BBH U.S. Large Cap Equity Monthly Update – April 2021

April 30, 2021
Portfolio Manager, Michael Keller, discusses how the U.S. Large Cap Equity portfolio companies performed over the most recent month-end.

In April 2021, BBH US Large Cap Equity Composite1 (“US Large Cap Equity” or “the Strategy”) rose by 7.43%, which compared to a gain of 5.34% for the S&P 500 Index. One of our top performers in the month was AJ Gallagher & Co. (“AJG”) and our largest detractor was KLA Corp (“KLA”).

Despite the still subdued level of economic activity in the current quarter compared to last year, AJG grew adjusted earnings 9% year-over-year in 1Q. Persistent and robust premium rate increases and steadily improving exposure units are combining to create a very favorable operating environment for the company. The Brokerage unit (76% of revenues) maintained the cost efficiencies produced in 2020, helping its 12% revenue growth translate into a 24% increase in Net Earnings Before Interest, Income Taxes, Depreciation, Amortization and the change in estimated acquisition earnout payables (EBITDAC) and a 14% increase in adjusted earnings. Policy retention remained strong and new business generation was similar to pre-pandemic levels. The company also completed five acquisitions in the quarter, representing approximately $90 million in incremental revenue, and it indicated that the acquisition pipeline remains full.

KLA shares declined in April amid a seeming pause in the multi-quarter run of very bullish investor sentiment towards the semiconductor industry. Nevertheless, KLA’s 1Q results showed a continuation of favorable business conditions in the semiconductor capital equipment sector. The global chip shortage, tight capacity utilization at semiconductor fabs, and strength in the end-market demand for the datacenter, 5G, Internet of Things, and automotive industries are all contributing to record quarterly results for KLA. Quarterly revenue grew 26.7% year-over-year to a record $1.8 billion led by high demand for KLA’s wafer inspection and patterning tools that enable leading edge semiconductor design and production. Services revenues, which provide a stable offset to periodic end-market cyclicality, grew by a solid rate of 14.9% in the quarter. Operating profit grew by 55%, setting a new record level, with a strong underlying margin of 37%. Management continues to take proactive steps to protect the company’s market share and competitive moat by investing in research and development (R&D) and manufacturing capacity to meet growing customer demand. We believe the outlook remains highly favorable for KLA.

Performance
  Total
Returns
Average Annual
Total Returns
As of 
4/30/2021
1 Mo.* 3 Mo.* YTD* 1 Yr. 3 Yr. 5 Yr. 10 Yr. Since
Inception
BBH U.S. Large Cap Equity Composite (Gross of Fees)
7.43% 15.76% 10.61% 42.81% 16.67% 14.36% 12.43% 11.20%
BBH U.S. Large Cap Equity Composite (Net of Fees)
7.34% 15.48% 10.25% 41.44% 15.53% 13.24% 11.32% 10.11%
S&P 500 Index
5.34% 12.98% 11.84% 45.98% 18.67% 17.42% 14.17% 10.43%
                 
As of  3/31/2021 1 Mo.*
3 Mo.* YTD* 1 Yr. 3 Yr. 5 Yr. 10 Yr. Since
Inception
BBH U.S. Large Cap Equity Composite (Gross of Fees) 4.63% 2.96% 2.96% 45.56% 13.77% 12.86% 12.15% 10.75%
BBH U.S. Large Cap Equity Composite (Net of Fees) 4.54%
2.71% 2.71% 44.17% 12.66% 11.75% 11.05% 9.66%
S&P 500 Index
4.38% 6.17% 6.17% 56.35% 16.78% 16.29% 13.91% 10.12%
* Returns are not annualized.
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 April 30, 2021
Common Stock 97.9%
Cash and Cash Equivalents 2.1%
Total
100.0%
Representative Account
Portfolio Characteristics
As of April 30, 2021
Composite Assets (mil)
$967.2
Number of Securities Held 32
Average P/E 32.3
Average Market Cap (bil) $255.3
Turnover (Rolling 12 Months)
29.30%
Exclude cash equivalents.
Representative Account
Sector Weighting
As of April 30, 2021
Communication Services 9.7%
Consumer Discretionary 13.6%
Consumer Staples 12.2%
Energy 0.0%
Financials 15.8%
Health Care 16.0%
Industrials 11.5%
Information Technology 11.6%
Materials 9.6%
Real Estate 0.0%
Utilities 0.0%
Total 100.0%
Reported as a percentage of portfolio securities.
Representative Account
Top 10 Companies
As of April 30, 2021
Alphabet Inc 7.9%
Berkshire Hathaway Inc 6.0%
Arthur J Gallagher & Co 4.6%
Linde PLC 4.4%
Amazon.com Inc 4.4%
Mastercard Inc 4.4%
Zoetis Inc 4.3%
Copart Inc 3.9%
Alcon Inc 3.8%
Oracle Corp 3.6%
Total 47.3%
Reported as a percentage of total portfolio.


1 On 10/1/2020, the BBH Core Select Equity Composite was renamed the BBH US Large Cap Equity Composite

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.

Contribution figures are presented gross of fees and do not include cash and cash equivalents.

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.

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.
Data presented is that of a single representative account ("Representative Account") that invests in the strategy. It is the account whose investment guidelines allow the greatest flexibility to express active management positions. It is managed with the same investment objectives and employs substantially the same investment philosophy and processes as the proposed investment strategy. It is the largest account as of the end of the most recent quarter.

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. 2021. All rights reserved.

Not FDIC Insured        No Bank Guarantee        May Lose Money

IM-09521-2021-05-17                    Exp. Date 06/30/2021

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