The Saratoga Large Cap Growth Portfolio underperformed during the fourth quarter of 2016. Stocks in the Financial sector accelerated as investors became increasingly confident that there will be successive rate hikes in 2017. What was good for Financial stocks was bad for stocks in the Real Estate sector, as the prospect of higher bond yields caused money to flow out of this bond alternative. Energy rallied along with the increase in the price of oil while the Healthcare sector sold off due to the uncertainty the new administration brings to the longevity of the Affordable Care Act. One of the most acrimonious presidential elections in U.S. history was the bookend for a very a difficult year for many active managers. While the theoretical range of outcomes from policies contemplated by the president elect are wider than any new administration in recent memory, the end of year rally suggests the markets were strongly biased towards the most favorable outcomes. In a profound turn of events, consumer confidence, which was waning at the beginning of the year, hit a 15-year high in December led by surging optimism among older Americans. While we do not dismiss the possibility of substantive tax reform, regulatory relief, meaningful changes to the Affordable Care Act and a shift from monetary to fiscal stimulus, expectations for "the first 100 days" were rather lofty by the end of the year. A year filled with distractions and cross-currents kept investors focused on factors other than the fundamental performance of corporate America. Thus, many of the characteristics active managers attend to, including Smith Group, failed to separate winners from losers when measured by stock price. The good news is that many companies in the strategy continued to deliver earnings growth in excess of expectations 12 months earlier. This fundamentally derived "growth better than expected" gives us great confidence in the Portfolio going into 2017.
Information contained herein was obtained from recognized statistical services and other sources believed to be reliable and we therefore cannot make any representation as to its completeness or accuracy. Any statements not of a factual nature constitute opinions which are subject to change without notice.
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