BBH U.S. Large Cap Equity Monthly Update – May 2022

Portfolio Managers, Michael Keller and Nicholas Haffenreffer discuss how the U.S. Large Cap Equity portfolio companies performed over the most recent month-end.

The S&P 500’s modest gain of 0.18% for May obscures a more volatile period in which the benchmark briefly touched bear market territory, declining 20% on a year-to-date basis, before staging a partial recovery. The Federal Reserve faces the challenge of taming inflation without extinguishing growth following the disconnect between a robust economic backdrop and poor equity returns.

For the month, the BBH US Large Cap Equity Composite (“US Large Cap Equity” or “the Strategy”) declined -0.83%. The Strategy’s top contributor was auto insurer Progressive (PGR), gaining 11.20%, and the largest detractor was warehouse club retailer Costco (COST), declining 12.32%. Materials and Information Technology were the leading sector contributors, while Consumer Discretionary and Staples were the largest sector detractors. During the period we initiated a new position in digital media software provider Adobe (ADBE) and sold specialty coffee retailer Starbucks (SBUX). The Strategy ended the period with 30 positions and 1.27% in cash.

Insurance holdings Berkshire Hathaway (BRK.B), Arthur J. Gallagher (AJG), and Progressive have been strong portfolio performers over the past year. Progressive, being the top Strategy contributor on a one month, year-to-date and trailing 12-month basis, reflects this best-in-class insurer’s recovering underwriting profitability.

Shares of Costco and other major retailers came under pressure mid-month when Target (TGT) and Walmart (WMT) reported disappointing results exhibiting margin pressure and changing consumer behavior. While Costco’s business is not immune to these factors, their inventory management and membership driven business model position it well on a relative basis.

We initiated a position in Adobe, a software provider that plays a critical role in enabling the economy’s digital transformation, content proliferation, marketing, and e-commerce with industry-leading unit economics. Adobe’s front-office software enjoys excellent margins, strong free cash flow generation, and attractive returns on invested capital.

We exited our investment in Starbucks primarily due to an unexpected and protracted leadership transition. Additionally, an uncertain backdrop driven by labor, increasing investments, and the resurgence of strict COVID restrictions in China are further challenges the business must navigate in the near term leading to a wider range of outcomes than we had anticipated.

PERFORMANCE

Total Returns

Average Annual Total Returns

As of 5/31/2022 1 Mo.* 3 Mo.* YTD* 1 Yr. 3 Yr. 5 Yr. 10 Yr. Since
Inception

BBH US Large Cap Equity Composite (Gross of Fees)

-0.83%

-4.55%

-15.04%

-2.22%

12.66%

10.58%

11.93%

10.33%

BBH US Large Cap Equity Composite (Net of Fees)

-0.92%

-4.79%

-15.40%

-3.19%

11.55%

9.49%

10.83%

9.24%

S&P 500 Index

0.18%

-5.16%

-12.76%

-0.30%

16.44%

13.38%

14.40%

9.75%

  Total Returns Average Annual Total Returns
As of 3/31/2022 1 Mo.* 3 Mo.* YTD* 1 Yr. 3 Yr. 5 Yr. 10 Yr.

Since
Inception

BBH US Large Cap Equity Composite (Gross of Fees)

3.72%

-7.67%

-7.67%

14.90%

16.03%

13.45%

12.34%

11.00%

BBH US Large Cap Equity Composite (Net of Fees)

3.64%

-7.91%

-7.91%

13.78%

14.89%

12.33%

11.24%

9.91%

S&P 500 Index

3.71%

-4.60%

-4.60%

15.65%

18.92%

15.99%

14.64

10.45%

* 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 May 31, 2022

Common Stocks

98.7%

Cash & Cash Equivalents

1.3%

Total

100.0%

Representative Account
Portfolio Characteristics
As of May 31, 2022

Composite Assets (mil) $879.3

Number of Securities Held

30

Average P/E

26.3

Average Market Cap (bil)

$287.9

Turnover (Rolling 12-Months)

19.86%

Exclude cash equivalents

Representative Account
Sector Weighting
As of May 31, 2022

Communication Services

6.7%

Consumer Discretionary

13.5%

Consumer Staples

7.3%

Energy

0.0%

Financials

20.0%

Health Care

13.5%

Industrials

10.7%

Information Technology

17.7%

Materials

10.7%

Real Estate

0.0%

Utilities

0.0%

Total

100.0%

Reported as a percentage of portfolio securities, excluding Cash and Cash Equivalents.

Representative Account
Top 10 Companies
As of May 31, 2022

Alphabet Inc

6.6%

Berkshire Hathaway Inc

6.3%

Mastercard Inc

5.9%

Arthur J Gallagher & Co

4.8%

Linde PLC

4.6%

Amazon.com Inc

3.9%

Microsoft Corp

3.9%

Progressive Corp

3.9%

Alcon Inc

3.8%

Zoetis Inc

3.8%

Total

47.6%

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.

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 is 'non-diversified' and 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.

The Representative account is managed with the same investment objectives and employs substantially the same investment philosophy and processes as the strategy. Contribution figures are of the Representative Account and are presented gross of fees and do not include cash and cash equivalents. Performance of the Representative account is available upon request.

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. 2022. All rights reserved.

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IM-11243-2022-06-15         Exp. Date 07/31/2022

 

 

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