TMPL/11/2015 QCGI_AI/11-15