U.S. Large Cap Equity

Long-term owner of high-quality businesses with attractive prospects over extended periods

Strategy Objectives

Our flagship U.S. Large Cap Equity Strategy has employed a disciplined investment approach focused on a concentrated portfolio of durable, well-managed, high-quality, competitively-advantaged businesses that we aim to own at attractive prices.

Our success will be defined by generating strong absolute returns and outperforming in down markets, which together we believe position us to deliver excellent performance relative to large cap indexes over full economic cycles.

 
Disciplined, long-term equity strategy
  • Aim to compound returns as portfolios generate solid, secular earnings growth.
  • Perform extensive due diligence and holistic analyses incorporating industry dynamics, key competitors, customers and suppliers.
  • Seek conservative balance sheets, strong free cash flow, and attractive returns on invested capital.
  • Purchase shares at reasonable discounts to our estimates of intrinsic valuesClose
    Intrinsic Value

    BBH's estimate of the present value of the cash that a business can generate and distribute to shareholders over its remaining life.

    See More Definitions
    .

 

 

Key Investment goals
  • Achieve strong absolute returns over full economic cycles.
  • Target holding periods of 3-5 years.
  • Reduce likelihood of permanent loss of capital on any single investment
  • Expect to outperform in weak markets.
  • Maintain an internal culture of investment excellence marked by mutual respect, rigorous debate, intellectual curiosity and collegiality.

Investment Principles

We seek to preserve and grow capital over full economic cycles by consistent application of our investment principles: 

  • Concentrated holdings; portfolio construction is sector and benchmark agnostic
  • Primary due diligence incorporating deep fundamental analysis
  • Investment team organized by sector; subject matter expertise is critical

  • Purchase businesses at a discount to their intrinsic valuesClose
    Intrinsic Value

    BBH's estimate of the present value of the cash that a business can generate and distribute to shareholders over its remaining life.

    See More Definitions

  • Use a valuation approach based on long-term forecasts
  • Apply a trim/sell discipline that is valuation sensitive

  • Seek to invest in outstanding businesses that can grow their intrinsic value materially over time
  • Willing to own companies for many years, through all parts of an economic cycle
  • Ongoing company engagement deepens our insights over time
     

  • Focus on cash-generative businesses that provide essential products and services, and can prosper in varying economic conditions
  • Identify and analyze material ESG-related considerations
  • Demand a dual-faceted margin of safety that seeks to mitigate both business risks and price risks
     

  • Adhere to strict investment criteria
  • Seek to avoid low probability, high severity risks
  • Exploit divergences between market prices and underlying intrinsic values
     

We never compromise on business quality – it is foundational to our process.



Michael Keller Partner and Portfolio Manager

Investment Process

1. Identify the Opportunity Set: Narrow the broad universe to the most qualified companies that meet our demanding set of qualitative and quantitative investment criteria.

 

2. Conduct Deep Fundamental Research: Analyze the competitive advantages, industry structure, management excellence, ESG risks/opportunities, and financial profile of targeted businesses.

 

3. Invest with Patience and Discipline: Wait for purchase opportunities at attractive discounts to our intrinsic value estimates.

Infographic notes our investment criteria to identify eligible companies based on qualified attributes including loyal customers, essential products, leadership in attractive markets, sustainable competitive advantages, strong balance sheet and cashflow, high returns on capital, disciplined capital allocation, and strong operators with integrity.

Investment Criteria

In our bottom-up investment process, the first priority is to identify eligible companies based on their qualitative attributes. We believe companies that meet our demanding investment criteria are better positioned to withstand periods of economic or financial market weakness and compound capital at attractive rates over time.

Deep Fundamental Research
Primary due diligence and deep fundamental analysis are at the core of our investment process. We emphasize high levels of engagement with our portfolio company management teams and other industry participants such as competitors, suppliers, and customers; as well as extensive research throughout the investment lifecycle. The result is deeper insight into a company’s strategy, competitive positioning, value chain, and durability, as well as its risks and opportunities, which include material ESG factors.
 

We seek to purchase investments at discounts to our estimates of a business’ intrinsic value. Our valuations contemplate the full-lifecycle cash flow generation capability of each company, and thus they are not based-on short-term estimates or thematic predictions. Our goal is to establish and maintain a margin of safety for each investment and the overall portfolio.

Our estimates of intrinsic value are:

  • Based on proprietary estimates of future cash flows and economic profits
  • Focused on long-term capital requirements and marginal returns
  • Modulated for various upside and downside cases
  • Regularly reviewed and updated
     

Buy Discipline:

  • Initiate a position if:
    • Company is a strong fit with investment criteria
    • Due diligence is completed
    • Stock is trading at a discount to intrinsic value
  • Invest with a 3-5 year horizon
  • Consider additional purchases when appropriate
     

Sell Discipline:

  • Sell/Trim a position based on
    • Convergence of market price with intrinsic value
    • Position size relative to risk/reward assessment
    • Emergence of a more compelling investment opportunity
    • Deterioration of fundamentals or criteria fit
       

We define risk as the likelihood of sustaining a permanent capital loss on any investment rather than equating it with market volatility.

The Margin of Safety concept is a key part of our risk management approach, and we believe it has two critical components that must exist in tandem:

  • Business Risk Mitigation – Focus on businesses with resilient characteristics and well-managed risks, including ESG factors.
  • Price Risk Mitigation – Purchases are made at discounts to our estimates of intrinsic value and positions are re-sized or sold as these discounts diminish.
     

As focused industry analysts, we can spend our time researching a limited number of companies with great depth.



Hayley Xuereb MD and Equity Analyst

What Makes Us Different?

  • Our bottom-up investment process is not predicated on making macroeconomic projections.
  • Extensive industry and company due diligence form the foundation of our investment process.
  • We foster independent thinking among our team of analysts and portfolio managers to promote ideas and perspectives.
  • We promote a culture of humility, collaboration, constant learning, and peer review.

How to Invest

Our U.S. Large Cap Equity Strategy can be accessed through a variety of investment vehicles. To learn more please contact a member of our institutional relationship management team.
 

Visit the BBH Funds website and the BBH Luxembourg Funds website for more information about our public fund offerings.

 

Niamh Bonus

Senior Vice President
New York City, NY | USA

Niamh Bonus is the Equity Investment Specialist at BBH and a Senior Institutional Relationship Manager. In this role, Niamh is responsible for overseeing many of the firm’s institutional equity and…  Learn More

Our Team

Our Latest Insights

Performance and Portfolio Characteristics

  Composite Performance as of 3/31/2021
U.S. Large Cap Equity

Total Returns

Average Annual Total Returns
Composite/
Benchmark
3 Mo.
  YTD  
1 Yr.
3 Yr.
5 Yr.
10 Yr.
Since Inception
(10/01/2005)
U.S. Large Cap Equity Composite
(Gross of Fees)
2.96%
2.96% 45.56% 13.77%
12.86% 12.15% 10.75%
U.S. Large Cap Equity Composite
(Net of Fees)
2.71% 2.71% 44.17% 12.66% 11.75% 11.05% 9.66%
S&P 500
6.17% 6.17% 56.35% 16.78% 16.29% 13.91% 10.12%

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.

Portfolio Characteristics as of 3/31/2021
U.S. Large Cap Equity
Composite Assets (mil)
$920.10
Number of Securities Held
32
Average P/E
30.9
Average Market Cap (bil)
$226.20
Turnover (Rolling 12-months)
30.92%

Portfolio holdings and characteristics are subject to change. 

Portfolio Characteristics are of the Representative Account. The Representative Account 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 strategy.

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 reflects 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, execution costs, and without provision for federal or state income taxes. Performance is calculated in U.S. dollars. 

The BBH U.S. Large Cap Equity Strategy was previously called the BBH Core Select Strategy.

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.

This communication is for informational purposes only and does not constitute an offer or a solicitation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor’s circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice.  Any views and opinions are subject to change at any time.

Strategies are shown without regard to whether they are offered as separately managed account mandates or through pooled vehicles.  Any discussion of or reference to any given strategy herein should not be taken as a recommendation or solicitation of any pooled vehicle which has an investment objective featuring or similar to such strategy.

This material does not constitute an offer or solicitation in any jurisdiction where or to any person to whom it would be unauthorized or unlawful to do so.

Risk Considerations

The portfolio may assume large positions in a small number of issuers which can increase the potential for greater price fluctuation. 

There is no assurance that a portfolio will achieve its investment objective or that the strategy will work under all market conditions.  Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.

The value of the portfolio can be affected by changes in interest rates, general market conditions and other political, social and economic developments.

Foreign investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.

NOT FDIC INSURED ● NO BANK GUARANTEE ● MAY LOSE VALUE

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