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Buy Brown Advisory US Sustainable Growth to access America's finest
Given the economic uncertainties and seismic behavioural changes being created by the pandemic, long-term investors should put money to work with a fund that not only owns the highest quality companies with market share clout, but also pursues an investment approach with sustainability at its core.
One portfolio we’ve identified is the Brown Advisory US Sustainable Growth Fund (BF1T6X5). This collective provides UK investors with exposure to Brown Advisory’s US Large Cap Sustainable Growth Strategy, which passed its 10-year track record at the end of 2019.
Managed by Karina Funk and David Powell, the strategy seeks to grow investors’ capital over the long term by investing in US mid and large cap companies that the co-managers believe effectively implement sustainable business strategies to drive future earnings growth.
LOOKING FOR LEADERS
Among the qualities Funk and Powell look for in companies are leadership positions in large and growing markets, participation in markets or industries with high barriers to entry and high revenue visibility, as well as a solid track record of execution and good capital allocation decisions made over time by management.
Companies must have a minimum market capitalisation of $2bn and the fund can perform in volatile market conditions, as demonstrated
by a 19.6% year-to-date return, versus 12.8% for the Russell
1000 Growth Total Return US Dollar benchmark.
ADAPT OR DIE
Funk and Powell believe that sustainability risks and opportunities need to be addressed by companies across all sectors, and only those that continue to adapt to these challenges will ensure their
Brown Advisory has defined these companies as possessing ‘Sustainable Business Advantages’ or SBAs, a proprietary term for sustainability drivers that directly benefit financial performance through a combination of sales growth, cost improvement and enhanced franchise value.
This approach of investing in companies with outstanding business models, compelling valuations and SBAs gives the strategy a distinct competitive advantage, according to Funk.
She believes that some of the most attractive, durable business models in the large cap equity universe are those with sustainable drivers at their core. For many firms, 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. Furthermore, the SBA approach also considers those companies that are able to greatly enhance their brand or franchise value by helping customers solve meaningful social and environmental challenges.
LARGE CAP LIONS
Funk and Powell chose the large cap space because this is where they ‘more consistently uncover companies with SBA and the high quality fundamentals we require for our portfolio (which in turn make SBA more durable).
‘We also believe that our SBA philosophy and framework helps us to gain a differentiated view, even among large cap companies that disclose a lot of public information,’ they add.
IN RUDE HEALTH
Boasting a high Morningstar sustainability rating, the fund has historically been overweight to the health care sector. Here, holdings include Danaher, whose Cepheid division has received the FDA’s Emergency Use Authorization for rapid tests for the coronavirus that can give results in 45 minutes rather than hours or days.
Other holdings include companies such as Thermo Fisher Scientific and Illumina, which provide the tools and equipment to develop life-saving therapies and vaccines.
The managers took advantage of the pullback in some of the fund’s existing names by adding to IDEXX Laboratories, Bio-Rad, Autodesk and Analog Devices.
In other cases, Funk says ‘we added to holdings that are proving essential during the pandemic such as Home Depot, which ensures repair and maintenance supplies, and Ball Corporation, which continues to stock grocery stores with packaged beverages’.
A long held name is Visa, where the initial investment was in part based on the cash generative payments technology play’s ‘edge on financial inclusion, especially on their growth strategy in emerging markets’.
Over two thirds of the 2bn underbanked people around the world have access to mobile phones and ‘Visa offers unparalleled capability to connect these users to a global financial network, which will allow nations to improve basic services and reduce rampant waste from economic isolation’, says Funk.
New purchases include Starbucks and ServiceNow, a software provider of IT service management (ITSM) solutions which ‘helps enterprises become more productive and efficient, which in turn results in energy and cost savings’ according to Funk.