BBH U.S. Large Cap Equity - Core Select Quarterly Strategy Update - Q2 2025

June 30, 2025

Scott Hill

Portfolio Manager, Scott Hill, provides an analysis of the investment environment and most recent quarter-end results of the BBH U.S. Large Cap Equity - Core Select strategy.

Highlights

During the second quarter of 2025, most portfolio companies in the BBH Core Select Strategy (the Strategy) reported first quarter 2025 results and provided near- and longer-term guidance.

◦ Overall results were mixed, with strong growth in earnings contrasting with downward revisions to expectations. The financial results of the portfolio companies in the Strategy were strong on an absolute basis and compared favorably to the benchmark S&P 500 Index (the Index).

◦ We would characterize forward guidance by the portfolio companies in the Strategy as cautious near term and highly confident medium to longer term.
The absolute stock price-driven total returns of the Strategy have been solid, in line with expected economic profit growth and current income generation levels we model at normalized levels. On a total return basis, the Strategy increased 7.40% in the quarter and is now up 4.48% for the year. The Index increased 10.94% and 6.20% respectively and has reached near all-time highs.
U.S. policy remains the key source of volatility but after the initial shock of Liberation Day tariff announcements, the Index continued higher in the absence of meaningful downward revisions to hard data. While tariff and policy uncertainties continue to be headwinds, we initiated positions in a handful of companies whose fundamental characteristics are attractive on both an absolute and relative basis, operate in industry structures that remain intact, and where valuations were compelling.
We remain pleased with the year-to-date fundamental performance of our portfolio, continuing trends we have seen for some time. Fundamental performance driving economic value creation remains very favorable for the Strategy on an absolute basis and relative to the Index, as does relative valuation, against a backdrop of very full absolute valuation level.

Market overview

We entered calendar year 2025 with a high degree of caution. The S&P 500 had just come off its second consecutive year of approximate 25% returns while earnings and free cash flow per share growth were essentially flat over the two-year period. Valuations were full and expectations for earnings growth were high, both on an absolute basis and relative to near and longer-term history, while internal market structure was undergoing a period of dramatic change.

With the first quarter of 2025 experiencing a decline of almost 5% and the threat of widespread tariffs beginning to dampen the growth outlook, the second quarter saw the Index increase almost 11%. This was driven, in part, by momentum cohorts within the Index and the Trump administration responding to market volatility by softening its trade policy. With renewed investor confidence and a strong first quarter earnings report, most sectors reported positive returns, with the market being led by information technology (+23.7%), communication services (+18.5%), industrials (+13.0%), and consumer discretionary (+11.5%). These sectors benefited from a renewed appetite for mega-tech stocks, and robust economic data.

On the flipside, the worst-performing sectors were energy (-8.6%) and healthcare (-7.2%). After a brief rebound in the first quarter of this year, the healthcare sector underperformed in the second quarter due to rising uncertainty around the potential effects of U.S. policy and regulatory changes to growth rates, as well as pressures from the Trump administration to lower drug prices in the U.S.

Portfolio commentary

As we commented in our last update, the financial results of our portfolio companies were strong, with our recipe for economic value creation – reported returns on invested capital (+28%) plus implied free cash flow per share growth (+5%) – attractive on both an absolute and relative basis. To that end, our portfolio companies have executed well and have produced solid growth and fundamental economic performance while maintaining appropriately conservative capital structures. These achievements are evident at the aggregate portfolio level, where we have observed attractive growth in revenue, cash flow, and earnings, superior profit margins, returns on capital, and healthy balance sheets.

For the quarter, the Strategy’s largest detractor to total return was UnitedHealth Group (UNH).

UNH returned (-47.6%) for the quarter, which represented a 77-basis point (bp)¹ detraction from the Strategy’s total return. This was driven by news outlets reporting that UNH was under criminal investigation by the Department of Justice (DOJ) for Medicare fraud related to its Medicare Advantage (MA) billing practices. While UNH denies receiving notice of a criminal probe from the DOJ and stands by the integrity of its MA program, we would note that the DOJ has no obligation to disclose notice of a criminal investigation and did not comment on the report. This follows a string of company-specific disappointments and missteps in the recent past, leaving us with several outstanding questions. Given this potentially material risk that is outside of management’s control, the limited visibility, the lack of details, and the likelihood of this being an overhang over the stock for some time, we concluded that the risk-reward was no longer favorable and exited the position.

For the quarter, one of the Strategy’s largest contributors to total return was Oracle (ORCL).

ORCL returned (+57.0%) for the quarter, which represented a 159 bp contribution to the Strategy’s total return. ORCL continues to be one of the main beneficiaries of companies shifting spending toward artificial intelligence (AI) and cloud infrastructure, while at the same time deprioritizing software applications. Potential tailwinds for growth include the company’s $500 billion Stargate AI venture with SoftBank and OpenAI focused on building AI infrastructure in the U.S., as well as growing demand for their cloud infrastructure offering, or OCI (at the company’s fiscal Q4 earnings announcement in June, they reported that cloud infrastructure revenue is expected to grow 70% in fiscal year 2026).

Over any period, stock prices reflect the confluence of many factors as well as the perspectives of myriad other investors, both active and passive, that do not share our perspectives on risk, fundamental economic value creation, or how to properly measure it. Regardless of these other views, over the long term, we believe that it is a reasonable and an economically sound premise that the price of stocks should follow their growth in free cash flow per share and that attractive valuations support economic upside and mitigate risk. Consequently, that will remain our focus as we seek to deliver both strong absolute and relative after-tax returns over the long term.

While this work will continue and is a constant focus of our analytical and portfolio management activities, we expect it to slow in the near-term given the sharp recovery in market prices and still-elevated levels of policy-induced risk. While we remain focused on finding new investments that meet our investment criteria and are attractively valued, we do so in the context of a market environment we view as challenged, with risks evident on many fronts.

Portfolio activity

As mentioned earlier, we exited our position in UnitedHealth Group (UNH).

We also exited our position in PepsiCo (PEP). We have been intensely active in the consumer area with the aim to improve an already high-quality portfolio to one possessing higher expected levels of economic profit growth and better valuation support over the full range of reasonable outcomes we see for each company. Our decision to exit several of our existing consumer portfolio names should be understood in that context. They are all solid businesses. We simply believe we can do better for our clients with the changes we have made.

During the period of recent market volatility and uncertainty, we have and will continue to trim and sell portfolio companies when valuations increase to levels we believe to be in excess of the range of reasonable economic outcomes implied by current stock prices. Conversely, we may add new portfolio companies that meet our investment criteria and may add to existing portfolio company positions when valuations are at levels we believe to be attractive in light of the range of reasonable economic outcomes implied by current stock prices.

To that end, we were able to initiate positions in five high-quality companies: Walmart, Coca-Cola, and Nike.

During the quarter, we made several portfolio rebalancing trades reflective of relative valuation opportunities, risk, and fit with our investment criteria. Turnover during the quarter was ~5.5% and ~7.0% year to date, representing the opportunity with pockets of valuation support.

We trimmed positions in ADP, Costco, and Texas Instruments, based on strength in performance and to manage overall portfolio balance and weightings. We deployed these proceeds into the above-mentioned purchases, as well as added to names in which we still have a high degree of conviction, and where we felt like the share price performance provided valuation support. These included Nvidia, Apple, Thermo Fisher, Applied Materials, and Eli Lilly.

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HOLDINGS (AS OF JUNE 30, 2025)
Holding	Sector	Weight	Holding	Sector	Weight
Microsoft Corp	Information Technology	7.67%	Procter & Gamble Co	Consumer Staples	1.96%
Apple Inc	Information Technology	5.79%	Analog Devices Inc	Information Technology	1.94%
NVIDIA Corp	Information Technology	5.60%	Costco Wholesale Corp	Consumer Staples	1.93%
Alphabet Inc (Class C)	Communication Services	5.48%	Thermo Fisher Scientific Inc	Health Care	1.89%
Amazon.com Inc	Consumer Discretionary	5.07%	Blackrock Inc	Financials	1.88%
Oracle Corp	Information Technology	4.09%	Zoetis Inc	Health Care	1.81%
Waste Management Inc	Industrials	3.44%	Texas Instruments Inc	Information Technology	1.81%
Adobe Inc	Information Technology	3.01%	Abbott Laboratories	Health Care	1.73%
KLA Corp	Information Technology	3.00%	NIKE Inc (Class B)	Consumer Discretionary	1.67%
Automatic Data Processing Inc	Industrials	2.98%	Progressive Corp	Financials	1.66%
Visa Inc	Financials	2.66%	Arthur J Gallagher & Co	Financials	1.60%
Mastercard Inc	Financials	2.47%	Moody's Corp	Financials	1.48%
Applied Materials Inc	Information Technology	2.42%	Walmart Inc	Consumer Staples	1.46%
Booking Holdings Inc	Consumer Discretionary	2.31%	Eli Lilly & Co	Health Care	1.46%
Cadence Design Systems Inc	Information Technology	2.24%	Johnson & Johnson	Health Care	1.38%
McDonald's Corp	Consumer Discretionary	2.19%	Deere & Co	Industrials	0.66%
Alcon Inc	Health Care	2.09%	Ecolab Inc	Materials	0.53%
Linde PLC	Materials	2.08%	Coca-Cola Co	Consumer Staples	0.48%
Otis Worldwide Corp	Industrials	2.07%	Lockheed Martin Corp	Industrials	0.47%
Berkshire Hathaway Inc (Class B)	Financials	2.06%	Novo Nordisk A/S ADR	Health Care	0.41%
S&P Global Inc	Financials	1.97%	Cash & Cash Equivalents		1.08%

Holdings are subject to change.

Outlook

At the end of the second quarter of 2025, we held positions in 41 companies, with the ten largest holdings accounting for 46% of total assets. The Strategy was trading at ~99% of our underlying base estimate of intrinsic value, which compares to ~120% for the Index. We ended the quarter with a cash position of 1.1%.

In our view, today’s market environment warrants caution and, after making opportunistic adjustments, we remain focused on finding new investments and rebalancing existing portfolio companies in the context of a market environment we view as challenged.

Specifically, with a backdrop of decelerating economic growth, extreme policy uncertainty and geopolitical risk, and still-high market expectations relative to history, we remain focused and committed to investing in companies that meet our qualitative criteria, have the fundamental financial characteristics in place that allow for durability in times of economic and market stress, and offer valuation support.

To conclude, our portfolio companies have executed well and produced solid growth and fundamental economic performance while maintaining appropriately conservative capital structures. Given the near- and longer-term outlooks provided by the companies in the Strategy, we are optimistic that these strong trends will continue and that the differentiated financial attributes will be better recognized by other investors in the future, improving the stock price performance of the Strategy relative to the Index over time.

Thank you for your interest in the BBH Core Select Strategy. Please reach out if you have any questions.

Performance As of June 30, 2025
	Total Returns		Average Annual Total Returns
Composite/Benchmark	3 Mo.	YTD	1 Yr.	Since April 1, 2024*	3 Yr.	5 Yr.	10 Yr.	Since Inception
BBH U.S. Large Cap Equity - Core Select Composite (gross of fees)	7.40%	4.48%	8.30%	12.09%	16.78%	14.31%	11.25%	10.79%
BBH U.S. Large Cap Equity - Core Select Composite (net of fees)	7.13%	3.97%	7.24%	10.99%	15.63%	13.19%	10.15%	9.70%
S&P 500 Total Return Index	10.94%	6.20%	15.16%	15.77%	19.71%	16.64%	13.65%	10.68%
Inception date: 10/01/2005
* Represents the date a new portfolio management team was put in place. Returns of less than one year are not annualized. 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 Fund’s holdings. The index is not available for direct investment.Sources: BBH & Co. and S&P

BBH Large Cap Equity Team

Capital Partners

Scott Hill

Principal, Portfolio Manager

New York City, NY | USA

* Formerly called U.S. Large Capital Equity Strategy.

¹Basis point (bp) is a unit that is equal to 1/100th of 1% and is used to denote the change in price or yield of a financial instrument.

RISKS

Investors should be able to withstand short-term fluctuations in the equity markets and fixed income marketsin return for potentially higher returns over the long term. The value of portfolios changes every day and can beaffected by changes in interest rates, general market conditions and other political, social and economic developments.

The Strategy and may assume large positions in a small number of issuers which can increase the potential forgreater price fluctuation.

International investing involves special risks including currency risk, increased volatility, political risks, and differencesin auditing and other financial standards.

Gross of fee performance does not reflect the deduction of investment advisory fees. Net of fees performanceresults 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 and execution costs. Performancecalculated in U.S. dollars.

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.

Contribution and other performance related information are presented gross of fees. See the performance table for the effect of investment advisory fees on returns.

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.

The objective of the US Large Cap Equity-Core Select Strategy is to provide investors with long-term growth of capital and generate attractive returns over full economic cycles. The Strategy 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. There can be no assurance the Strategy will achieve its investment objectives.

Brown Brothers Harriman Investment Management (“IM”) claims compliance with the Global Investment PerformanceStandards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse orpromote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receiveadditional 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.

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 asan 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 maynot be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketingor recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, andreliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the contentdisclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respectiveowners. © Brown Brothers Harriman & Co. 2025. All rights reserved.

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IM-17042-2025-08-01 Exp. Date 10/31/2025