ClearBridge Large Cap Growth ESG Strategy: Navigating Q4 2025 and Charting a Course for 2026

Well, as we close the books on 2025, it’s fair to say it’s been quite a dynamic year, wouldn’t you agree? For the ClearBridge Large Cap Growth ESG Strategy, the fourth quarter, and indeed the entire year, really underscored the resilience and thoughtful positioning of our approach. We’re pleased to report that the Strategy decidedly outpaced both the Russell 1000 Growth Index and the broader S&P 500 Index for Q4 2025, culminating in a rather strong year of relative performance overall.

So, what was driving this momentum as we rounded out the year? Frankly, it was a combination of savvy stock selection and, if I may say so, our considered sector allocations. It’s always a balance, isn't it? Let’s dive a little deeper into the specifics.

On the positive side of the ledger, technology, as it often does, truly shone for us. Think semiconductors – companies like NVIDIA and Broadcom continued their impressive runs, fueled by persistent demand and innovation. Software giants, Microsoft being a prime example, demonstrated incredible stickiness and expansion across their enterprise offerings. And, of course, the ever-critical cybersecurity space, with CrowdStrike, proved invaluable as digital threats only seem to grow. Healthcare also contributed meaningfully, particularly with names like Eli Lilly, which saw significant success in its therapeutic pipelines, alongside the steady, robust performance of UnitedHealth Group, underscoring the enduring need for quality healthcare solutions.

We also saw strong showings from select consumer discretionary holdings, notably Amazon, which continues to prove its mettle in both e-commerce and its incredibly resilient AWS cloud services. Even in the luxury sector, LVMH demonstrated a surprising durability in consumer spending. And let’s not forget Waste Management in the industrials sector – sometimes, the fundamental, indispensable services are precisely where you find that consistent growth.

Now, it wasn't all smooth sailing, mind you. A few areas did experience some headwinds. Utilities, for instance, felt the pinch. Nextera Energy, a long-standing holding, faced challenges related to rising interest rates and regulatory rate hike concerns – a reminder that even the most stable sectors aren't immune to macro shifts. In communication services, Alphabet, while a powerhouse, saw some softness as advertising spending cooled a bit. Consumer staples, too, felt some pressure; Procter & Gamble, for example, navigated consumer trade-down effects amidst inflationary pressures. And in materials, Sherwin-Williams encountered a more subdued housing market, which, understandably, impacted demand.

Our commitment to ESG principles, however, remained unwavering throughout. We believe that integrating environmental, social, and governance factors isn't just about ticking boxes; it's about identifying companies that are truly built for long-term resilience and innovation. We actively seek out businesses contributing to a circular economy, championing renewable energy solutions, driving health innovation, and fostering sustainable agriculture, among other critical themes. This isn’t just a passive screen; we engage directly. We’ve had meaningful discussions, for instance, with ExxonMobil regarding climate risk mitigation, and with Amazon concerning biodiversity protection within their vast supply chains. It’s about being an active, responsible owner, plain and simple.

Looking ahead to 2026, the crystal ball remains, well, a little cloudy in parts. Inflation continues to be a central topic, though perhaps showing signs of moderation. The Federal Reserve's path on interest rates is, frankly, still a point of considerable debate and uncertainty, and 'higher for longer' remains a strong possibility, impacting valuations, especially for growth-oriented companies. We're keeping a very close eye on economic growth – will it be a soft landing or something more challenging? Consumer resilience has been notable, but corporate caution is also palpable.

Geopolitical risks, unfortunately, persist – the ongoing situations in Ukraine and the Middle East, along with the evolving dynamics between the US and China, continue to demand our attention. Despite these macro complexities, we do anticipate a reasonable S&P 500 earnings growth in 2026, driven by underlying corporate adaptability. Our focus remains firmly on secular growth themes: digital transformation, artificial intelligence (AI), sustainable solutions, and health innovation. These are powerful, long-term trends that we believe will continue to create value regardless of the shorter-term economic cycles.

While some growth stock valuations, particularly in the AI leaders, might appear elevated, we still see plenty of compelling opportunities. Our Strategy is intentionally positioned to maintain exposure to high-quality secular growth companies – those with strong balance sheets, undeniable competitive advantages, and, crucially, reasonable valuations. We firmly believe that integrating ESG factors into this selection process not only aligns with our values but also provides an added layer of fundamental risk mitigation and long-term opportunity identification. It's about investing in the future, thoughtfully and responsibly.