Exhibit I: Fixed income index returns for various indexes as of March 31, 2026, displaying duration, total return, and excess return.
1Q Highlights
|
| Performance As of March 31, 2026 |
|||||||
|---|---|---|---|---|---|---|---|
|
Total Return |
Average Annual Total Returns |
|||||
Composite/Benchmark |
3 Mo. |
YTD |
1 Yr. |
3 Yr. |
5 Yr. |
10 Yr. | Since Inception |
BBH Limited Duration Fixed Income Composite (gross of fees) |
0.63% |
0.63% |
5.05% |
6.55% |
4.27% |
3.42% |
4.59% |
BBH Limited Duration Fixed Income Composite (net of fees) |
0.57% |
0.57% |
4.79% |
6.28% |
4.01% |
3.18% |
4.37% |
Bloomberg 1-3 Year US Treasury Index |
0.27% |
0.27% |
3.77% |
4.04% |
1.82% |
1.77% |
3.71% |
| Past performance does not guarantee future results Upon the close of business 12/31/2025, Brown Brothers Harriman Credit Partners, LLC. (BBH Credit Partners), a subsidiary of BBH, became the investment adviser to the strategy. Performance prior to that date is of accounts managed by BBH. Returns of less than one year are not annualized Strategy Inception: 04/01/1990 The Bloomberg 1-3 Year US Treasury Index is an unmanaged index of fixed rate obligations of the U.S. Treasury with maturities ranging from 1-3 years. Sources: Bloomberg and BBH & Co. |
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Market Environment
The Bloomberg U.S. Aggregate Index had a slightly negative return during first quarter 2026 as interest rates and credit spreads rose slightly. Interest rates rose across all tenors as oil prices surged with the onset of conflict in Iran, spurring inflationary concerns and weaker prospects for Federal Reserve (Fed) rate cuts in 2026. Index credit spreads widened marginally from historically low levels. High-yield bonds and loans had slightly negative returns of -0.5% and -0.4%, respectively, and underperformed investment grade bonds.
Several events drove headlines during the quarter. Three noteworthy events impacted markets: the potential for artificial intelligence (AI) to disrupt software companies, elevated redemptions and limits in business development companies (BDCs), and the onset of the conflict in Iran and its impact on oil shipments and prices. Each development brings concerns, particularly as AI disruption and BDC redemptions impact conditions in the direct lending industry and the rise in oil prices begins to impact consumer prices.
When it comes to the market impacts of these headlines, the bark seems worse than the bite. Broad measures of private credit fundamentals indicate that defaults are rising toward historically normal levels. The U.S. consumer appears resilient, with delinquency and charge-off rates on most types of consumer loans in-check. In the credit markets, software companies’ spreads widened in the loan market and BDC bonds’ spreads widened. However, at the broader sector levels, credit spreads widened only marginally to levels far lower than they have in past episodes of market anxiety. This may be explained partially by the magnitude of bond fund inflows that occurred as investors flocked to the safety of bonds given higher nominal interest rates.
Valuations
With the general widening of credit spreads, valuations improved and opportunities arose in select pockets of the market; however, it is hardly a “fire sale” as spreads remain closer to their historical lows than their long-term averages. In the corporate credit markets, the percentage of the universes screening as potential “buy” opportunities increased to 10% from 4% for investment grade bonds, to 23% from 15% for high-yield corporate bonds, and to 55% from 48% for loans. Away from corporate credit, there remains no coupon cohort of the agency mortgage-backed securities (MBS) market that screened as a “buy” candidate according to our Valuation Framework.1 In the structured credit markets, spreads of nontraditional asset-backed securities (ABS) and collateralized loan obligation (CLO) debt widened towards historical averages, while spreads of single-asset single-borrower (SASB) commercial mortgage-backed securities (CMBS) were little changed during the quarter and near their historical averages.
Opportunities remain throughout the credit markets, though selectivity is imperative. Within the investment grade corporate bond market, over 40% of names of finance companies, life insurers, and specialty finance companies meet our criteria for purchase. There remains an abundance of opportunities in shorter-maturity bonds (under five years). In the high-yield market, there remains an abundance of “buy” opportunities in the media/telecommunications sector, as well as in three sectors impacted by higher oil prices: transportation, chemicals, and energy. Opportunities emerged in several structured credit sectors, including SASB CMBS, data center ABS, subprime auto ABS, personal consumer loan ABS, and broadly syndicated loan (BSL) CLOs.
Credit issuance was resilient amid cautious headlines and volatility, and issuers were met with generally favorable conditions as investors flocked to bond funds in the first quarter. Volumes of investment grade corporate bonds increased 12%, high-yield bonds increased 15%, nontraditional ABS increased 14%, nonagency CMBS increased 6%, and CLO increased 8% year over year. Leveraged loan volumes were flat vs. the strong pace of 2025.
Credit fundamentals indicate healthy and resilient performance of commercial, consumer, and real estate loans. Default rates of high-yield corporate bonds and loans sit near their longer-term averages. Measures of default activity in direct lending converge in a range of 3% to 5%, higher than recent lows but consistent with long-term averages. Consumer sentiment remains weak in the face of affordability concerns and recent increases in transportation costs, but delinquency and loss rates of many types of loans – including credit cards, autos, unsecured loans, and home improvement loans – have stabilized at normalized levels. Commercial real estate loan performance has steadied, with banks reporting minimal charge-offs and losses. Credit performance in SASB deal structures has normalized, with delinquency rates stabilizing and losses remaining low.
Performance
The portfolio had a positive return and outperformed its benchmark during the quarter primarily due to its defensive interest rate posture during a period of rising interest rates. Sector effects were muted as the portfolio’s emphasis within ABS contributed and exposures within high-grade corporate bonds detracted. Selection results were additive: Specifically, positions in investment grade corporate bonds of The portfolio had a positive return and outperformed its benchmark during the quarter primarily due to its defensive interest rate posture during a period of rising interest rates. Sector effects were muted as the portfolio’s emphasis within ABS contributed and exposures within high-grade corporate bonds detracted. Selection results were additive: Specifically, positions in investment grade corporate bonds of banks and personal consumer loan ABS contributed to results. Loans to electric utilities and healthcare companies had a small but negative impact on selection results during the quarter.
Exhibit III: Attribution as of March 31, 2026, showing average portfolio weight and gross contribution displayed in basis points.
Transaction Summary
We continued to find durable credits2 offering attractive value even as valuations reflect a growing belief that the U.S. economy is slowing. The table below summarizes a few notable portfolio additions.
Characteristics
At the end of the quarter, the portfolio’s duration was 0.9 years, consistent with the objective of preserving capital. The portfolio’s yield to maturity was 4.9% and remained elevated vs. short-term bond market alternatives. The portfolio continues to hold 12% in reserves that can be deployed into credit when opportunities arise. Holdings of investment grade corporate bonds increased 2% as spreads rose and more opportunities became available. The portfolio’s weight to high-yield and non-rated credit instruments remained around 3%.
Exhibit V: Characteristics as of March 31, 2026, including credit rating and sector allocation.
Concluding Remarks
A core tenet underlying our investment process is that credit valuations tend to be far more volatile than underlying fundamentals. Determining what signal is being sent by evaluating index spreads is of less interest to a bottom-up credit manager like BBH. Instead, we are evaluating opportunities that are emerging and determining whether to shake with fear or embrace these concerns as a reason to invest in situations where valuations have become disconnected from otherwise strong fundamentals.
1 Our valuation framework is a purely quantitative screen for bonds that may offer excess return potential, primarily from mean reversion in spreads. When the potential excess return is above a specific hurdle rate, we label them “Buys” (others are “Holds” or “Sells”). These ratings are category names, not recommendations, as the valuation framework includes no credit research, a vital second step.
2 Obligations such as bonds, notes, loans, leases, and other forms of indebtedness, except for cash and cash equivalents, issued by obligors other than the U.S. Government and its agencies, totaled at the level of the ultimate obligor or guarantor of the Obligation. Durable means the ability to withstand a wide variety of economic conditions.
The securities do not represent all of the securities purchased, sold, or recommended for advisory clients and you should not assume that investments in the securities were or will be profitable.
Issuers with credit ratings of AA or better are considered to be of high credit quality, with little risk of issuer failure. Issuers with credit ratings of BBB or better are considered to be of good credit quality, with adequate capacity to meet financial commit¬ments. Issuers with credit ratings below BBB are considered speculative in nature and are vulnerable to the possibility of issuer failure or business interruption.
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 portfolio or that securities sold have not been repurchased.
Opinions, forecasts, and discussions about investment strategies are as of the date of this commentary and are subject to change without notice. References to specific securities, asset classes, and financial markets are not intended to be and should not be interpreted as recommendations.
Definitions
ICE BofA 1-3 U.S. Year Treasury Index is an unmanaged index that tracks the performance of the direct sovereign debt of the U.S. Government having a maturity of at least one year and less than three years.
Duration is a measure of the portfolio’s return sensitivity to changes in interest rates.
An index is not available for direct investment
“Bloomberg®” and the Bloomberg indexes are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg In¬dex Services Limited (“BISL”), the administrator of the indexes (collectively, “Bloomberg”) and have been licensed for use for cer-tain purposes by Brown Brothers Harriman & Co (BBH). Bloomberg is not affiliated with BBH, and Bloomberg does not approve, endorse, review, or recommend the Strategy. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the Strategy.
Risks
Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, maturity, call and infla¬tion risk; investments may be worth more or less than the original cost when redeemed. Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices. Mortgage-backed securities have prepayment, extension, and interest rate risks.
Asset-Backed Securities (“ABS”) are subject to risks due to defaults by the borrowers; failure of the issuer or servicer to perform; the variability in cash flows due to amortization or acceleration features; changes in interest rates which may influence the pre¬payments of the underlying securities; misrepresentation of asset quality, value or inadequate controls over disbursements and receipts; and the ABS being structured in ways that give certain investors less credit risk protection than others. Below invest¬ment grade bonds, commonly known as junk bonds, are subject to a high level of credit and market risks.
SASB lacks the diversification of a transaction backed by multiple loans since performance is concentrated in one commercial property. SASBs may be less liquid in the secondary market than loans backed by multiple commercial properties.
The Strategy invests in derivative instruments, investments whose values depend on the performance of the underlying secu¬rity, assets, interest rate, index or currency and entail potentially higher volatility and risk of loss compared to traditional bond investments.
Foreign investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards. Prices of emerging market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets.
The Strategy may engage in certain investment activities that involve the use of leverage, which may magnify losses.
A significant investment of assets in one or more sectors, industries, securities and/or durations may increase its vulnerability to any single economic, political, or regulatory developments, which will have a greater impact on returns. Illiquid investments subject the investor to the risk that she may not be able to sell the investments when desired or at favorable prices.
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.
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 John W. Ackler at 212 493-8247 or via email at john.ackler@bbh.com.
Gross of fee performance results for this composite do not reflect the deduction of investment advisory fees. Net of fees perfor¬mance results 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. Results will vary among client accounts. Performance calculated in U.S. dollars.
The objective of our Limited Duration Fixed Income Strategy is to deliver excellent returns in excess of industry benchmarks through market cycles. The Composite includes all fully discretionary fee-paying accounts with an initial investment equal to or greater than $10 million with a duration of approximately 1.5 years. Accounts that subsequently fall below $9.25 million are excluded from the Composite.
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 recommen-dation 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. 2026. All rights reserved.
Not FDIC Insured No Bank Guarantee May Lose Money
IM-18484-2026-04-30 Exp. 07/31/2026
