U.S. Large Cap Equity

We approach equity investing with the perspective of owning fractional shares of strong, durable businesses

Strategy Objectives

We’re focused on creating enduring value. Our U.S. Large Cap Equity Strategy employs a disciplined investment approach focused on a concentrated portfolio of durable, well-managed, high-quality, and competitively advantaged businesses. We believe stock prices follow the growth in free cash flow per share over time and attractive valuations support economic upside and mitigate risk. Our investment criteria and process aims to provide long-term growth of capital and to generate attractive absolute and relative returns over full economic cycles.

A Disciplined Long-Term Equity Strategy
  • Aim to invest in companies that generate attractive net earnings and free cash flow per share growth, both on an absolute basis and relative to the broader market
  • Perform extensive due diligence and holistic analyses incorporating industry dynamics, key competitors, customers, and suppliers
  • Seek companies that structurally offer high returns on capital and impressive economic profit growth
  • Purchase shares that are trading at attractive valuations and at reasonable discounts to our base case estimate of intrinsic value, all on both an absolute basis and relative to their benchmark
Key Investment Goals
  • Our foundation is based on the premise that higher than average return on capital and free cash flow per share growth leads to strong absolute and relative economic value creation
  • Provide long-term growth of capital and generate attractive absolute and relative returns over full economic cycles
  • Reduce the likelihood of permanent loss of capital on any single investment, by investing in companies with the fundamentals to manage downside risk

Investment Principles

A thoughtful, consultative approach that prioritizes long-term value over short-term thinking

  • Concentrated yet differentiated portfolios with high active share; portfolio construction is sector, benchmark, and large constituency aware
  • The research process is focused on performing deep fundamental and actionable research on businesses and related industries
  • Primary coverage within the investment team is organized by sector, with subject matter expertise being critical
  • Our organizational structure is designed to be collaborative and flat, non-bureaucratic and non-hierarchical, with direct access and significant transparency, regardless of the direct reporting structure

  • Support a framework that contemplates and offers a range of reasonable outcomes, both on an absolute and relative basis
  • Focus on the competitive dynamics in place that allow a company to sustainably create economic value, while offering a margin of safety in terms of valuation
  • Utilize an intrinsic value methodology that incorporates perpetual grow rates in free cash flow per share
  • Apply a trading discipline that is sensitive to both criteria fit and valuation, ensuring that balance is consistently maintained

  • Seek to invest in outstanding businesses that can grow their economic profits at a premium to the broader market over time
  • Willingness to own fractional shares of strong, durable businesses, through the entirety of an economic cycle
  • Ongoing company engagement deepens our insights over time

  • Focus on cash-generative businesses that provide essential products and services, are leaders in attractive markets, have management teams that are exceptional operators and capital allocators, and can fundamentally prosper in varying economic conditions
  • Identify and analyze material ESG-related considerations1
  • We believe stock prices follow the growth in free cash flow per share over time and attractive valuations support economic upside and mitigate risk

  • Our investment criteria drives our investment process and we do not compromise on quality
  • Seek to avoid low probability, high severity risks
  • Exploit divergences between market prices and underlying intrinsic values
  • Our qualitative and quantitative approach to investing helps identify valuable businesses and stocks that we want to own in our portfolios.

Investment Process

1. Identify the Opportunity Set: Narrow the broad universe to the most qualified companies that meet our demanding set of qualitative and quantitative investment criteria.

 

2. Conduct Deep Fundamental Research: Analyze the competitive advantages, industry structure, management excellence, ESG risks/opportunities, and financial profile of targeted businesses.

 

3. Invest with Patience and Discipline: Wait for purchase opportunities at attractive discounts to our intrinsic value estimates.

Infographic notes our investment criteria to identify eligible companies based on qualified attributes including loyal customers, essential products, leadership in attractive markets, sustainable competitive advantages, strong balance sheet and cashflow, high returns on capital, disciplined capital allocation, and strong operators with integrity.

Investment Criteria

Our bottom-up investment process identifies eligible companies based on their qualitative attributes. We believe companies that meet our demanding criteria are better positioned to withstand periods of economic or financial market weakness and compound capital at attractive rates over time.

Deep Fundamental Research

Primary due diligence and deep fundamental analysis are at the core of our investment process. We emphasize high levels of engagement with our portfolio company management teams and other industry participants, such as competitors, suppliers, and customers; as well as extensive research throughout the investment life cycle. The result is deeper insight into a company’s strategy, competitive positioning, value chain, and durability, as well as its risks and opportunities, which include material environmental, social, and governance (ESG) factors.

We seek to purchase investments at discounts to our estimates of a business’s intrinsic value. Our valuations contemplate the full life cycle cash flow generation capability of each company, they are not based on short-term estimates or thematic predictions. Our goal is to establish and maintain a margin of safety for each investment and the overall portfolio.

Our estimates of intrinsic value are:

  • Based on proprietary estimates of future cash flows and economic profits
  • Focused on long-term capital requirements and marginal returns
  • Modulated for various upside and downside cases
  • Regularly reviewed and updated

Buy Discipline:

  • Initiate a position if:
    • Company is a strong fit with investment criteria
    • Due diligence is completed
    • Stock is trading at a discount to intrinsic value
  • Consider additional purchases when appropriate

Sell Discipline:

  • Sell/trim a position based on:
    • Convergence of market price with intrinsic value
    • Position size relative to risk/reward assessment
    • Emergence of a more compelling investment opportunity
    • Deterioration of fundamentals or criteria fit

We define risk as the likelihood of sustaining a permanent capital loss on any investment rather than equating it with market volatility.

The Margin of Safety concept is a key part of our risk management approach, and we believe it has two critical components that must exist in tandem:

  • Business Risk Mitigation – Focus on businesses with resilient financial and fundamental characteristics that enable them to manage through periods of economic or market stress, and well-managed risks, including environmental, social, and governance (ESG) factors.
  • Price Risk Mitigation – Purchases are made at levels we believe to be attractive against our estimate of intrinsic value, both on absolute terms and relative to the market.2 Positions are adjusted based off our assessment of market expectations, position size relative to the overall portfolio, and/or valuation.

Our collaborative research process is powered by an analyst with sector specific expertise leading the charge on an individual holding, and supported by seasoned investors on the team with expertise in other industries.



What Makes Us Different?

How it’s done matters.

  • Our deep fundamental and actionable research is not predicated on making macroeconomic projections.
  • Extensive industry and company due diligence form the foundation of our investment process.
  • We foster independent thinking and innovate every day for the long term.
  • We deliver excellence with humility and act with unwavering integrity.

How to Invest

Our U.S. Large Cap Equity Strategy can be accessed through a variety of investment vehicles. To learn more please contact a member of our institutional relationship management team.
 

Visit the BBH Funds website and the BBH Luxembourg Funds website for more information about our public fund offerings.

 

Niamh Bonus

Principal
New York City, NY | USA

Niamh Bonus is the Head of Client Portfolio Management & Strategy in the Investment Research Group (IRG) within the Capital Partners line of business. In this role, she works closely with…  Learn More

Our Team

Our Latest Insights

Performance and Portfolio Characteristics

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Composite Performance as of 06/30/2024

BBH U.S. Large Cap Equity Composite

Total Returns Average Annual Total Returns
Composite/Benchmark
3 Mo.
YTD
1 Yr.
3 Yr.
5 Yr.
10 Yr.

Since Inception

(10/01/2005)

BBH U.S. Large Cap Equity Composite
(Gross of Fees)
3.59% 12.77% 21.85% 8.64% 12.11% 10.28% 10.76%
BBH U.S. Large Cap Equity Composite
(Net of Fees)
3.33% 12.23% 20.66% 7.57% 11.01% 9.20% 9.67%
S&P 500 Total Return Index
4.28% 15.29% 24.56% 10.01% 15.05% 12.86% 10.44%

Past performance does not guarantee future results.

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.

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Portfolio Characteristics as of 09/30/2024

BBH US Large Cap Equity

Composite Assets (mil)
--
Number of Securities Held
26
Average P/E
27.6
Average Market Cap (bil)
$506.0
Turnover (Rolling 12-months)
10.14%

Portfolio holdings and characteristics are subject to change.

Portfolio Characteristics are of the Representative Account. The Representative Account is managed with the same investment objectives and employs substantially the same investment philosophy and processes as the strategy.

1 A less favorable ESG profile may not preclude a manager from investing in a company, as the consideration of ESG factors is not more influential than the consideration of other investment criteria.
2 Intrinsic value is an estimate of the present value of the cash that a business can generate over its remaining life.

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 reflects the deduction of the maximum investment advisory fees.  Returns include all dividends and interest, other income, realized and unrealized gain, are net of all brokerage commissions, execution costs, and without provision for federal or state income taxes. Performance is calculated in U.S. dollars.

A less favorable ESG profile may not preclude the Adviser from investing in a company, as the consideration of ESG factors is not more influential than the consideration of other investment criteria. Considering ESG factors as part of investment decisions may result in the Adviser forgoing otherwise attractive opportunities, which may result in lower performance when compared to advisers that do not consider ESG factors.

The BBH U.S. Large Cap Equity Strategy was previously called the BBH Core Select Strategy.

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.

This communication is for informational purposes only and does not constitute an offer or a solicitation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor’s circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice.  Any views and opinions are subject to change at any time.

Strategies are shown without regard to whether they are offered as separately managed account mandates or through pooled vehicles.  Any discussion of or reference to any given strategy herein should not be taken as a recommendation or solicitation of any pooled vehicle which has an investment objective featuring or similar to such strategy.

This material does not constitute an offer or solicitation in any jurisdiction where or to any person to whom it would be unauthorized or unlawful to do so.

Risks

There is no assurance that a portfolio will achieve its investment objective or that the strategy will work under all market conditions.  Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.

The value of the portfolio can be affected by changes in interest rates, general market conditions and other political, social and economic developments.

The portfolio 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.

Investment Advisory Products and Services:

NOT FDIC INSURED   NO BANK GUARANTEE    MAY LOSE VALUE

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1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



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