Brown Advisory Ethical Selection USD Q1 2020 commentary

SaxoSelect Commentaries

Saxo Markets

Instruments traded
Stocks
Asset classesUS stocks
Investment styleFundamental analysis focused on ethical, social and governance (ESG)
Quarterly return-18.6% (net of fees)
Annualised volatility (since inception)
27%

Market overview

The world is facing a global health crisis with the outbreak of COVID-19 and the ensuing pandemic. The global impact and response have been significant and from an economic perspective, the global economy is now likely going into recession. Equity markets around the globe fell sharply in late February and through the end of the quarter as they began to factor in the implications of the pandemic. As a result, there has been a strong increase in the level of volatility, both in the market overall, but also across and between different sectors of the economy.

Looking at the US markets specifically, every sector of the market was down, but there was wide dispersion of returns. The financials, energy, travel, retail and manufacturing related sectors have been hit the hardest. The health care, consumer staples and information technology sectors have fared better.

With the decline in equity markets, the Ethical Selection strategy was also down close to 19%, although it has performed slightly better than its benchmark Russell 3000® Index, which was down 21%. Since inception, the strategy has returned close to 9% compared to the benchmark return of almost 3%. As in past periods, the businesses in which Brown Advisory has chosen to invest have, in aggregate, declined less than the market.  The investment approach focuses on business model strength and durability, strong profit potential and performance, sensible balance sheets and high quality company management.  Those types of investments tend to do better than lower quality in periods of market volatility, so to some degree our performance was very much in line with expectations.

Portfolio performance

Jan
-0.98%
Feb
-6.97%
Mar-11.6%
Inception (01.03.2019)-3.04%

(Performance is net of all fees)

The largest single positive contributor to performance relative to the market over the last three months was the absence of energy investments in the portfolio. Stock selection also contributed positively across the portfolio. Brown Advisory saw its investments outperform their market benchmark in five of the eight sectors within which they have positions. Looking at  individual investments, there was pressure in the areas most exposed to lower consumer spending and travel.  

Top three contributors for Q1

  • Amazon is seeing significant increases in commerce through both their online and cloud platforms as a result of social distancing measures and the resulting increase in work being done remotely.  

  • Jack Henry has outperformed the market given their highly recurring revenue base (core bank processing clients) which is less susceptible to downturns in the market, especially given their recent switch away from upfront license-based revenue to more rateably recognised cloud-based revenue. 
  • Bio-Rad Laboratories outperformed as the company’s portfolio is likely to be less disrupted from Covid-19 due to the company’s higher exposure to Diagnostics ( approx.. 60% of revenues) compared with peers. Further, Sartorius, a company with a strong position in equipment enabling biologics manufacturing and owned 35% by BIO, has been among the least impacted companies from Covid-19 as well. 
 

Bottom three contributors for Q1

  • Bright Horizons, which owns and manages day care centres, has been particularly hit by stay-at-home orders across most of the United States, and the resulting shutdown of many of their operations. 

  • VF saw pressure in the quarter, hit hard by reduced consumer spending and lower foot traffic through malls as a result of stay-at-home orders during the coronavirus outbreak. 

  • Bank of America has been negatively impacted by lower interest rates which limit their ability to profit from their net loan books. 
 

Changes to the portfolio 

There were no new investments in the portfolio during the first quarter. 

Outlook

In conclusion, in a very challenging market, the portfolio performed as expected for the quarter, with outperformance against the benchmark driven largely by stock selection and limited impact from relative factor or sector exposures. Brown Advisory is patiently watching the markets and the factors impacting recent volatility, looking for opportunities to improve the portfolio and drive strong returns.  By focusing on its process, and staying disciplined with portfolio allocation, Brown Advisory has confidence in its ability to continue delivering outperformance for investors.

Disclaimer

This material is provided for marketing and/or information purposes only. Fee charges mentioned herein are subject to change – you may find the latest updated pricing information on the description page for the respective portfolios. None of the information contained herein constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy. Saxo Capital Markets does not take into account your personal investment objectives, specific investment goals, specific needs or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. The information and commentaries are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Saxo Capital Markets. Any expression of opinion (which may be subject to change without notice) is personal to the author and the author makes no guarantee of any sort regarding accuracy or completeness of any information or analysis supplied. Although every endeavour has been made to ensure that our trading platforms are secure and reliable, please note that as with all facilities and systems, our trading platforms may be vulnerable to temporary disruption or failure. If you undertake transactions on an electronic trading system, you will be exposed to risks associated with systemic failure, i.e. failure of hardware and software.  

See the full Managed Portfolio Disclaimer for more information. Please also consider our Risk Warning and General Business Terms before trading with us.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.