Brown Advisory Ethical Selection Q2 2019 commentary

Instruments traded
Asset classesUS stocks
Investment styleFundamental analysis focussed on environmental, social and governance (ESG)
Quarterly return+5.6% (net of fees)
Annualised volatility (since inception)21%

Market overview

Equity markets continued to expand in Q2 2019, although not at the double-digit pace we saw in the first quarter. While positive overall, a noticeable aspect of the second quarter was increased volatility. The market’s mood fluctuated up and down on US-China trade negotiations, slowing global production and sentiment indicators, antitrust concerns for large tech companies and changing expectations on US Federal Reserve behaviour.  


Portfolio performance

Inception (01.03.2019)

(Performance is net of all fees) 

The Brown Advisory Ethical Selection portfolio performed well in the quarter, up 5.6% which compared favorably to the benchmark Russell 3000’s return of 4.1%.  

Outperformance against its benchmark was driven largely by stock selection, principally in the Consumer Discretionary and Health Care sectors. There was also a limited, positive impact from relative factor or sector exposures.  


Best performing positions

  • Bright Horizons, a child care and educational services provider, reported strong quarterly results and increased annual guidance on better-than-expected growth across all segments. 

  • Zoetis, a leading provider of animal health solutions, gained as the company continues to outperform the Veterinary industry’s growth rate, thanks to its innovative product portfolio for companion pets. It announced recently that it expects to launch a key product, Simparica trio, in Q1 2020 versus an earlier timeline c.2020. 

  • United Rentals also performed well in the quarter as its continued strength in core operating metrics was combined with a more optimistic market outlook for domestic commercial construction activity. The company’s performance was further boosted by a change in its long-term capital allocation policy that was favorably received by investors. 

Worst-performing positions

  • Alphabet Inc., Google‘s parent company and one of the portfolio’s largest positions, was the biggest single detractor from performance. Regulatory fears regarding the company’s dominant position in internet search and the US Department of Justice is preparing to open an investigation into Google’s compliance with antitrust laws. The position in Alphabet is maintained given the difficulty we foresee in convincing judges that Google has undermined competition combined with the low likelihood the company would be broken up. 

  • Charles Schwab Corp underperformed this quarter due to the dramatic change in the current and projected interest rate environment. 

  • Jack Henry lagged peers recently due to an unexpected delay in its core payment processing platform migration, along with incremental disclosure around margin pressures until migration can be completed. 


The Brown Advisory Ethical Selection process looks to minimise sector and factor variation against the market, while maximising idiosyncratic upside opportunities. As a result, we expect stock picking to be the dominant driver of relative performance against the market, as it was again this quarter. 

While minor sector or factor bets may exist in the portfolio from time to time, we do not expect they will have a meaningful impact on performance. The one exception is a persistent underweight to energy, driven by the portfolio’s exclusion of fossil fuels-based companies from the investable universe. That underweight was a positive contributor to performance in the quarter, as both crude oil and natural gas prices softened. Outside of energy, no sector allocation meaningfully influenced the portfolio’s relative performance (to the benchmark).

Brown Advisory is closely watching the markets and the factors impacting recent volatility, but by focusing on the investment process, and staying disciplined with portfolio allocation we have confidence in the portfolio’s ability to continue delivering outperformance for investors.

Any information found in this document, including performance information and statistics are subject to change. You can find the latest updated pricing information on the description page for each available portfolio. In providing this material Saxo Bank has not taken into account any particular recipient’s investment objectives, special investment goals, financial situation, and specific needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in a particular manner and Saxo Bank assumes no liability for any recipient sustaining a loss from trading in accordance with a perceived recommendation. All investments entail a risk and may result in both profits and losses, and all capital is at risk. In particular investments in leveraged products, such as but not limited to foreign exchange, derivatives and commodities can be very speculative and profits and losses may fluctuate both violently and rapidly. Speculative trading is not suitable for all investors and all recipients should carefully consider their financial situation and consult financial advisors in order to understand the risks involved and ensure the suitability of their situation prior to making any investment, divestment or entering into any transaction. Any mentioning herein, if any, of any risk may not be, and should not be considered to be, neither a comprehensive disclosure of risks nor a comprehensive description of such risks. Any expression of opinion may not reflect the opinion of Saxo Bank and all expressions of opinion are subject to change without notice (neither prior nor subsequent).

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15


Trade responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.