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TRANSCRIPT
The opinions expressed and portfolio holdings discussed are current as of the date of this presentation; they are subject to change and are not intended to be investment recommendations. Past performance is not indicative of future results. Not all stocks mentioned are
necessarily current or past holdings in our client accounts. No assurance can be given that any estimates or outlooks will prove accurate; they should be neither construed nor relied upon as investment advice.
Second Quarter 2012 Review & Outlook
July 11, 2012
-1-
Introduction & Firm Update
Market Review & Investment Outlook
Performance Review
Sector Highlights
Question & Answer Session
Webcast Agenda
-2-
Assets Under Management As of June 30, 2012
Assets by Product Type$ millions
Assets by Client Type$ millions
Total Firm Assets: $14,137 millionPreliminary
$6,766
$162$1,690
$2,833
$36
$36
$1,079$1,535
Large Cap Growth Equity Balanced Small Cap Growth Equity Alternative Investment StrategiesSmall/Mid Cap Growth Equity All Cap Growth EquityMid Cap Growth Equity Dividend Growth
(1%)
(48%)
(12%)(<1%)
(8%)
(11%)
(20%)$1,766
$2,474
$4,008
$72 $3,421
$576
$1,820
Corporate IndividualEndowment/Foundation Sub-AdvisoryPublic Fund Limited PartnershipsTaft Hartley
(28%)
(12%)
(4%)(18%)
(1%)
(13%)
(24%)
(<1%)
-3-
Investment Committee
Investment Committee
Investment professionals work within an interdependent investment process
Committee structure encourages analyst collaboration and objective review
Industry insight differentiates us at company meetings
Average 21 years of investment experience
Strong trading and operational support
Years Experience Analytical Coverage
William A. Muggia 28 CIO, Market Strategy, Health Care & Energy Arthur J. Bauernfeind, CFA 49 Economic Outlook & Market StrategyScott R. Emerman, CFA 20 Consumer Discretionary Robert T. Flores 17 Information TechnologyWilliam R. Gilchrist 8 MaterialsJohn G. Higgins 25 IndustrialsBruce N. Jacobs, CFA 20 Medical Devices & Consumer StaplesGarth W. Jonson, CFA 19 Biotechnology, Health Care Services & PharmaceuticalsRichard D. Lee, CFA 17 Information Technology Ethan J. Meyers, CFA 15 Industrials & Business ServicesJohn M. Montgomery 17 Portfolio & Investment Process StrategyA. Patrick Regan, CFA 16 FinancialsHamlen Thompson 17 Energy & Industrials
-4-
Q1 Webcast Recap
We noted in last quarter’s webcast at the end of the first quarter:
Work to find organic growers – our new portfolio additions should provide strong
organic growth
The U.S. is the best place to be – housing bottoming, derivative plays like trucking,
renaissance in U.S. manufacturing
Domestic focus – harder to find in large cap by definition – global companies
Return of capital theme
Build an “all weather” portfolio
We are not “foul weather” – continue to be underweight Staples, REITs and
Utilities – the best performing stocks in Q2
-5-
Portfolio Positioning
With uncertainty reduced in Healthcare, it has become a bigger weight in every product
Historically, Healthcare was our number one area of attribution and we believe we can get there again
Pleased to see our theme to own domestic oriented companies play out in Consumer Discretionary
with positive attribution in every product
We are overweight the top earnings growth quintiles, and overweight the lowest P/E to Growth –
GARP has been a very tough place to be, despite most attractive risk/reward in our opinion
Growth Cyclicals outperformed Consumer Discretionary from March ’09 to March ’11 – Growth
Cyclicals underperformed since then through today, after a long correction, our instinct is that cyclical
growth outperforms from here
The Street has lowered Q2 estimates and guidance, “in-line” results will be considered a beat
-6-
Not unlike 2011, there is plenty to be concerned about: China growth, financial crisis in Europe, and the much-discussed 2013 fiscal cliff
We see some major offsets:
Manufacturing resurgence
Housing bottoming
Vehicle production
And, unlike 2010/2011, global easing
Source: ISI Group
Weighted composite of 70% “Developed” nations (US, UK, ECB, Japan, Canada, and Australia) weighted by GDP and 30% “Emerging” nations (India, Hong Kong, Korea, Taiwan, Indonesia, Malaysia, Philippines, Singapore, Thailand, Brazil, Mexico, Argentina, Poland, Czech, and Hungary) equal weighted.
We Remain Constructive on the Outlook for the U.S. Economy
Global Short RatesJune 13, 2012
-7-
Source: FactSet
Housing Appears to be Bottoming…Any Recovery is a Bonus
Signs of a Housing bottom – latest Housing start figure at 717k units and permits remained near a new post-recessionhigh of 715k. The Joint Center for Housing Studies estimates long term single family demand to be 1.1-1.25 million unitsper year. Recent Housing Start data even stronger – one bright spot in U.S. economy.
-8-
Current Market Environment
Biggest near-term risk is headline risk
Europe contagion – Greece, Italy, Spain
Euro crashing – help to European exports
Europe will have to recapitalize banks at some point
Fiscal Cliff
Drag on future growth
China slowing
Overall slowing global growth
Commodity cycle over?
Long-term demographics look like Japan!
Panic buying of low risk assets – Swiss bonds; German 2-Year yield at 0%. 10-Year U.S. Treasury 1.6%,
30- Year U.S. Treasury estimated 2.7%
This is well known and in the market
-9-
Near-Term Stock Market Outlook
Volatile, choppy summer, correction/trading range until clarity on global growth outlook
Market is too cheap and balance sheets too strong for a new bear market
We just finished the worst decade ever for stocks
With the risk free rate around 1% there is a bubble in risk aversion
Record low interest rates do provide more stimulus to the American consumer and are
another positive for Housing
Crude oil prices have pulled back significantly – summer gasoline prices will decrease,
lowers inflation, allows central bank to ease globally
Stay at home to invest – wait on going global
-10-
2012 Positioning
Participate in an expected U.S. recovery and gradually improving global growth environment
Every Westfield strategy has exposure to U.S.:
Improving housing & capital stock
Improving manufacturing
Stable job outlook
Recovering financial system
Portfolios reflect “barbell” approach: appropriate balance of growth names exhibiting both offensive and
defensive characteristics
The typical Westfield investment is expected to grow EPS in the mid-teens and trades at below market
multiple
We believe a portfolio constructed with a growth at a reasonable price approach provides the greatest
opportunity for outperformance, though GARP style has underperformed during the last few years
Defensive, high dividend yield stocks with little to no growth have dramatically outperformed. They are
crowded longs and look risky to us – very expensive and have become the new “momentum” stocks. A
different type of 1999?
-11-Source: Strategas Research Partners
U.S. Equities Look Cheap Compared to Bonds
-12-
Market Sentiment
Record low stock allocation recommendations from Wall Street Strategists and record high bond recommendations
Source: Bloomberg
-13-
Market Sentiment
Bearish investor behavior
Record flows out of equity mutual funds and into bond funds since 2009
-14-
Relative Sector Weightings
Westfield Large Cap Growth Equity As of June 30, 2012
2nd Quarter 2012 Performance AttributionWestfield Large Cap Growth Equity Representative Portfolio versus Russell 1000® Growth
PerformancePreliminary
Source: FactSet
Past performance is not indicative of future returns. Supplemental Information - A fully compliant GIPS® Presentation is located at the end of the presentation.
9.67%
6.85%
13.04%
0.57%
7.90%6.32%
9.03%
0.07%
12.46%
7.62%8.53%
6.03%
2.87%
17.50%
10.08%
0%
10%
20%
30%
YTD 3 Years 5 Years 10 Years Since Inception(7/1/89)
Westfield Large Cap Growth Equity Composite - GrossWestfield Large Cap Growth Equity Composite - NetRussell 1000® Growth
4
14
31
15
5
16
96
00 02
4
32
1212
5
13
4
16
0
5
10
15
20
25
30
35
40
Cons. D
isc.
Cons. Stap
les
Energy
Financi
alsHeal
th CareIn
dustria
lsInfo. T
ech.
Materia
lsTele
com
Utilities
% o
f Equ
ity
Westfield Large Cap Growth
Russell 1000® Growth
Portfolio Portfolio Portfolio Benchmark Benchmark Benchmark Allocation Selection Total Sector Name Avg Weight Return Contribution Avg Weight Return Contribution Effect Effect Effect
[Cash] 1.46 2.66 0.03 -- -- -- 0.07 -- 0.07 Consumer Discretionary 15.16 -4.88 -0.67 14.81 -5.04 -0.79 0.01 0.03 0.04 Utilities -- -- -- 0.08 -7.59 -0.01 0.01 -- 0.01 Telecommunication Services -- -- -- 0.96 6.50 0.08 -0.08 -- -0.08 Materials 5.15 -7.65 -0.41 5.11 -3.97 -0.24 0.00 -0.14 -0.15 Energy 8.79 -12.22 -1.07 9.27 -6.62 -0.91 0.19 -0.51 -0.31 Information Technology 30.84 -7.91 -2.47 30.02 -6.84 -2.06 -0.03 -0.32 -0.35 Consumer Staples 5.40 8.18 0.42 12.46 3.98 0.53 -0.54 0.19 -0.35 Health Care 13.01 -1.83 -0.34 10.69 1.60 0.20 0.14 -0.56 -0.42 Industrials 14.98 -8.75 -1.40 12.26 -6.39 -0.80 -0.07 -0.37 -0.43 Financials 5.21 -16.75 -0.93 4.33 -0.73 -0.02 0.04 -0.89 -0.86
Total 100.00 -6.84 -6.84 100.00 -4.02 -4.02 -0.25 -2.57 -2.82
Periods greater than one year are annualized
-15-
Relative Sector Weightings
Westfield Mid Cap Growth Equity As of June 30, 2012
2nd Quarter 2012 Performance AttributionWestfield Mid Cap Growth Equity Representative Portfolio versus Russell Midcap® Growth
PerformancePreliminary
Source: FactSet
Past performance is not indicative of future returns. Supplemental Information - A fully compliant GIPS® Presentation is located at the end of the presentation.
12.79%
16.97%
9.77%
12.69%
2.97%
12.38%
9.09%
2.39%
16.30%
11.95%
1.90%
8.10%
19.01%
8.89%8.47%
0%
10%
20%
30%
YTD 3 Years 5 Years 10 Years Since Inception(7/01/94)
Westfield Mid Cap Growth Equity Composite - GrossWestfield Mid Cap Growth Equity Composite - NetRussell Midcap® Growth
9
14
23
16
7
18
10
300 12
6
171514
785
25
0
5
10
15
20
25
30
35
Cons. D
isc.
Cons. Stap
les
Energy
Financ
ialsHeal
th CareIn
dustr
ials
Info. T
ech.
Materia
lsTele
com
Utilitie
s
% o
f Equ
ity
Westfield Mid Cap GrowthRussell Midcap® Growth
Sector Name
Portfolio Avg Weight
Portfolio Return
Portfolio Contribution
Benchmark Avg Weight
Benchmark Return
Benchmark Contribution
Allocation Effect
Selection Effect
Total Effect
Consumer Discretionary 17.52 -3.07 -0.56 21.42 -7.12 -1.62 0.14 0.73 0.87 Industrials 15.66 -4.28 -0.66 14.74 -6.60 -0.99 -0.01 0.40 0.39 Materials 8.39 0.63 0.06 8.50 -3.46 -0.36 0.02 0.32 0.35 [Cash] 2.47 0.24 0.01 -- -- -- 0.21 -- 0.21 Energy 10.01 -10.75 -1.13 8.13 -12.30 -1.23 -0.02 0.14 0.12 Utilities -- -- -- 0.30 -7.59 -0.02 0.01 -- 0.01 Information Technology 23.68 -8.35 -2.01 18.21 -8.95 -1.65 -0.23 0.15 -0.08 Telecommunication Services 0.28 -43.29 -0.09 1.67 -0.08 0.01 -0.09 -0.09 -0.18 Financials 6.85 -4.97 -0.31 6.93 -2.37 -0.12 0.00 -0.18 -0.18 Consumer Staples 2.45 -10.00 -0.25 6.29 -1.14 -0.04 -0.15 -0.23 -0.37 Health Care 12.69 -1.84 -0.19 13.82 2.96 0.42 -0.07 -0.60 -0.67
Total 100.00 -5.15 -5.15 100.00 -5.60 -5.60 -0.20 0.64 0.45
Periods greater than one year are annualized
-16-
Relative Sector Weightings
Westfield Small/Mid Cap Growth Equity As of June 30, 2012
2nd Quarter 2012 Performance AttributionWestfield Small/Mid Cap Growth Equity Representative Portfolio versus Russell 2500™ Growth
PerformancePreliminary
Source: FactSet
Past performance is not indicative of future returns. Supplemental Information - A fully compliant GIPS® Presentation is located at the end of the presentation.
13.43%
20.99%
10.64%
6.09%5.12%5.70%
9.78%
4.31%
20.08%
12.62%
2.35%
8.44%
19.38%
7.72%8.35%
0%
10%
20%
30%
YTD 3 Years 5 Years 10 Years Since Inception(4/01/92)
Westfield Small/Mid Cap Growth Equity Composite - GrossWestfield Small/Mid Cap Growth Equity Composite - NetRussell 2500™ Growth
7
13
17
28
1112
8
4
00 02
7
21
1617
10
4 5
18
0
5
10
15
20
25
30
35
Cons. D
isc.
Cons. Stap
les
Energy
Financi
alsHeal
th CareIndus
trials
Info. Tech
.Mate
rials
Teleco
m Utili
ties
% o
f Equ
ity
Westfield Small/Mid Cap GrowthRussell 2500™ Growth
Sector Name
Portfolio Avg Weight
Portfolio Return
Portfolio Contribution
Benchmark Avg Weight
Benchmark Return
Benchmark Contribution
Allocation Effect
Selection Effect
Total Effect
Consumer Discretionary 11.99 -2.05 -0.36 15.60 -8.30 -1.31 0.14 0.71 0.84 Energy 8.02 -12.13 -1.03 7.50 -13.04 -1.25 0.08 0.06 0.15 [Cash] 3.46 0.20 0.01 -- -- -- 0.13 -- 0.13 Information Technology 15.77 -10.74 -1.62 21.50 -9.63 -2.15 0.28 -0.15 0.13 Utilities -- -- -- 0.42 -7.39 -0.03 0.02 -- 0.02 Financials 10.57 -3.85 -0.35 8.60 -1.33 -0.06 0.09 -0.26 -0.17 Telecommunication Services 0.31 -35.76 -0.21 1.41 -0.92 0.00 -0.08 -0.16 -0.24 Materials 7.10 -13.62 -1.06 7.41 -6.61 -0.52 0.03 -0.55 -0.52 Consumer Staples 3.46 -13.02 -0.46 4.00 1.25 0.07 -0.05 -0.50 -0.55 Industrials 27.61 -9.01 -2.67 17.05 -5.36 -0.98 -0.02 -1.13 -1.14 Health Care 11.72 -6.27 -0.59 16.50 4.59 0.85 -0.45 -1.17 -1.62
Total 100.00 -8.35 -8.35 100.00 -5.38 -5.38 0.17 -3.14 -2.97
Periods greater than one year are annualized
-17-
Relative Sector Weightings
Westfield Small Cap Growth Equity As of June 30, 2012
PerformancePreliminary
Past performance is not indicative of future returns. Supplemental Information - A fully compliant GIPS® Presentation is located at the end of the presentation.
2nd Quarter 2012 Performance AttributionWestfield Small Cap Growth Equity Representative Portfolio versus Russell 2000® Growth
Source: FactSet
14.21%
3.34%
18.83%
6.35%7.62%
13.40%
2.68%
6.94%
18.08%
6.02% 6.69%7.39%8.81%
1.99%
18.09%
0%
10%
20%
30%
YTD 3 Years 5 Years 10 Years Since Inception(7/01/89)
Westfield Small Cap Growth Equity Composite - GrossWestfield Small Cap Growth Equity Composite - NetRussell 2000® Growth
30 00
810 9
29
17
24
16
657
22
17
22
41 0
0
5
10
15
20
25
30
35
Cons. D
isc.
Cons. Stap
les
Energy
Financ
ialsHeal
th CareIn
dustr
ials
Info. T
ech.
Materia
lsTele
com
Utilitie
s
% o
f Equ
ity
Westfield Small Cap GrowthRussell 2000® Growth
Portfolio Portfolio Portfolio Benchmark Benchmark Benchmark Allocation Selection Total Sector Name Avg Weight Return Contribution Avg Weight Return Contribution Effect Effect Effect
Energy 7.84 -12.09 -1.06 7.53 -18.07 -1.69 0.02 0.53 0.55 Consumer Discretionary 9.66 -4.41 -0.45 15.46 -5.25 -0.84 0.10 0.09 0.19 Financials 8.03 0.23 0.12 7.88 -1.19 -0.13 0.00 0.18 0.18 Industrials 26.31 -4.07 -1.12 16.39 -6.10 -1.03 -0.25 0.41 0.16 Telecommunication Services -- -- -- 1.00 -3.92 -0.03 0.02 -- 0.02 Utilities -- -- -- 0.11 -2.08 0.00 0.01 -- 0.01 [Cash] 3.13 0.00 0.00 -- -- -- -0.01 -- -0.01 Consumer Staples -- -- -- 4.29 1.94 0.12 -0.24 -- -0.24 Health Care 20.88 3.90 0.98 20.83 5.73 1.39 -0.02 -0.39 -0.41 Information Technology 18.31 -10.07 -2.06 22.33 -6.48 -1.50 0.08 -0.68 -0.60 Materials 5.83 -17.87 -1.27 4.17 -5.21 -0.21 -0.01 -0.76 -0.77
Total 100.00 -4.85 -4.85 100.00 -3.94 -3.94 -0.30 -0.61 -0.91
Periods greater than one year are annualized
-18-
Relative Sector Weightings
Westfield All Cap Growth Equity As of June 30, 2012
2nd Quarter 2012 Performance AttributionWestfield All Cap Growth Equity Representative Portfolio versus Russell 3000® Growth
*From 7/1/1989 to 9/30/2006 returns are taken from the All Cap Select Equity Composite; for the period 10/1/2006 forward the All Cap Growth Equity Composite returns are used
Past performance is not indicative of future returns. Supplemental Information - A fully compliant GIPS® Presentation is located at the end of the presentation.
PerformancePreliminary
Source: FactSet
1.85%
9.43%8.18%
15.85%
11.20%10.35%
15.09%
1.17%
7.40%9.07%
6.13%
8.27%
17.55%
9.98%
2.79%
0%
10%
20%
30%
YTD 3 Years 5 Years 10 Years Since Inception(7/01/89)
Westfield All Cap Growth Equity Product* - GrossWestfield All Cap Growth Equity Product* - NetRussell 3000® Growth
58
34
21
6
12
77
00 02
4
31
1313
5
12
4
16
0
5
10
15
20
25
30
35
40
Cons. D
isc.
Cons. Stap
les
Energy
Financ
ialsHeal
th CareIn
dustr
ials
Info. T
ech.
Materia
lsTele
com
Utilitie
s
% o
f Equ
ity
Westfield All Cap Growth
Russell 3000® Growth
Sector Name
Portfolio Avg Weight
Portfolio Return
Portfolio Contribution
Benchmark Avg Weight
Benchmark Return
Benchmark Contribution
Allocation Effect
Selection Effect
Total Effect
Consumer Discretionary 11.01 3.14 0.30 14.86 -5.07 -0.79 0.04 0.86 0.90 [Cash] 1.59 0.42 0.01 -- -- -- 0.07 -- 0.07 Energy 6.82 -10.64 -0.71 9.14 -7.30 -0.97 0.28 -0.25 0.03 Utilities -- -- -- 0.09 -7.08 0.00 0.01 -- 0.01 Telecommunication Services -- -- -- 0.96 5.56 0.07 -0.07 -- -0.07 Industrials 20.36 -5.93 -1.26 12.58 -6.36 -0.82 -0.20 0.07 -0.13 Information Technology 33.90 -7.82 -2.64 29.44 -6.83 -2.02 -0.13 -0.31 -0.44 Materials 6.13 -11.57 -0.88 5.04 -4.02 -0.24 0.00 -0.53 -0.53 Consumer Staples 6.38 0.07 0.01 11.84 3.93 0.50 -0.44 -0.26 -0.70 Financials 5.96 -18.88 -1.20 4.60 -0.79 -0.03 0.05 -1.17 -1.11 Health Care 7.84 -11.16 -0.88 11.46 2.17 0.29 -0.23 -1.02 -1.25
Total 100.00 -7.25 -7.25 100.00 -4.02 -4.02 -0.62 -2.62 -3.23
Periods greater than one year are annualized
-19-
Health Care
Sector performance has struggled Style dynamic
Binary, expensive biotechs Slow growth pharma/supply
Stock specific disappointments. Some examples: Large: Celgene Mid: Hologic Small: Arthrocare
Actions to improve performance Not shying away from sector, and in fact have added exposure Maintain strict bottoms approach, focused on areas where we can add value Continue frequent internal sector meetings Meeting more companies than ever (300+ in last 12 months)
-20-
Health Care
Reasons for optimism Sector risks remains
Defensiveness in question Cost pressures Political drama Regulatory risks
Offset by opportunities Significant component of economy Source of great innovation Innovation creates growth, which creates opportunity
-21-
Consumer Discretionary
2Q2012
Past performance is not indicative of future returns. Supplemental Information - A fully compliant GIPS® Presentation is located at the end of the presentation.
Westfield Weight
Westfield Return
Bench Weight
Bench Return
Allocation Effect
Selection Effect
Total Effect
Small Cap Growth Equity Representative Portfolio 9.66 -4.41 15.46 -5.25 0.10 0.09 0.19Small/Mid Cap Growth Equity Representative Portfolio 11.99 -2.05 15.60 -8.30 0.14 0.71 0.84Mid Cap Growth Equity Representative Portfolio 17.52 -3.07 21.42 -7.13 0.14 0.73 0.87Large Cap Growth Equity Representative Portfolio 15.16 -4.88 14.81 -5.04 0.01 0.03 0.05All Cap Growth Equity Representative Portfolio 11.01 3.14 14.86 -5.07 0.04 0.86 0.90
-22-
Summary
Macro expectations near historic lows at a time when the positive impact of lower energy prices are just hitting
-23-
Housing is Recovering
Source: Wolfe Trahan & Co.
-24-
We remain focused on building exposure to housing and related areas across all strategies
Housing Recovering Can Drive Significant GDP Growth
Source: Wolfe Trahan & Co.
-25-
(S794)
Daily Data 1/02/1980 - 7/09/2012 (Log Scale)
S&P 500 Index (Solid Line) 7/09/2012 = 1352.5
NDR Fed Model Fair Value (Dashed Line) 7/09/2012 = 7379.0
S&P 500 Fair Value = One-Year Forward Estimated EPS / 10-Year Treasury Yield7379.0 = $112.90 / 1.53%
S&P 500 Gain/Annum When:
Gain/ % % Over/Undervalued: Annum of Time
Above 15 -6. 7 19. 5
5 to 15 4. 3 14. 2
-5 to 5 15. 5 19. 9
* -5 and Below 12. 4 46. 4
Source: S&P Index Alert 112 139 172 213 264 328 406 503 624 773 958
118814721824226128023473430453346611
112 139 172 213 264 328 406 503 624 773 958
118814721824226128023473430453346611
S&P 500 % Over/Under Fair Value 7/09/2012 = -81.7%
If Forward Estimated EPS were changed to: $30, then the S&P 500 would be -31.0% Undervalued $60, then the S&P 500 would be -65.5% Undervalued $90, then the S&P 500 would be -77.0% Undervalued
-80 -70 -60 -50 -40 -30 -20 -10
0 102030405060708090
-80 -70 -60 -50 -40 -30 -20 -10
0 102030405060708090
1984
1989
1994
1999
2004
2009
S&P 500 vs. NDR Federal Reserve Valuation Model
Copyright 2012 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. . www.ndr.com/vendorinfo/ . For data vendor disclaimers refer to www.ndr.com/copyright.htmlSee NDR Disclaimer at
Low Macro Expectations and Improved Housing Comes at a time of Historically Low Negative S & P Valuations
Source: Ned Davis
We believe our portfolios are substantially undervalued
-26-
Consumer Discretionary
Relative Sector Weightings
% o
f E
quity
As of June 30, 2012
Small Cap Growth Equity versus Russell 2000® GrowthSmall/Mid Cap Growth Equity versus Russell 2500™ GrowthMid Cap Growth Equity versus Russell Midcap® GrowthLarge Cap Growth Equity versus Russell 1000® GrowthAll Cap Growth Equity versus Russell 3000® Growth
Unseasonably warm winter weather pulled forward demand in a variety of categories, with early strength in outdoor home improvement products, spring apparel and regional gaming.
The rapid adoption of smart phones and tablet devices is contributing to an acceleration of e-commerce growth.
We are encouraged by the recent pick up in housing, with evidence of improved spending in a variety of home improvement categories.
Strong sales of sports nutrition products, athletic footwear and natural foods demonstrate an increased interest in healthy living. Anecdotal evidence suggests that companies are taking a more proactive and aggressive role in encouraging employees to adopt a healthier lifestyle, which could be a sustainable demand driver.
Lower cotton costs should benefit 2H12 margins for apparel and textile related businesses. Cotton costs have dropped over 50% from the peak in early 2011, which should equate to lower cost of goods for retailers, but labor cost pressures continue to limit the margin recovery opportunity.
We are focused on brands and retailers with a proven ability to sell without sustained discounting and those with merchandise driven catalysts.
12
18
10
16
12
16
25
1816 16
0
5
10
15
20
25
30
Small
Small
/Mid Mid
Large All
Westfield Russell
-27-
Energy
Relative Sector Weightings
As of June 30, 2012
Small Cap Growth Equity versus Russell 2000® GrowthSmall/Mid Cap Growth Equity versus Russell 2500™ GrowthMid Cap Growth Equity versus Russell Midcap® GrowthLarge Cap Growth Equity versus Russell 1000® GrowthAll Cap Growth Equity versus Russell 3000® Growth
% o
f E
quity
A significantly warmer than normal winter knocked out demand for natural gas, putting the gas market into an oversupply situation and driving gas prices down to near 10-year lows.
Lower natural gas prices helped increase demand from increased manufacturing and fuel switching. We now believe the gas market is in deficit and we will see an increase in pricing over the next twelve months. Assuming a more normal weather pattern, natural gas prices could increase by 30% this winter.
At the same time, the oil market had remained relatively well behaved until oil prices corrected over fears of a hard landing in China and the continued dysfunction of the European economy.
We continue to believe the U.S. has become the fastest growing oil and natural gas producing region of the world.
Geographically advantaged U.S. refiners will generate record earnings in 2012, well above street expectations. We believe these stocks can also benefit from stable-to-falling oil prices, as a lower price encourages higher demand.
Despite our robust outlook for increased utilization with improving margins and record earnings, U.S. refining stocks are trading at trough valuations and we believe represent the best opportunity in Energy.
810
89
76 55 4 4
0
5
10
15
20
25
30
Small
Small
/Mid Mid
Large All
Westfield Russell
-28-
Information Technology
Relative Sector Weightings
% o
f E
quity
As of June 30, 2012
Small Cap Growth Equity versus Russell 2000® GrowthSmall/Mid Cap Growth Equity versus Russell 2500™ GrowthMid Cap Growth Equity versus Russell Midcap® GrowthLarge Cap Growth Equity versus Russell 1000® GrowthAll Cap Growth Equity versus Russell 3000® Growth
The Technology sector underperformed the broader market during Q2. Fears of a European spending freeze and of a weakening China dominated headlines.
The demand environment has further deteriorated across most segments within Technology. Enterprise spending, once thought to been a safe haven given strong corporate balance sheets, has softened due to weakening Europe and Asia, as well as weak government and financial services spending.
We believe that service provider spending has the most opportunity to improve from here, given a weak first half of spending against a backdrop of continued growth in bandwidth needs.
Within consumer, even the smartphone market has taken a pause due to a lack of new products. Although Apple continues to gain share, we are expecting a near-term lull in industry smartphone sales as purchases are delayed in front of the iPhone 5 release.
We continue to focus on themes and companies that can grow even in a difficult macro environment, including cloud computing, the smartphone and Apple food chain, and Big Data.
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Consumer Staples
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Our work in Staples continues to be focused on evaluating four key determinants of sector earnings growth: cost input inflation, pricing actions, demand elasticity and emerging/developed markets growth dynamics.
While the biggest current concern for many Staples companies is rising input cost inflation attributable to increased commodity prices, there is recent reason for optimism: the price levels of several key inputs seem to be moderating, and pricing actions by the companies have been implemented.
The newest primary concern is demand elasticity, as the pricing actions have, in some cases, impacted demand more than forecasted.
We are primarily focused on companies that are exposed to faster growing product end-markets. We also favor companies that have multiple levers to drive bottom-line growth, such as strong pricing power, comprehensive margin expansion efforts, and/or the ability to increase market share.
Finally, leveraging our Staples holdings to companies with a greater concentration of revenue and profits in the faster growing emerging markets also remains an area of focus.
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Financials
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We continue to see excellent risk/reward opportunities in large cap banks. Despite challenging market conditions (low interest rates, flatter yield curve, muted loan growth, depressed capital markets, etc.), large cap banks remain profitable and continue to build excess capital. Diverse revenue models provide welcome stability in today’s markets.
Within regional banks, we continue to prefer banks showing best-in-class loan growth and strong deposit franchises returning excess capital.
We continue to like the property catastrophe segment of the P&C sector. Global catastrophes in 2011 resulted in over $100B in insured losses, wiping out excess capital and setting the stage for select insurers/reinsurers with strong balance sheets to capture increase pricing, which should drive higher ROEs and ultimately higher stock prices. We continue to have no exposure to life insurers who are most impacted by lower long-term interest rates.
During the second quarter, equity markets gave up most of the prior quarter’s gains. This hurt our holdings in equity focused asset managers who we continue to prefer over their fixed income focused peers. Outside of asset managers/advisory, we continue to hold market leaders with unique underlying growth stories.
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Health Care
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The overall organic growth profile within Pharma remains muted due to abysmally low R&D productivity over the last ten years.
While the sentiment toward biotech has improved dramatically, there is still considerable skepticism regarding risk-adjusted returns in the context of an unpredictable FDA and unremitting price pressure for all but the most differentiated drugs.
Regulatory and political uncertainty is likely to cap the HMO group until early next. Substantial free cash flow generation, as well as the growth opportunity in Medicare and Medicaid, will drive the sector once visibility improves.
Should the market become convinced that the insurance coverage will expand under Healthcare Reform, Hospitals could see massive upside due to both high financial and operating leverage.
The environment in medical technology remains difficult, though there have been some recent signs of improvement and there are some unique opportunities in the sector for those companies that can be part of the health care cost solution.
We favor industry players with strong competitive positions, solid intellectual property, compelling new product stories, significant margin expansion opportunity and strong and experienced management teams.
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Industrials
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We have focused our Industrial investments where feasible on U.S. domestic markets with an emphasis on energy efficiency, security and a housing/non-residential commercial construction recovery.
Our investments with even modest exposures to more global growth including oil services and global trucks & auto production have seen a deceleration in business prospects and modest EPS estimate reductions. We believe that Industrial equities with exposure to Europe & China discount a severe global recession where future Industrial EPS estimates are far too high. We see no evidence of these fears on a “bottom up” basis.
Longer-term, we view nearly all of our Industrial investments as substantially undervalued relative to current and future EPS prospects. We own companies with superb balance sheets. We believe that the majority of our Industrial investments can double in a 3-year period assuming a stabilization in the global debt crisis.
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Materials
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While we have reduced exposure within chemicals based on the weakened macro environment, we are focusing on downstream chemical companies which will benefit from a decline in commodity raw material costs.
We also continue to focus on U.S. chemical companies with significant exposure to a healing housing market.
We continue to steer clear of the base metal and steel markets, finding higher quality, better investment opportunities elsewhere in Materials and Industrials.
We continue to hold our investments in the global beverage can and U..S-based containerboard sectors.
Both the beverage can industry and the U.S. containerboard industry continue to act rationally, balancing supply with demand, which is a key component to the thesis on these stocks.
We also are encouraged by the relative stability of the high free cash flow streams of our holdings in these industries. These free cash streams should yield to increases in dividends and share buybacks.
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Small Cap Growth Equity CompositePerformance Presentation
Reported in: USD
Primary Index: Russell 2000 Growth Secondary Index: Russell 2000
The Small Cap Growth Equity Composite contains fully discretionary accounts that focus on long-term growth in equity securities of predominately small cap companies (capitalization of $300 million to $1.5 billion at initial purchase) with potential forgrowth. The minimum account size for this composite was $1 million prior to January 1, 2007. For comparison purposes, the composite is measured against the Russell 2000® Growth and the Russell 2000® indices. Benchmark returns are not covered by the reportof independent verifiers.
Westfield Capital Management Company, L.P. claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS® standards. WestfieldCapital Management Company, L.P. has been independently verified for the period from January 1, 2000 through December 31, 2010. Verification assesses whether (1) the firm has complied with all the composite constructionrequirements of the GIPS® standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS® standards. The Small Cap Growth Equitycomposite has been examined for the period from January 1, 1993 to December 31, 2010. The verification and performance examination reports are available upon request.
Westfield Capital Management Company, L.P. is a registered investment adviser. The firm maintains a complete list and description of composites, which is available upon request.
Past performance is not indicative of future results.
The U.S. Dollar is the currency used to express performance. Both gross and net returns reflect the deduction of transaction costs and the reinvestment of income. Gross returns do not reflect the deduction of investmentadvisory fees or any other expenses that may be incurred in the management of the account. Net of fee performance was calculated using actual management fees except for accounts that were charged a performance based fee;net of fee performance for these accounts was calculated using the highest management fee of 1% applied monthly. The annual composite dispersion presented is an asset-weighted standard deviation calculated for the accountsin the composite the entire year. The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. The standard deviation is not presentedfor 2002 through 2010 because the disclosure is not required for periods prior to 2011. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. BeginningJanuary 1, 2010, accounts with significant cash flows (defined as exceeding 50% of an account’s total assets) are taken out of the composite for the month during which the cash flow occurred.
The Small Cap Growth Equity Composite was created January 1, 2000. The management fee schedule is 1.00% on the first $25 million; 0.75% on the next $50 million; and 0.60% on assets in excess of $75 million. Actualinvestment advisory fees incurred by clients may vary.
Primary Index: Russell 2500 Growth Secondary Index: Russell MidCap Growth
The Small/Mid Cap Growth Equity Composite contains fully discretionary accounts that focus on long-term growth in equity securities of predominately small to mid cap companies (capitalization between $300 million and $6 billion at initial purchase)with potential for growth. The minimum account size for this composite was $1 million prior to January 1, 2007. Prior to January 1, 2006 this composite contained portfolios with bundled fees, which included trading, consulting, and custody fees. The bundled feeaccounts represented 7% of the composite’s total assets in 2005; 6% in 2004; 7% in 2003; 17% in 2002 and 27% in 2001. For comparison purposes, the composite is measured against the Russell 2500™ Growth and the Russell Midcap® Growth indices.Benchmark returns are not covered by the report of independent verifiers.
Westfield Capital Management Company, L.P. claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS® standards. WestfieldCapital Management Company, L.P. has been independently verified for the period from January 1, 2000 through December 31, 2010. Verification assesses whether (1) the firm has complied with all the composite constructionrequirements of the GIPS® standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Small/Mid Cap GrowthEquity composite has been examined for the period from January 1, 1993 to December 31, 2010. The verification and performance examination reports are available upon request.
Westfield Capital Management Company, L.P. is a registered investment adviser. The firm maintains a complete list and description of composites, which is available upon request.
Past performance is not indicative of future results.
The U.S. Dollar is the currency used to express performance. Both gross and net returns reflect the deduction of transaction costs and the reinvestment of income. Gross returns do not reflect the deduction of investmentadvisory fees or any other expenses that may be incurred in the management of the account. Net of fee performance was calculated using actual management fees except for accounts that were charged a performance based fee;net of fee performance for these accounts was calculated using the highest management fee of 1% applied monthly. The annual composite dispersion presented is an asset-weighted standard deviation calculated for the accountsin the composite the entire year. The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. The standard deviation is not presentedfor 2002 through 2010 because the disclosure is not required for periods prior to 2011. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. BeginningJanuary 1, 2010, accounts with significant cash flows (defined as exceeding 50% of an account’s total assets) are taken out of the composite for the month during which the cash flow occurred.
The Small/Mid Cap Growth Equity Composite was created January 1, 2000. The management fee schedule for this composite is 1.00% on the first $25 million; 0.75% on the next $50 million; and 0.60% on assets in excess of$75 million. Actual investment advisory fees incurred by clients may vary.
Small / Mid Cap Growth Equity CompositePerformance Presentation
Reported in: USD
Index: Russell MidCap Growth
The Mid Cap Growth Equity Composite contains fully discretionary accounts that focus on long-term growth in equity securities of predominately mid cap companies (capitalization between $1.5 billion and $12 billion at initial purchase) with potential forgrowth. For comparison purposes, the composite is measured against the Russell Midcap® Growth Index. Benchmark returns are not covered by the report of independent verifiers.
Westfield Capital Management Company, L.P. claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS® standards. WestfieldCapital Management Company, L.P. has been independently verified for the period from January 1, 2000 through December 31, 2010. Verification assesses whether (1) the firm has complied with all the composite constructionrequirements of the GIPS® standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS® standards. The Mid Cap Growth Equitycomposite has been examined for the period from January 1, 2001 to December 31, 2010. The verification and performance examination reports are available upon request.
Westfield Capital Management Company, L.P. is a registered investment adviser. The firm maintains a complete list and description of composites, which is available upon request.
Past performance is not indicative of future results.
The U.S. Dollar is the currency used to express performance. Both gross and net returns reflect the deduction of transaction costs and the reinvestment of income. Gross returns do not reflect the deduction of investmentadvisory fees or any other expenses that may be incurred in the management of the account. Net of fee performance was calculated using actual management fees except for accounts that were charged a performance based fee;net of fee performance for these accounts was calculated using the highest management fee of 0.90%, applied monthly. The annual composite dispersion presented is an asset-weighted standard deviation calculated for theaccounts in the composite the entire year. For those periods with fewer than five accounts included for the entire year, “N/M” is noted as the dispersion is not considered meaningful. The three-year annualized standarddeviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. The standard deviation is not presented for 2002 through 2010 because the disclosure is not required forperiods prior to 2011. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Beginning January 1, 2010, accounts with significant cash flows (defined asexceeding 50% of an account’s total assets) are taken out of the composite for the month during which the cash flow occurred.
The Mid Cap Growth Equity Composite was created January 1, 2000. The management fee schedule for this composite is 0.90% on the first $25 million; 0.70% on the next $50 million; 0.60% on assets in excess of $75million, however, some accounts have lower fee schedules. Actual investment advisory fees incurred by clients may vary.
Mid Cap Growth Equity CompositePerformance Presentation
Reported in: USD
Primary Index: Russell 1000 Growth Secondary Index: Russell 1000
The Large Cap Growth Equity Composite (previously known as the Growth Equity Composite) contains fully discretionary accounts that focus on long-term growth in equity securities of predominately large cap companies (capitalization of more than $6billion at initial purchase) with potential for growth. The minimum account size for this composite was $1 million prior to January 1, 2007. For comparison purposes, the composite is measured against the Russell 1000® and the Russell 1000® indices.Benchmark returns are not covered by the report of independent verifiers.
Westfield Capital Management Company, L.P. claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS® standards. WestfieldCapital Management Company, L.P. has been independently verified for the period from January 1, 2000 through December 31, 2010. Verification assesses whether (1) the firm has complied with all the composite constructionrequirements of the GIPS® standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS® standards. The Large Cap Growth Equitycomposite has been examined for the period from January 1, 1993 to December 31, 2010. The verification and performance examination reports are available upon request.
Westfield Capital Management Company, L.P. is a registered investment adviser. The firm’s list of composite descriptions is available upon request.
Past performance is not indicative of future results.
The U.S. Dollar is the currency used to express performance. Both gross and net returns reflect the deduction of transaction costs and the reinvestment of income. Gross returns do not reflect the deduction of investmentadvisory fees or any other expenses that may be incurred in the management of the account. Net of fee performance was calculated using actual management fees except for accounts that were charged a performance based fee;net of fee performance for these accounts was calculated using the highest management fee of 0.65%, applied monthly. The annual composite dispersion presented is an asset-weighted standard deviation calculated for theaccounts in the composite the entire year. The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. The standard deviation is notpresented for 2002 through 2010 because the disclosure is not required for periods prior to 2011. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.Beginning January 1, 2010, accounts with significant cash flows (defined as exceeding 50% of an account’s total assets) are taken out of the composite for the month during which the cash flow occurred.
The Large Cap Growth Equity Composite was created January 1, 2000. The management fee schedule for this composite is 0.65% on the first $100 million; 0.50% on the next $150 million; 0.40% on amounts exceeding $250million. Actual investment advisory fees incurred by clients may vary.
Large Cap Growth Equity CompositePerformance Presentation
Reported in: USD
Index: Russell 3000 Growth
The All Cap Growth Equity Composite (previously known as the All Cap Growth Institutional Composite) contains fully discretionary, diversified, institutional accounts managed in the All Cap Growth style. Accounts typically hold greater than 40 securities. The All CapGrowth style focuses on the long-term growth of capital by investing primarily in domestic equity securities with an identifiable potential for growth. The All Cap Growth style invests in companies across the capitalization spectrum. The minimum account size for this composite was $1million prior to January 1, 2007. For comparison purposes, the composite is measured against the Russell 3000® Growth Index. Benchmark returns are not covered by the report of independent verifiers.
Westfield Capital Management Company, L.P. claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS® standards. Westfield CapitalManagement Company, L.P. has been independently verified for the period from January 1, 2000 through December 31, 2010. Verification assesses whether (1) the firm has complied with all the composite construction requirements of theGIPS® standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS® standards. The All Cap Growth Equity composite has been examined for theperiod from October 1, 2006 to December 31, 2010. The verification and performance examination reports are available upon request.
Westfield Capital Management Company, L.P. is a registered investment adviser. The firm maintains a complete list and description of composites, which is available upon request.
Past performance is not indicative of future results.
The U.S. Dollar is the currency used to express performance. Both gross and net returns reflect the deduction of transaction costs and the reinvestment of income. Gross returns do not reflect the deduction of investment advisory fees or anyother expenses that may be incurred in the management of the account. Net of fee performance was calculated using actual management fees except for accounts that were charged a performance based fee; net of fee performance for theseaccounts was calculated using the highest management fee of 0.75%, applied monthly. The annual composite dispersion presented is an asset-weighted standard deviation calculated for the accounts in the composite the entire year. For thoseperiods with fewer than five accounts included for the entire year, or where the period is less than a full year, “N/A” is noted, as the dispersion measure is not required. The three-year annualized standard deviation measures the variability ofthe composite and the benchmark returns over the preceding 36-month period. The standard deviation is not presented for 2002 through 2010 because the disclosure is not required for periods prior to 2011. Policies for valuing portfolios,calculating performance, and preparing compliant presentations are available upon request. Beginning January 1, 2010, accounts with significant cash flows (defined as exceeding 50% of an account’s total assets) are taken out of the compositefor the month during which the cash flow occurred.
The All Cap Growth Equity Composite inception date is October 1, 2006. The All Cap Growth Equity Composite creation date is July 1, 2007. Performance prior to October 1, 2006 is that of the All Cap Select Equity Composite, which wasmanaged similarly and is materially representative of the All Cap Growth Equity Composite. The management fee schedule is 0.75% on the first $25 million and 0.65% per annum on the next $75 million; and 0.50% on assets in excess of $100million. Actual investment advisory fees incurred by clients may vary.
USD
All Cap Growth Equity CompositePerformance Presentation
Reported in: