1. Healthcare

1214
Monthly commentary
Legg Mason Global Funds plc
Legg Mason Royce
US Small Cap Opportunity Fund
1
QUICK VIEW
The
Key performance drivers
1
 The Fund rose 2.91% in US dollar terms in
December, and outperformed its benchmark,
the Russell 2000 Index, which was up 2.85%.
 In December, stock selection contributed in
information technology (IT) but detracted in
financials and energy.
 Although an underweight in energy helped,
an underweight in healthcare hindered
performance both in December and the
fourth quarter of 2014 (Q4).
 Selection in energy, healthcare and
industrials proved detrimental in Q4.
Views and positioning
 At the end of December, the Fund’s most
significant overweights were in the IT,
industrials and materials sectors.
 Within IT, the manager favours
semiconductors, based on expectations of a
turnaround, but largely avoids internet and
software stocks.
 Healthcare, financials and consumer staples
remain the most significant active
underweights.
 The Fund continued to have no holdings in
utilities companies.
Current activity and manager outlook
 The manager believes that the outlook for the
US economy remains positive.
 The manager is optimistic on the consumer,
which should benefit from lower energy and
food prices, and has continued to add to
consumer-related names.
Performance to
31/12/14
Legg Mason Royce
US Small Cap Opportunity
Fund
Russell 2000 Index
1
3
Month Months
YTD
1
Year
5
Years
2.91%
6.00% -2.18% -2.18% 14.43%
2.85%
9.73%
4.89%
4.89% 15.55%
Past performance is no guide to future returns and may not be repeated.
Market Review
Overall, US equities ended the year on a rather lacklustre note, with largecap indices down slightly in US dollar terms in December despite strong
economic data. Figures from the US Commerce Department showed that
the domestic economy had grown at an annual rate of 5.0% in the third
quarter of 2014, an improvement on the previous 3.9% estimate. This was
largely due to stronger consumer and business spending. Against this
backdrop, although the S&P 500 index fell 0.25% in US dollar terms in
December, small caps were up with the Russell 2000 Index registering
returns of 2.85% over the month. Sector performance was generally
positive in the small-cap space. Energy continued to be negatively
impacted by falling oil prices. However, consumer staples, healthcare and
utilities all enjoyed a strong end to the year. For the fourth quarter of the
year, defensive sectors (e.g. healthcare, utilities and consumer staples)
drove the market. Although underperforming for the year as a whole, small
caps bounced back from mid-October lows more than large caps.
Fund Review
The Legg Mason US Royce US Small Cap Opportunity Fund increased by
1
2.91% in US dollar terms in December, outperforming its benchmark, the
Russell 2000 Index, which rose 2.85%.
The Fund’s cyclical tilt – overweights in industrials, information technology
(IT) and materials – detracted both in December and the fourth quarter of
2014. Selection in IT – e.g. Inphi, Spansion, Advanced Energy and Actuate
– helped over the month. Meanwhile, selection in financials, most of all an
underweight to real estate investment trusts (REITs), and energy had a
negative impact. An underweight to the outperforming healthcare sector,
where the Fund has no holdings in biotechnology companies, weighed on
performance. On the contrary, the Fund’s underweight exposure to energy,
the only sector in negative territory in December, helped.
For the fourth quarter of 2014, selection in energy was most detrimental,
particularly exploration and production companies. Approach Resources,
Swift Energy and Goodrich Petroleum were all down amid plummeting oil
prices. Underweight exposure to this sector helped, however. Stock picking
in healthcare and industrials also detracted. Nonetheless, strong selection
in IT countered these losses to some degree. Underweight exposure to
healthcare and an overweight in materials e.g. metals and steel producers
hurt.
PLEASE REFER TO THE IMPORTANT INFORMATION ON THE FINAL PAGE.
Brandywine Global • ClearBridge Investments • LMM • Martin Currie • Permal • QS Batterymarch • QS Legg Mason Global Asset Allocation
Royce & Associates • Western Asset Management
1/2
1214
Monthly commentary
Legg Mason Global Funds plc
Legg Mason Royce
US Small Cap Opportunity Fund
Fund Review (cont.)
At the end of 2014, the largest overweights are in IT, industrials and materials. In IT, the manager favours semiconductors, which
are as cheap as they have been for years, but largely avoids internet and software stocks. Healthcare, financials and consumer
staples remain the largest active underweights. The underweight in healthcare is largely due to an absence of biotech stocks,
which, in the manager’s opinion, do not lend themselves well to the Fund’s ‘turnaround’ strategy. The Fund has no holdings in
utilities. Though underweight in financials overall, exposure to this sector remains close to all-time-high levels. This reflects
opportunities in community banks, which the manager believes should benefit from higher long-term interest rates, as well as
financial guaranty and mortgage insurance firms, which should profit from an improving housing market. The largest underweight in
this space is to REITs mainly on valuation grounds.
Outlook
2014 proved to be a tough year for the smaller names in the market, as evidenced by the underperformance of the Russell 2000
index (small caps), which rose 4.89% in US dollar terms, relative to the S&P 500 (large caps), which increased 13.69%.
Nonetheless, the manager continues to believe that the outlook for the US economy is positive. Most of the recent data have been
strong: auto sales are at record levels, earnings are growing, and the fundamentals of the housing market remain supportive. This
is the single most important condition for the Fund to be able to do well. The manager is also very optimistic on the consumer,
which it believes should benefit considerably from lower energy and food prices, and has continued to add to consumer-related
names (e.g. retail, apparel and homebuilders). At a company level, the manager’s more recent conversations with management
teams paint a fairly robust picture and the manager is optimistic about the upcoming earnings season.
This Fund is managed by Royce & Associates
¹ Source: Legg Mason, as of 31 December 2014. Class A Acc USD performance is net of fees and is calculated on a NAV to NAV
basis (USD), with any income and dividends reinvested, if any, without any initial charges but reflecting annual management fees.
Performance figures inclusive of sales charge is -2.23% for 1 Month, 0.70% for 3 Months, -7.07% for YTD, -7.07% for 1 Year and
13.26% for 5 Years. Performance for periods above one year is annualised. Investment involves risks. Past performance is
not indicative of future results.
IMPORTANT INFORMATION
Source: Royce & Associates. This document is issued by Legg Mason Asset Management Singapore Pte. Limited in Singapore
(“Legg Mason”) and is for information only and does not constitute an offer or invitation to the public to purchase any shares in any
fund in Singapore.
This document is for information only and is not intended to provide investment advice. All data, opinions, estimates and other
information are provided as of the date of this document and may be subject to change without notice. The prospectus of the fund is
available and may be obtained from Legg Mason or its authorised distributors. Investors should check with Legg Mason or its
authorized distributors on whether a particular class of the fund is available for subscription. Investors should read the
most current prospectus prior to any subscription. All applications for units in the fund must be made on the application
forms accompanying the prospectus. Past performance is not necessarily indicative of future performance. All
investments involve risk, including possible loss of principal. The value of the units in the fund and the income accruing
to the units, if any, may fall or rise. Although information has been obtained from sources that Legg Mason believes to be reliable,
no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at
any time without notice.
Any views expressed are opinions of the respective investment affiliates as of the date of this document and are subject to change
based on market and other conditions without notice and may differ from other investment affiliates or of the firm as a whole. These
opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice. The mention of any
individual securities/ funds should neither constitute nor be construed as a recommendation to purchase or sell securities, and the
information provided regarding such individual securities/ funds is not a sufficient basis upon which to make an investment decision.
Portfolio allocations, holdings and characteristics are subject to change at any time. Legg Mason, its affiliates, officers or directors, may
have an interest in the acquisition or disposal of the securities mentioned herein. Distribution of this document may be restricted in
jurisdictions, other than Singapore. Any person coming into possession of this document should seek advice for details of, and observe
such restrictions (if any).
Neither Legg Mason nor any officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of
this document or its contents. The information in this document is confidential and proprietary and may not be used other than by the
intended user. This document may not be reproduced, distributed or published without prior written permission from Legg Mason.
Legg Mason Asset Management Singapore Pte. Limited is the legal representative of Legg Mason, Inc. in Singapore.
(Registration Number (UEN): 200007942R)
PLEASE REFER TO THE IMPORTANT INFORMATION ON THE FINAL PAGE.
2/2