Exhibit I: Fixed income index returns for various indexes as of June 30, 2026, displaying duration, total return, and excess return.
2Q Highlights
|
| Performance As of June 30, 2026 | |||||||
|---|---|---|---|---|---|---|---|
| Total Return | Average Annual Total Returns | |||||
Composite/Benchmark | 3 Mo. | YTD | 1 Yr. | 3 Yr. | 5 Yr. | 10 Yr. | Since Inception |
BBH Structured Fixed Income Composite (Gross of Fees) | 1.45% | 2.00% | 5.11% | 8.23% | 4.92% | 5.07% | 4.96% |
BBH Structured Fixed Income Composite (Net of Fees) | 1.36% | 1.82% | 4.75% | 7.85% | 4.56% | 4.70% | 4.60% |
BBH Structured Fixed Income Benchmark | 0.68% | 1.11% | 3.87% | 5.38% | 2.43% | 2.41% | 2.54% |
Past performance does not guarantee future results Composite Inception Date: 01/01/2016 Upon the close of business on 12/31/2025, BBH Credit Partners, LLC, a subsidiary of BBH, became the investment adviser to the strategy. Performance prior to the close of business is of accounts managed by BBH. Returns of less than one year are not annualized. BBH Structured Fixed Income Benchmark is a combination of two indices. The Bloomberg US ABS Index was used prior to 11/1/2022; the Bloomberg U.S. ABS ex. Stranded Cost Utility Index is used subsequently. Due to recent changes in the composition of the Bloomberg US ABS Index, the new Bloomberg U.S. ABS ex. Stranded Cost Utility Index more closely reflects the effective duration of the strategy. One cannot invest directly in an index. The composition of the indexes is materially different than the strategy’s holdings. Sources: Bloomberg and BBH & Co. | |||||||
Market Environment
Fixed income indices gained during second quarter 2026, as yields were cushioned by narrowing credit spreads against the impact of rising interest rates. Year to date, index returns have been paltry as interest rates rose and credit spreads hovered near historical lows. Credit excess returns over similar duration Treasuries were generally positive across sectors during the quarter and year to date.
Credit performance seems disconnected from the headlines. Inflationary concerns persist and have dissipated any prospective rate cut beliefs. U.S. consumer sentiment remains weak due to deepening concerns over affordability. The business uncertainties stemming from artificial intelligence (AI) disruption continue to loom. All of this is occurring as the Federal Reserve (the Fed) undergoes a change in leadership under new Chairman Kevin Warsh, who created task forces to focus on the Fed’s approaches to communications, balance sheet policy, data quality and timeliness, productivity and jobs, and inflation frameworks.
The overall impact on credit market fundamentals has been limited. U.S. consumers appear challenged but resilient, with consumer debt losses and delinquency rates hovering at historically normal levels. The default rates of high-yield bonds and loans appear to have stabilized at manageable levels. Private credit default rates are declining, as are concerns over an imminent broad-based surge in default activity. All of this is also occurring in a market where strong companies can easily access debt capital.
Higher interest rates have commanded investors’ attention, with fixed income funds experiencing inflows at a rapid pace. At the same time, credit issuance hit record-setting highs across several sectors and issuers were met with strong demand and low risk spreads. Volumes of investment grade corporate bonds increased 24%, high-yield bonds increased 21%, loans rose 25%, asset-backed securities (ABS) increased 18%, and nonagency commercial mortgage-backed securities (CMBS) increased 30% year over year. Even volumes of debt tied to private credit rose strongly. New issue private credit collateralized loan obligation (CLO) issuance increased 10% and business development company (BDC) debt volumes rose 63% from last year’s pace. The theme of issuance tied to the buildout of AI infrastructure continued and intensified, with full-year forecasts for total credit issuance tied to financing AI ambitions rising 15% from the levels predicted at the start of the year.
Fundamentals indicate healthy performance of credits tied to borrowing by corporations, consumers, and commercial real estate operators. Default rates of high-yield corporate bonds and loans sit near their longer-term averages. Measures of private credit default activity fall in a range of 3% to 5%, higher than recent lows but consistent with long-term averages. Many types of consumer loans – including credit cards, autos, unsecured loans, and home improvement loans – report default and delinquency rates consistent with historical experience. Commercial real estate loan performance has steadied, with banks reporting minimal charge-offs and losses. Credit performance in single-asset single-borrower (SASB) deal structures has normalized, with delinquency rates stabilizing and losses remaining low.
Valuations
Credit valuations became less attractive during the quarter as credit spreads of every major market sector narrowed. In the structured credit markets, spreads narrowed but remain above historical lows. Spreads of nontraditional ABS remain above cyclical lows, and SASB CMBS spreads remain closer to their historic medians. Debt spreads of broadly syndicated loan (BSL) CLOs narrowed and sat near cyclical lows. Spreads of debt tied to private credit narrowed during the quarter, while middle-market CLO and BDC bond spreads declined to levels closer to cyclical lows after rising briefly last quarter amid concerns tied to software company exposures and elevated redemption requests.
There are pockets of opportunities throughout the credit markets, though selectivity is imperative. Opportunities emerged in several structured credit sectors, including ABS backed by data centers, personal consumer loans, triple net leases, fiber optic networks, SASB CMBS, and BSL CLOs. Opportunities remain in BDC debt, as spreads remain elevated as headlines continue to pressure the sector.
Performance
The portfolio outperformed its benchmark during the quarter with favorable selection and sector effects. Positive selection effects were diversified across sectors. Holdings of investment grade corporate bonds to BDCs, collateralized fund obligation ABS, fiber ABS, data center ABS, and triple net lease ABS impacted selection results favorably. Holdings of agency and SASB CMBS were also additive. Positions in recurring revenue ABS and rental fleet ABS detracted slightly from performance. Sector effects contributed to performance driven by exposures within holdings of corporate credit and CMBS.
Exhibit III: Attribution as of June 30, 2026, showing average portfolio weight and gross contribution displayed in basis points.
Transaction Summary
We continued to find durable credits1 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 just under 2 years and continued to approximate that of its benchmark. The portfolio’s yield and average spread (option-adjusted spread, or OAS) remained elevated vs. its benchmark of traditional ABS. The portfolio’s weighting to high-yield and nonrated instruments remained at 15%. The portfolio’s weight to AAA-rated structured credits increased, while weights to A- and BBB-rated credits declined. The rating composition reflects, in part, the presence of attractively valued AAA-rated CMBS and the lack of opportunities we find durable or attractively valued in A- and BBB-rated structured credits.
Exhibit V: Characteristics as June 30, 2026, including credit rating and sector allocation.
Concluding Remarks
Prolonged periods of low credit spreads and subdued volatility are not new to the fixed income markets. In these environments, we find that executing a selective, bottom-up selection process can help investors perform through the inevitable spread widening that will occur. Though no one knows when or why spreads will widen, we believe investing in durable credits with careful attention to valuations, appropriate debt structuring, transparency afforded to investors, and the caliber of management serve investors’ long-term interests well regardless of the prevailing environment.
1Obligations 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.
Definitions
Bloomberg US ABS Index is the asset backed securities component of the Bloomberg US Aggregate Bond Index. The index includes pass-through, bullet, and controlled amortization structures. The ABS Index includes only the senior class of each ABS issue and the ERISA-eligible B and C tranche. The Bloomberg U.S. ABS ex. Stranded Cost Utility Index excludes certain stranded cost utility bonds included in the Bloomberg US ABS Index.
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 Index Services Limited (“BISL”), the administrator of the indexes (collectively, “Bloomberg”) and have been licensed for use for certain 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, and inflation risk; investments may be worth more or less than the original cost when redeemed. Mortgage-backed and asset-backed securities have prepayment and extension 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.
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 prepayments 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 investment grade bonds, commonly known as junk bonds, are subject to a high level of credit and market risks.
Foreign investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.
The Structured Fixed Income Strategy Representative Account is managed with the same investment objectives and employs substantially the same investment philosophy and processes as the strategy.
The securities discussed 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.
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.
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 commitments. Issuers with credit ratings below BBB are considered to be of good credit quality, with adequate capacity to meet financial commitments. Issuers with credit ratings below BBB are considered speculative in nature and are vulnerable to the possibility of issuer failure or business interruption. The Not Rated category applies to Non-Government related securities that could be rated but have no rating from Standard and Poor’s or Moody’s. Not Rated securities may have ratings from other nationally recognized statistical recognized statistical rating organizations.
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 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. 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, 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 Structured Fixed Income Strategy is to deliver excellent returns in excess of industry benchmarks through market cycles. The Composite is comprised of all fully discretionary, fee-paying structured fixed income accounts over $10 million. Investments are focused on asset-backed securities, commercial mortgage-backed securities, collateralized loan obligations, and corporate debt securities that are primarily investment grade. Non-investment grade securities may be held. Investments are focused on U.S. dollar denominated securities, but non-U.S. dollar securities may be held. The accounts are managed to a duration +/- 2 years of the Bloomberg ABS ex-Stranded Cost Utility Index. Effective December 1, 2022, the composite definition was slightly altered to establish a band around the duration of the Bloomberg ABS ex-Stranded Cost Utility Index.
Duration is a measure of the portfolio’s return sensitivity to changes in interest rates.
Standard deviation measures the historical volatility of a returns. The higher the standard deviation, the greater the volatility. The Sharpe ratio is the average return earned in excess of the risk-free rate (the Fed Funds rate).
Traditional ABS include prime auto backed loans, credit cards and student loans (FFELP). Non-traditional ABS include ABS backed by other collateral types.
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. 2026. All rights reserved.
Not FDIC Insured No Bank Guarantee May Lose Money
IM-18893-2026-07-22 Exp. Date 10/31/2026
