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Brown Advisory Ethical Selection Q1 2022 commentary

SaxoSelect Commentaries
Instruments tradedStocks
Asset classesUS Stocks
Investment style Fundamental analysis focussed on ethical, social and governance (ESG)
Quarterly return-9.71% (net of fees)
2021 return28.81% (net of fees)
Annualised volatility (since inception)22%

Market overview 

The first quarter of 2022 has been filled with numerous macro events. The world finally seems to be coming out of the trenches of COVID, the US economy is strong, the consumer balance sheet remains incredibly healthy, and demand is generally resilient despite well-documented supply chain issues. At the same time, geopolitical instability in Ukraine and Russia and related sanctions are slowing the global economy and are certainly adding fuel to the fire around rising inflation—which appears to be less transitory than originally thought. As all of this goes on, the US Federal Reserve is raising interest rates and shifting from quantitative easing to quantitative tightening; this should cause ripple effects in nearly every securities market. Considering all of this together, it is certainly an unprecedented market environment. 

Turning to the portfolio’s quarterly results, the lack of meaningful energy exposure—a sector that has had minimal exposure historically given the heightened ESG risks and limited sustainable drivers among hydrocarbon production—was one of the largest detractors to performance relative to the benchmark. Materials and Healthcare were also underperformers due to stock-specific weakness in a few names. On a positive note, the portfolio’s performance within communication services was strong; in particular, the avoidance of Meta Platforms was additive to performance in the quarter.

Despite the underperformance in this challenging environment, Brown Advisory Ethical Selection investment team continues to believe in their process, which has driven outperformance over the long term by using rigorous bottom-up security analysis, ESG alignment of investments and thoughtful portfolio construction. This process should lead to meaningful outperformance in the long run.

Portfolio performance (net of fees)

Since inception (March 2019) 67.37%

Best-performing positions Q1 2022 (note performance shown for the quarter reflects the performance of the security during the part of the quarter it was owned by Brown Advisory, not necessarily the performance of the security itself for the full quarter)

  • WEX outperformed in the quarter following a strong 2022 guide in addition to rising fuel prices, which benefits their Fleet segment. The company hosted an investor day during the quarter where it discussed several business opportunities in electric vehicle charging and employee benefits (healthcare savings accounts)—important sustainable drivers for Wex.

  • Assurant benefitted from its operating performance and also a well-received investor day that demonstrated the attractiveness of the company's continued transformation to a capital-light business model. During the investor day, the company highlighted its unique trade-in and upgrade business, which helps to extend the life of consumer electronics, supporting customers’ sustainability efforts while also enabling affordable access to mobile devices. Building on this business, Assurant is also accelerating efforts to create a first-mover advantage to support electric vehicles. 

  • Jack Henry outperformed in the quarter given strength across various business segments, particularly within their core Banking segment as banks resume their technology expenditure and payments. 

  • United Rentals reported quarterly results ahead of consensus estimates. The company provided guidance for 2022 based on continued favourable industry trends, such as strong equipment rental demand from a broad array of end markets (including electric grid and power infrastructure, rail services, broadband, public transit and water) and higher prices for used equipment sales. The company also maintained a strong safety record despite integrating multiple acquisitions and growing headcount by 12 percent during the year.  

  • Zurn Water Solutions reported a strong quarter relative to estimates in addition to strong guidance. The company also announced the acquisition of Elkay during the quarter, which can be seen as a favourable combination for shareholders.  

Worst-performing positions Q1 2022 (note performance shown for the quarter reflects the performance of the security during the part of the quarter it was owned by Brown Advisory, not necessarily the performance of the security itself for the full quarter)

  • Sherwin Williams underperformed given raw materials–related issues: massive shortages hurt ability to generate topline, while accelerated input cost inflation hurts margins.

  • Marvell underperformed during the quarter given general weakness in the sector coupled with continued supply constraints. Despite this, the company continues to report very strong results, and is committed to achieving net-zero emissions—they are setting a science-based target.

  • KKR underperformed during the quarter given general weakness in capital markets. We remain confident in the company’s ability to fundraise and harvest realisations in the coming years. From an ESG perspective, KKR continues to be a leader in promoting employee equity ownership at several of its portfolio companies—a rare practice that allows all employees to benefit in the company’s success.   

  • Zoetis underperformed during the quarter due to a heightened competitive narrative that we believe is overblown coupled with general weakness in the sector.

  • Charles River underperformed in the quarter on the back of macro concerns related to wage inflation, elevated turnover and a tough biotech funding environment. 

Changes to the portfolio throughout the quarter

During the quarter, Brown Advisory Ethical Selection investment team took advantage of market weakness to add Zurn Water Solutions, Eastern Bankshares, HB Fuller and Best Buy to the portfolio. At the same time, the team eliminated Fortive, Teleflex, and Choice Hotels to make room for the additions, with higher conviction in the companies’ long-term business strategies.  


Saxo Markets provides personal portfolio management via its SaxoSelect service. Before entering any managed portfolio, we must first take into account your investment objectives, goals and financial situation. 

This material should be considered as a marketing communication under the Financial Conduct Authority’s rules. Saxo Capital Markets UK Limited (SCML) undertakes reasonable efforts to ensure that any information published in this communication is reliable. SCML makes no representation or warranty, and assumes no liability, for the accuracy or completeness of any information contained in this communication. 

Investing in financial products always involves risk. As a general rule, you should only invest in financial products if you understand the risks associated with them. Investing in a portfolio with currency that differs from the base currency of your account carries the risk of exposure to changes in the rate of exchange between them. See the full Managed Portfolio Disclaimer for more information. Past performance is not a guide to future performance.

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