Brown Advisory’s US Sustainable Growth UCITS Fund has outperformed the Russell 1000 Growth Index by 3.9 per cent annualised since inception three years ago. The Fund also outperformed its benchmark in Q1 2020 by 3.8 per cent.Brown Advisory is an independent and privately held global investment management firm which oversees more than USD72 billion in client assets.
The USD548m Fund is part of Brown Advisory’s USD3.7 billion US Large-Cap Sustainable Growth Strategy, managed by Karina Funk, CFA, and David Powell, CFA, which passed its 10-year track record at the end of 2019 and is one of Brown Advisory’s best performing strategies relative to its benchmark and category peers. Assets in the Fund almost tripled in 2019, highlighting the real demand for sustainable investment strategies in the UK and Europe.
Karina Funk, Co-Portfolio Manager and Head of Sustainable Investing at Brown Advisory, says: “We are deeply saddened by the tremendous suffering caused by Coronavirus and marvel at our world which has been transformed in ways we never would have imagined. Sustainability challenges remain part of the reality in which we all live and operate and as investors, we must identify companies which understand these and continue to innovate and adapt.”
Logie Fitzwilliams, Head of International Business at Brown Advisory, says: “We were thrilled to see the Strategy pass its impressive 10-year milestone earlier this year and now we recognise three years since we launched our Dublin-UCITS Fund to enable our clients in the U.K. and Europe to access the Strategy. Over the past 18 months we have witnessed a material increase in demand for sustainable investment strategies from investors globally and we look forward to using our extensive experience in this space to work with private and institutional clients over the coming years.”
Since the start of 2020, the Fund’s performance has held up well against its benchmark due to decidedly positive stock selection. The Fund’s performance in the industrials, materials and information technology sectors was well above that of the Index. Overweight exposure in the health care sector was also an advantage, given relative strong performance from portfolio holding West Pharmaceutical Sciences. The portfolio managers cited companies such as Danaher, Thermo Fisher and Illumina among those that are well-managed, well-capitalised and sufficiently diversified across a variety of end markets. The managers believe that while some of their end-markets are coming under pressure in the short term, their long-term earnings power should not be impacted by Covid-19 and that these companies provide the tools and equipment to develop life-saving therapies and vaccines which will be critical going forward.
The current crisis illustrates the importance of networking technology to support remote work. Many of Microsoft’s products are critical to businesses that have moved day-to-day operations from the physical to the virtual world. Microsoft has seen increased demand for its cloud, Teams and Windows virtual desktop services during the crisis. The company has a more durable business model today than it did during the last downturn given 74 per cent of its revenue is now recurring vs 45 per cent in 2009. In addition, Microsoft is demonstrating its ability to support patient care and COVID-19 research, having recently released a new platform to help customers share information and collaborate during a crisis.
The co-portfolio managers believe that sustainability risks and opportunities need to be addressed by companies across all sectors and it is only those that continue to adapt to these challenges that will ensure their long-term profitability. Brown Advisory has defined these companies as possessing “Sustainable Business Advantages” (SBA) – a proprietary term for sustainability drivers that directly benefit financial performance through a combination of revenue growth, cost improvement and enhanced franchise value. It is this approach of investing in companies with outstanding business models, compelling valuations and SBAs that gives the strategy a distinct competitive advantage and has driven Brown Advisory’s outperformance over the longer term.
Some of the most attractive, durable business models in the large-cap equity universe are those with sustainable drivers at their core. For many companies, a focus on energy efficiency, health and/or wellness has driven considerable sources of revenue growth. Others have evolved their operations to reduce the use of energy, water and other resources and generated considerable cost savings. SBA also considers those companies that are able to greatly enhance their brand or franchise value by helping customers solve meaningful social and environmental challenges.
Funk continues: “At the start of this year we celebrated 10 years since we launched the strategy and we are pleased to have demonstrated that there does not have to be a trade-off between strong performance and smart investments that help address some of our society’s trickiest sustainability challenges. We remain eager and hungry to improve our ability to use a sustainability lens to add value to fundamental research and active management. We are also thankful to be working alongside phenomenal colleagues who insist on helping clients generate attractive investment returns while also achieving important environmental and social goals. At Brown Advisory, we expect to embark on another decade of developing solutions to investors’ growing demands for sustainable investing across all asset classes.”
David Powell, Co-Portfolio Manager at Brown Advisory, says: “We are pleased to have been able to meet the material increase in demand for sustainable investment strategies in the UK and Europe, leveraging SBA to improve shareholder returns. The extraordinary circumstances through which we are living demonstrate the importance of having an investment approach with sustainability at its core, helping to protect on the downside in volatile markets. Sustainability risks and opportunities are not a separate category of factors to be assessed; these challenges are part of the reality in which we live and, as investors, must identify the companies which understand these opportunities.”