In August 2021, BBH US Large Cap Equity Composite (“US Large Cap Equity” or “the Strategy”) rose by 1.77%, which compared to a gain of 3.04% for the S&P 500 Index. Our top performer in the month was Alphabet and our largest detractor was Mastercard.
Alphabet, the parent holding company of Google, reported strong 2Q21 financial results near the end of July, and gains in the Company’s share price continued into August. Revenue growth and margin improvement were especially pronounced this quarter as the year-on-year comparison period marked the nadir of COVID-19’s impact on the advertising business. However, even when compared to 2Q19, revenues have grown at an annualized rate of 26%, indicating a clear acceleration from pre-pandemic growth rates. Alphabet’s core advertising businesses continues to experience a robust recovery as it benefits from the ongoing secular shift of ad spending towards digital platforms. The Company’s strong results bolstered our positive assessment of the long-term fundamentals of the business, and we believe that its investments in Cloud, hardware, machine learning, voice, and augmented/virtual reality will benefit not only Alphabet’s core business, but also the broader ecosystem of advertisers, app developers, business partners, and consumers, thus creating incremental business opportunities over time.
Mastercard’s recent financial performance has continued to improve relative to the previous year as economies have reopened and restrictions on travel and leisure have lessened. Despite the improving financial trends, the Company’s shares have underperformed recently with the spread of the Delta variant and the threat of renewed government restrictions. We also believe investors may be focusing on recent deal activity for Buy Now Pay Later (BNPL) companies with a view that merchants and card issuers could begin to incrementally disintermediate Mastercard’s payment infrastructure by establishing their own closed loop networks. We believe such an outcome is unlikely given the ubiquity of Mastercard’s acceptance and issuance network; rather, we believe that BNPL represents an opportunity for Mastercard for several reasons, including the fact that the Company’s debit networks enable a large percentage of BNPL transactions, the BNPL concept itself enables financial inclusion by appealing to customers who prefer not to use credit cards, and because BNPL benefits Mastercard’s per transaction revenues as it splits purchases into installments.