Exhibit I: Fixed income index returns for various indexes as of September 30, 2026, displaying duration, total return, and excess return.
3Q Highlights
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| Performance As of September 30, 2026 | |||||||
|---|---|---|---|---|---|---|---|
| Total Returns | 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) | 0.24% | 2.38% | 4.07% | 7.91% | 5.06% | 5.11% | 5.07% |
BBH Structured Fixed Income Composite (Net of Fees) | 0.16% | 2.12% | 3.71% | 7.54% | 4.70% | 4.74% | 4.71% |
BBH Structured Fixed Income Benchmark | -0.10% | 1.01% | 2.27% | 5.05% | 2.40% | 2.38% | 2.47% |
Past performance does not guarantee future results. Composite Inception Date: 01/01/2016; Creation date: 06/15/2026. 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
The Bloomberg U.S. Aggregate Index returned -3.5% during third quarter 2026 as interest rates rose to their highest levels since 2006. It was the fourth-worst performing quarter over the past 40 years, with the first three quarters of 2022 occupying the top three slots. Every fixed-rate sector with at least one year to maturity experienced negative returns during the quarter. Loans and collateralized loan obligation (CLO) debt indexes experienced positive returns as their floating-rate features helped preserve capital during the quarter. The Bloomberg U.S. Aggregate Index’s year-to-date return turned negative, with only shorter duration segments experiencing positive year-to-date returns.
The Federal Reserve (the Fed) raised the target range for the federal funds rate by 0.25% to 3.75% - 4.00% during the quarter, citing elevated inflation. It was the Fed’s first interest rate hike since July 2023. Market participants priced in a more aggressive pace of future Fed rate increases through 2027.
While rising interest rates affected total returns of the high-grade bond markets, credit performance was generally flat to positive with one notable exception. Agency mortgage-backed securities (MBS) underperformed Treasuries by a significant margin, as the sector experienced duration extension and spread widening. We believe the quarter served as a stark reminder of the importance that a valuation discipline can play when assessing a bond’s attractiveness. We do not find agency MBS at higher spreads to be attractive yet, despite its recent underperformance. We find less than 0.1% of the 30-year MBS market meet our Valuation Framework’s1 criteria for purchase, while no cohort of the 15-year MBS market screens favorably.
Issuance has been robust year to date. High-grade corporate bond issuance is up 26% year over year, while volumes of asset-backed securities (ABS), nonagency commercial mortgage-backed securities (CMBS), and middle-market CLOs increased 8%, 10%, and 16%, respectively. High-yield credit issuance has been mixed. Loan volumes are down 9% year over year while bond issuance increased 2%. Broadly syndicated loan (BSL) CLO new issuance is down 20% with the decline in loan volumes.
The bond markets continue to be vital for financing the construction of digital infrastructure and companies’ capital expenditures tied to AI. Bank of America estimates there has been over $535 billion of issuance across corporate issuances, ABS, and CMBS. This is a remarkable increase from the beginning of the year, when estimates suggested $450 billion in full-year issuance across those markets. The proportions of year-to-date investment grade corporate bond and ABS issuance tied to AI increased to 19% and 9%, respectively, from 16% and 8%, respectively, in 2025. The corporate credit market accounted for over $500 billion of the issuance, spanning a diverse set of sectors and industries. This included $85 billion of “project finance” bonds - off-balance sheet arrangements to finance the construction of data centers where a hyperscaler will be the sole tenant and occupy a long-term lease.
Credit fundamentals have steadied at normalized levels and are improving in many segments. Consumer credit delinquency and default rates are generally lower year over year and sit at or near long-term averages. Subprime auto loan delinquencies and defaults are running above long-term averages but at manageable levels. The default rate of high-yield bonds and loans declined to 2.3% and remains below long-term averages. The high-yield market distress ratio for bonds and loans rose over the past year but sits at its long-term average. Private credit default estimates converge in a range of 3% to 4%, higher than in the recent past but at manageable levels.
Valuations
Structured credit spreads generally narrowed during the quarter. Spreads of nontraditional ABS decreased towards the lower end of their historical range, and spreads of CLO debt decreased slightly during the quarter. CMBS spreads widened slightly and sit closer to their historical medians. Private credit-related debt spreads were mixed during the quarter. Business development company (BDC) corporate bond spreads decreased slightly while middle-market CLO spreads increased slightly. Although higher than recent lows, spreads of both sectors sit near the lower ends of their historic ranges. Less than 0.1% of the agency MBS market meets our criteria for purchase.
Pockets of opportunity remain as variation exists within subsectors and issues of the structured credit markets. Several nontraditional ABS sectors continue to offer elevated spreads that sit above their historical medians. We found opportunities in bonds of data center ABS, personal consumer loan ABS, billboard ABS, subprime auto ABS, and triple net lease ABS. Fixed- and floating-rate, AAA-rated, single-asset single-borrower (SASB) CMBS of all property types screen attractively. We found select opportunities in CLOs of BSLs and middle-market loans during the quarter. Bonds of select BDCs remain attractive despite the headlines that continue to loom.
Credit market participants are demanding higher spreads to finance issuances tied to digital infrastructure and AI. Spreads of data center ABS increased 39 basis points (bps)2 and data center CMBS increased 81 bps over the past year, while the spread of the Intercontinental Exchange (ICE) Bank of America AA-BBB Miscellaneous ABS Index decreased 26 bps. At current spreads, there are opportunities emerging, though careful consideration of the bond’s durability, structure, and management are imperative. We remain selective about where we are leaning into this sector.
Performance
The strategy outperformed its benchmark during the quarter with favorable selection and sector effects. 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 SASB CMBS were also additive. Positions in agency CMBS and bonds of finance companies detracted slightly from performance. Sector effects contributed to performance driven by exposures within holdings of corporate credit and CMBS.
Exhibit III: Attribution as of September 30, 2026, showing average portfolio weight and gross contribution displayed in basis points.
Transaction Summary
We continued to find durable credits3 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 1.7 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- and AA-rated structured credits increased while weights to A- and BBB-rated credits declined. Sector weights of reserves and corporate credit declined, while holdings of CLOs and ABS increased during the quarter.
Exhibit V: Characteristics September 30, 2026, including credit rating and sector allocation.
Concluding Remarks
Higher interest rates may test economic and market resiliency. Despite that, fixed income fund flows have been strong, credit issuance has been robust, and spreads remain compressed. Fundamentals appear healthy so far, though measures of consumer sentiment remain weak amid higher rates and inflation. The growth of issuance tied to data infrastructure and AI – and its future performance – could be one of the more profound developments impacting the credit markets in many investors’ lifetimes. It Higher interest rates may test economic and market resiliency. Despite that, fixed income fund flows have been strong, credit issuance has been robust, and spreads remain compressed. Fundamentals appear healthy so far, though measures of consumer sentiment remain weak amid higher rates and inflation. The growth of issuance tied to data infrastructure and AI – and its future performance – could be one of the more profound developments impacting the credit markets in many investors’ lifetimes. It remains to be seen if all the AI-related issuance gets put towards productive use. We believe that our disciplined, bottom-up approach will help us navigate these developments and allow us to capture value for clients if disruptions emerge.
1 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.
2 One basis point is equal to 1/100th of 1%, or 0.01%.
3 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.
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 and non-rated securities are typically purchased and 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.
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-19384-2026-10-23 Exp. Date 01/31/2027
