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

July 31, 2021
Portfolio Manager, Michael Keller, discusses how the U.S. Large Cap Equity portfolio companies performed over the most recent month-end.

In July 2021, BBH US Large Cap Equity Composite (“US Large Cap Equity” or “the Strategy”) rose by 4.18%, which compared to a gain of 2.38% for the S&P 500 Index. One of our top performers in the month was Oracle and our largest detractor was Amazon.

Oracle’s fiscal year 2021 results reported in June continued to show progress against the Company’s three primary initiatives of transitioning on-premises ERP customers to cloud-hosted environments, proving the performance and cost efficiency of Autonomous Database, and gaining market acceptance for Oracle Cloud Infrastructure products. Recent strength in the share price suggests that investors have applauded greater consistency in the Company’s consolidated financial metrics and have gained confidence in management’s continued execution on its core initiatives. Oracle’s Fusion and Netsuite ERP products are each growing faster than 30% annually, which indicates broader customer adoption of cloud-based delivery. ERP systems are among the most critical and embedded applications within enterprise technology stacks, and we view the recent growth as evidence that customers are overcoming organizational inertia favoring legacy solutions, setting up a sustainable opportunity for continued replacement activity benefiting Oracle.

Amazon reported solid Q2 results in July in which consolidated revenue grew 27.2% and operating profit grew 32.8%. The quarter marked the lapping of the pandemic-driven e-commerce surge in 2020, which precipitated a deceleration of retail revenue growth rates and consolidated operating margin expansion relative to recent quarters. While investors appeared disappointed by the results and Amazon’s outlook for next quarter, we had anticipated that sales growth would normalize once economies reopened and operating margins would contract as the Company resumed its aggressive investments to build the necessary fulfillment capacity to serve ongoing secular growth in e-commerce demand. Encouragingly, management noted that despite the broader slowdown in retail spending, Prime members are more engaged with the platform today than they were pre-pandemic. Furthermore, the negative market reaction overlooked the fact that the growth rates of AWS and the advertising business accelerated in the quarter, which is a very positive development given the attractive margin profiles of these businesses and their competitively advantaged positions in growing markets. We believe Amazon’s key businesses remain supported by strong secular growth drivers and that the Company is well positioned to take share from legacy formats, technologies, and competitors.

PERFORMANCE

Total Returns

Average Annual Total Returns

As of 07/31/2021 1 Mo.* 3 Mo.* YTD* 1 Yr. 3 Yr. 5 Yr. 10 Yr. Since Inception

BBH US Large Cap Equity Composite (Gross of Fees)

4.18%

5.58%

16.78%

34.40%

16.40%

14.81%

13.40%

11.40%

BBH US Large Cap Equity Composite (Net of Fees)

4.10%

5.32%

16.12%

33.10%

15.26%

13.69%

12.29%

10.30%

S&P 500 Index

2.38%

5.50%

17.99%

36.45%

18.16%

17.35%

15.35%

10.63%

  Total Returns Average Annual Total Returns
As of 06/30/2021 1 Mo.* 3 Mo.* YTD* 1 Yr. 3 Yr. 5 Yr. 10 Yr.

Since
Inception

BBH US Large Cap Equity Composite (Gross of Fees)

0.68%

8.87%

12.09%

36.75%

16.51%

14.55%

12.66%

11.17%

BBH US Large Cap Equity Composite (Net of Fees)

0.59%

8.60%

11.55%

35.43%

15.37%

13.43%

11.55%

10.08%

S&P 500 Index

2.33%

8.55%

15.25%

40.79%

18.67%

17.65%

14.84%

10.52%

* Returns are not annualized.

Sources: BBH & Co. and S&P

Performance data quoted represents past performance. 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 July 31, 2021

Common Stocks

100.3%

Cash & Cash Equivalents

-0.3%

Total

100.0%

Representative Account
Portfolio Characteristics
As of July 31, 2021

Composite Assets (mil)

$1,022.8

Number of Securities Held

32

Average P/E

34.2

Average Market Cap (bil)

$269.9

Turnover (Trailing 12 Months)

26.79%

Exclude cash equivalents

 

Representative Account
Sector Weighting
As of July 31, 2021

Communication Services

10.0%

Consumer Discretionary

13.8%

Consumer Staples

11.7%

Energy

0.0%

Financials

15.6%

Health Care

15.8%

Industrials

11.8%

Information Technology

11.8%

Materials

9.5%

Real Estate

0.0%

Utilities

0.0%

Total

100.0%

Reported as a percentage of portfolio securities.

Representative Account
Top 10 Companies
As of July 31, 2021

Alphabet Inc

8.5%

Berkshire Hathaway Inc

5.9%

Zoetis Inc

4.9%

Linde PLC

4.6%

Amazon.com Inc

4.5%

Copart Inc

4.5%

Arthur J Gallagher & Co

4.3%

Mastercard Inc

4.2%

Oracle Corp

4.0%

Alcon Inc

3.5%

Total

48.8%

Reported as a percentage of total portfolio.

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 of the Representative Account and 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.


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IM-09919-2021-08-16 Exp. Date 09/30/2021

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