BBH U.S. Large Cap Equity Monthly Update – August 2022

Portfolio Managers, Michael Keller and Nicholas Haffenreffer discuss how the U.S. Large Cap Equity portfolio companies performed over the most recent month-end.

Uncertainty about the trajectory of inflation, monetary policy, and corporate profits continued to be a source of volatility during the month of August as the benchmark S&P 500 lost -4.08%, giving up almost half of the prior month’s strong gains of 9.22%. The BBH US Large Cap Equity Composite (“US Large Cap Equity” or “the Strategy”) declined -5.98% in August. The primary sources of underperformance were security selection in Health Care and Information Technology, as well as an absence of investment in the Energy sector which gained 2.83% despite a sharp correction in underlying crude prices. At the portfolio level, security selection detracted 207 basis points1 relative to the benchmark, while allocation added 15 basis points. Auto insurer Progressive Corporation (PGR, +6.6%) was the top contributor, while vision care specialist Alcon (ALC, -15.9%) was the largest detractor.

Despite a challenging operating environment, Progressive has been among the Strategy’s best performing holdings on a year-to-date and trailing 12-month basis. The defensive nature of its essential products (primarily auto insurance) and its fundamental competitive advantages based on superior data analytics and direct distribution channels leave it well-positioned in these uncertain times. While an increase in severity and frequency of claims has depressed underwriting profits on an industry-wide basis, Progressive continues to outperform its peer group and generate attractive returns. Its balance sheet remains liquid and well-capitalized with a fixed income portfolio positioned to benefit from higher rates. We continue to believe Progressive will outgrow the industry and continue to take market share as its leadership on policy rate increases, and underwriting discipline supports a return to historic levels of profitability and growth.

Alcon shares were strong ahead of its earnings announcement in early August. Sales in both Surgical and Vision Care divisions benefitted from product innovation and a continued recovery across international markets. While management maintained its 2022 organic revenue growth guidance, foreign exchange expectations were revised to a 500 basis point headwind versus the prior guidance of 300 basis points, lowering reported revenue and earnings per share (EPS) expectations for the year. Fundamentally, our thesis on Alcon remains unchanged. Eye health is one of the largest, fastest growing, and most underserved segments in healthcare, driven by an aging population, lifestyle changes, and increased access to healthcare, particularly in emerging markets. We believe Alcon’s Surgical and Vision Care businesses are well-positioned to capitalize on these opportunities.

At month-end, the Strategy held 30 securities, 47.1% in the top 10, and 2.3% in cash. There were no initiations or eliminations during the period. We added to positions in Waste Management (WM) and Graco (GGG), and reduced positions in A.J. Gallagher (AJG), Costco (COST), and Copart (CPRT). Turnover during the trailing 12 months has been approximately 23%.

Performance

Total Returns

Average Annual Total Returns

As of  8/31/2022

1 Mo.*

3 Mo.*

YTD*

1 Yr.

3 Yr.

5 Yr.

10 Yr.

Since
Inception

BBH US Large
Cap Equity
Composite
(Gross of Fees)

-5.98%

-4.98%

-19.27%

-12.96%

7.80%

8.99%

10.41%

9.84%

BBH US Large
Cap Equity
Composite
(Net of Fees)

-6.07%

-5.22%

-19.82%

-13.83%

6.74%

7.92%

9.33%

8.76%

S&P 500 Index

-4.08%

-3.88%

-16.14%

-11.23%

12.39%

11.82%

13.08%

9.34%

As of 6/30/2022 1 Mo.* 3 Mo.* YTD* 1 Yr. 3 Yr. 5 Yr. 10 Yr. Since
Inception
BBH US Large
Cap Equity
Composite
(Gross of Fees)
-7.69% -15.06% -21.58% -10.35% 7.39% 8.58% 10.57% 9.75%
BBH US Large
Cap Equity
Composite
(Net of Fees)
-7.77% -15.28% -21.98% -11.24% 6.33% 7.51% 9.48% 8.67%
S&P 500 Index -8.25% -16.10% -19.96% -10.62% 10.60% 11.31% 12.96% 9.13%
* Returns are not annualized.
The BBH US Large Cap Equity Composite inception date is 10/01/2005.
Sources: BBH & Co. and S&P
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

Representative Account
Equity Weighting
As of August 31, 2022

Common Stocks

97.7%

Cash & Cash Equivalents

2.3%

Representative Account
Portfolio Characteristics
As of August 31, 2022

Composite Assets (mil) $840.0

Number of Securities Held

30

Average P/E

26.5

Average Market Cap (bil)

$297.3

Turnover (Rolling 12-Months)

22.51%

Exclude cash equivalents

Representative Account
Sector Weighting
As of August 31, 2022

Communication Services

6.9%

Consumer Discretionary

14.2%

Consumer Staples

7.7%

Energy

0.0%

Financials

19.2%

Health Care

13.5%

Industrials

11.5%

Information Technology

18.8%

Materials

8.2%

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 August 31, 2022

Alphabet Inc

6.7%

Berkshire Hathaway Inc

5.8%

Mastercard Inc

5.6%

Microsoft Corp

4.5%

Arthur J Gallagher & Co

4.4%

Amazon.com Inc

4.3%

Linde PLC

4.3%

Progressive Corp

3.9%

Waste Management Inc

3.8%

Costco Wholesale Corp

3.7%

Total

47.1%

Reported as a percentage of total portfolio.

1One “basis point” or “bp” is 1/100th of a percent (0.01% or 0.0001).

Holdings are subject to change. Totals may not sum due to rounding.

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.

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.

Attribution and Selection data are of the Representative Account. The allocation effect measures a manager's ability to effectively allocate assets to specific segments, sectors, or industries. The selection effect measures a manager's ability to select securities within a given segment relative to a benchmark.

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 figures are of the Representative Account and are presented gross of fees and do not include cash and cash equivalents. 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 as a generic term 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. 2022. All rights reserved. IM-11630-2022-09-13


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