Legg Mason ClearBridge's Vitrano: Why Uber has turned a corner
Ride-sharing app fortunes turn for the better
"The Uber that went public was a new Uber," according to co-manager of the £1.2bn Legg Mason ClearBridge US Large Cap Growth fund Margaret Vitrano, who bought shares in the company when it first floated onto the New York Stock Exchange last year.
When the ride-hailing app's company went public in May 2019, there was a "disconnect between perception and reality" due to "a period of missteps and bad publicity in multiple markets", which made it a contrarian pick, said Vitrano.
Less than one month after the flotation - in which the stock tumbled during early trading - the taxi firm posted a $1bn (£790m) quarterly loss, leading to an 11% share price fall within its first 20 days.
But while Uber's share price continued to struggle over the next six months, having fallen in value by more than 35%, Vitrano said its share price has now recovered to near-IPO levels.
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"Since it has gone public, it has only beaten estimates and it has only improved profitability; it has exited some markets where they were losing money," she said, adding the ride-sharing business has strong direct revenues relative to costs on a per-unit basis.
She added: "The new Uber has been working on improving its reputation and showing people it is trying to do the right thing.
"I do not think it was appreciated by investors at the time of the IPO how many different opportunities there are for them to move towards profitability."
Uber comprises part of the fund's 33.5% technology weighting, with names including the likes of Amazon, Microsoft, Facebook and Visa featuring in its top ten holdings.
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"[Tech] is like any sector; when something looks expensive, it is not unlikely at all that we will trim it to reduce risk. We fundamentally believe that we do not have to own anything at any price," Vitrano explained.
"Amazon is a good example of this, because between 2015 through to August 2018, we trimmed Amazon multiple times."
While being willing to trim, Vitrano also seeks opportunities to buy back stocks, and the Seattle-based mega cap is now the largest holding in the fund at 6.8% as of 31 December 2019.
"As a growth manager, we want to invest in pure stock growth, we want to have those kinds of metrics, but we want to be sensitive to valuation.
"We want to try to buy things where we think the risk/reward is more interesting, which means we can be patient about what we invest in. We want to have growth at a reasonable price; that is the core of the portfolio."
ESG is also a key consideration in Vitrano's investment process. She runs an ESG version of the ClearBridge US Large Cap Growth fund, which has excluded three companies in the original vehicle due to animal testing, alcohol and corporate governance.
"We use 100% voting rights on all of our shares and we will engage with companies, explaining why we are voting this way or why we believe this," she said.
"We naturally gravitate towards investments where management teams are thinking about their longer-term strategy.
"Those tend to be management teams that are also thinking about diversity, succession, their carbon footprints and how they can be better corporate citizens."
The ClearBridge US Large Cap Growth fund is up 24.8% over the past 12 months, according to FE fundinfo, compared to the IA North America sector average of 21%, but has lagged its Russell 1000 Growth benchmark, which is up 31.2% over the same period.
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