| Holdings Representative Account As of December 31, 2023 |
|
|---|---|
Berkshire Hathaway Inc (Class A) |
6.4% |
Alphabet Inc (Class C) |
6.4% |
Microsoft Corp |
5.6% |
Linde PLC |
5.3% |
Mastercard Inc |
5.2% |
KLA Corp |
4.6% |
Oracle Corp |
4.0% |
Waste Management Inc |
4.0% |
Progressive Corp |
3.9% |
Zoetis Inc |
3.8% |
Arthur J Gallagher & Co |
3.8% |
Alcon Inc |
3.7% |
Booking Holdings Inc |
3.6% |
Costco Wholesale Corp |
3.5% |
Thermo Fisher Scientific Inc |
3.3% |
Amazon.com Inc |
3.2% |
S&P Global Inc |
3.0% |
Abbott Laboratories |
3.0% |
A. O. Smith Corp |
2.8% |
Adobe Inc |
2.7% |
Graco Inc |
2.7% |
NIKE Inc (Class B) |
2.7% |
Texas Instruments Inc |
2.5% |
UnitedHealth Group Inc |
2.2% |
Copart Inc |
2.0% |
Diageo PLC ADR |
1.6% |
Nestle SA ADR |
1.5% |
Cash & Cash Equivalents |
3.1% |
| Holdings are subject to change. | |
4Q Highlights
|
Market Overview
4Q 2023
The benchmark S&P 500 Index (“the Index”) rebounded from a weak third quarter to end the year with a gain of 11.69% over the final three months, lead primarily by the Real Estate, Information Technology, and Financials sectors, which were up 18.83%, 17.17%, and 14.03%, respectively. The only detractor for the period was the Energy sector, which was down -6.94% and offset all the gains made earlier in the year. This reflected the sharp downturn in oil and natural gas prices, which has been pressured by strong supplies and concerns about tepid demand.
Year-to-Date 2023
The Index ended the year with a gain of 26.29%, lead primarily by the Information Technology sector, which was up a staggering 60.93% and contributed more than one-half, or 14.13%, of the total return. The two largest, and only, detractors (which we do not own) for the year were the Utilities and Energy sectors, which returned -7.08% and -1.33%, respectively.
Unsurprisingly, the dramatic change in the technological landscape had an oversized impact on the performance of large-technology, with the Index ending the year with unprecedented levels of market concentration, with most of the year-to-date return being generated by the top 10 stocks alone. Through this all, we continue to focus on high-conviction stocks that we aim to own at attractive prices.
| Performance BBH U.S. Large Cap Equity Composite As of December 31, 2023 |
|||||||
|---|---|---|---|---|---|---|---|
Total Returns |
Average Annual Total Returns |
||||||
|
3 Mo. |
YTD |
1 Yr. |
3 Yr. |
5 Yr. |
10 Yr. |
Since Inception |
Gross of Fees |
10.67% |
24.49% |
24.49% |
8.42% |
13.45% |
9.59% |
10.34% |
Net of Fees |
10.40% |
23.28% |
23.28% |
7.35% |
12.34% |
8.51% |
9.26% |
S&P 500 |
11.69% |
26.29% |
26.29% |
10.00% |
15.69% |
12.03% |
9.88% |
Returns of less than one year are not annualized. |
|||||||
| Returns of less than one year are not annualized. The S&P 500 is an unmanaged weighted index of 500 stocks providing a broad indicator of stock price movements. The composition of the index is materially different than the Strategy’s holdings. The index is not available for direct investment. Sources: BBH & Co. and S&P |
|||||||
Portfolio Commentary
The BBH U.S. Large Cap Equity Strategy (“the Strategy”) gained 10.67% (gross of fees) and 10.40% (net of fees) in the fourth quarter, modestly underperforming the benchmark Index, which returned 11.69%.
While the portfolio underperformed, the sector allocation effect relative to the benchmark for the quarter was modest at approximately -0.20%; this was helped, in part, by maintaining no allocation to the Energy sector, which was the only detractor to benchmark performance. A large overallocation to the Financials sector, which outperformed the Index on a total return basis, also helped performance from an allocation perspective.
During the quarter, we purchased one new company and made several portfolio rebalancing trades reflective of relative valuation opportunities, risks, and a fit with our investment criteria.
The new company was UnitedHealth Group (UNH). UNH is the largest and most diversified U.S. managed healthcare organization, the largest U.S. healthcare Information Technology (IT) company, the largest U.S. physician group, and the third largest pharmacy benefit manager in the U.S. The Company combines distinct capabilities in care delivery, care management, benefit design, and technology development, as well as application and payment for care to influence outcomes and cost. The Company’s scale and diversification constitute sustainable competitive advantages in the healthcare services industry that have allowed it to deliver on its targets with a consistency we find reassuring. We believe UNH’s two greatest strengths have been its strategic vision and strategic capital deployment, which have resulted in exposure to leading growth areas of healthcare services and have contributed meaningfully to profitable, economic growth.
Both factors have uniquely positioned the Company well as the leader and pioneer in the industry with a meaningful first mover advantage to monetize the secular shift to value-based care.
We believe current valuations for UNH’s stock to be attractive on both an absolute and relative basis; given our belief that stock prices follow economic value creation over time and the currently constructive valuation of the Company’s stock, we believe UNH is positioned to generate strong absolute and relative stock price returns over the long term, while at the same time offering attractive dividend characteristics.
Outlook
We were pleased by the significant rebound in equities and overall strong absolute performance of the Strategy for the year, which was up 24.49% (gross of fees) and 23.28% (net of fees), but candidly disappointed by our underperformance relative to the Index, which returned 26.29%. Looking forward, higher equity market valuations as well as substantial risks and uncertainties underpin the current economic and investment environment. Consequently, we remain committed to our disciplined investment approach focused on a relatively concentrated portfolio of durable, well-managed, high-quality, competitively advantaged businesses as we believe this approach offers the best way to generate attractive risk-adjusted absolute and relative returns over the long-term.
| Representative Account Equity Weighting As of December 31, 2023 |
|
|---|---|
Common Stock |
96.9% |
Cash and Cash Equivalents |
3.1% |
Total |
100.0% |
| Representative Account Sector Weighting As of December 31, 2023 |
|
|---|---|
Communication Services |
6.6% |
Consumer Discretionary |
9.8% |
Consumer Staples |
6.9% |
Energy |
0.0% |
Financials |
23.1% |
Health Care |
16.5% |
Industrials |
11.7% |
Information Technology |
20.1% |
Materials |
5.4% |
Real Estate |
0.0% |
Utilities |
0.0% |
Total |
100.0% |
Reported as a percentage of portfolio securities, excluding Cash and Cash Equivalents. |
|
| Representative Account Top 10 Companies As of December 31, 2023 |
|
|---|---|
Berkshire Hathaway Inc |
6.4% |
Alphabet Inc |
6.4% |
Microsoft Corp |
5.6% |
Linde PLC |
5.3% |
Mastercard Inc |
5.2% |
KLA Corp |
4.6% |
Oracle Corp |
4.0% |
Waste Management Inc |
4.0% |
Progressive Corp |
3.9% |
Zoetis Inc |
3.8% |
Total |
49.2% |
Reported as a percentage of total portfolio. |
|
| Representative Account Portfolio Characteristics As of December 31, 2023 |
|
|---|---|
Composite Assets (mil) |
$863.9 |
Number of Securities Held |
27 |
Average P/E |
28.8 |
Average Market Cap (bil) |
$416.1 |
Turnover (Rolling 12 Months) |
6.60% |
Excludes cash equivalents. |
|
Holdings are subject to change. Totals may not sum due to rounding.
Intrinsic value is an estimate of the present value of the cash that a business can generate and distribute to shareholders over its remaining life.
Price/Earnings (P/E) ratio is a company’s current share price divided by earnings per-share.
Turnover ratio is the rate of trading in a portfolio; higher values imply more frequent trading.
Contribution figures are presented gross of fees and do not include cash and cash equivalents.
Basis points (bps) is a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.
Opinions, forecasts, and discussions about investment strategies represent the author’s views as of the date of this commentary and are subject to change without notice. References to specific securities, asset classes, and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations.
Purchase and sale information provided should not be considered as a recommendation to purchase or sell a particular security and that there is no assurance, as of the date of publication, that the securities purchased remain in a fund's portfolio or that securities sold have not been repurchased.
RISKS
Investors should be able to withstand short-term fluctuations in the equity markets in return for potentially higher returns over the long term. The value of portfolios changes every day and can be affected by changes in interest rates, general market conditions and other political, social and economic developments. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.
The strategy may assume large positions in a small number of issuers which can increase the potential for greater price fluctuation.
Foreign investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.
The Representative Account is managed with the same investment objectives and employs substantially the same investment philosophy and processes as the strategy.
Contribution to returns is of the Representative Account. The performance of the Representative Account is available upon request.
Brown Brothers Harriman Investment Management (“IM”), a division of Brown Brothers Harriman & Co (“BBH”), claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive additional information regarding IM, including a GIPS Composite Report for the strategy, contact Craig Schwalb at (212) 493-7217, or via email at craig.schwalb@bbh.com.
Gross of fee performance results for this composite do not reflect the deduction of investment advisory fees. Actual returns will be reduced by such fees. Net of fees performance results reflect the deduction of the maximum investment advisory fees. Returns include all dividends and interest, other income, realize and unrealized gain, are net of all brokerage commissions and execution costs. Results will vary amount client accounts. Performance calculated in U.S. dollars.
The Composite is fully discretionary, fee-paying accounts over $5 million that invest in a portfolio of approximately 25-35 companies with market capitalizations greater than $5 billion that are headquartered in North America, as well as in certain global firms located in other developed regions. This strategy is benchmarked to the S&P 500 Index.
Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2024. All rights reserved.
Not FDIC Insured No Bank Guarantee May Lose Money
IM-14216-2024-02-14 Exp. Date 04/30/2024
