Allow us to reintroduce ourselves
Disclosure – Non-Independent Marketing Communication. This is a non-independent marketing communication commissioned by Brown Advisory US Smaller Companies. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Following a bold decision by its board, Jupiter US Smaller Companies is now known as Brown Advisory US Smaller Companies. Here, we introduce the new manager and explore the US based firm’s stellar track record in the space…
It’s no secret that the investment trust structure brings with it several benefits. The ability to use leverage to gain greater access to the market at favourable points. The listed structure that offers liquidity regardless of the assets invested in. And an independent board, acting on behalf of shareholders to ensure the trust is run as well as possible.
Often the work that boards do is relatively subtle, involving regularly checking in with fund managers and other service providers to ensure that things are running smoothly.
But sometimes boards have to act decisively in the interests of their shareholders. That is exactly what happened in the case of Brown Advisory US Smaller Companies (BASC) – the trust formerly known as Jupiter US Smaller Companies (JUS).
Following the retirement of long-standing Jupiter fund manager Robert Siddles, the trust’s board opted to reallocate the fund’s mandate to a different investment house entirely.
While Brown Advisory is not a household name in the UK, the American company has a rich, 27-year history within US smaller companies investing, making the transition an exciting prospect for current – and potential – investors in BASC.
Established pedigree
BASC’s manager, Chris Berrier, has a long track record of successfully investing in US smaller companies. He has run Brown Advisory’s US Small-Cap Growth strategy, which BASC’s portfolio will resemble, for over 15 years. In doing so, he is backed by an unusually extensive investment team of over 50 analysts and investment professionals.
Since the UCITS version of the fund was launched in November 2007, it has returned 11.5% per annum, versus a 10.8% return for the Russell 2000 Growth and a 9.9% return for the Russell 2000 (to 30 April 2021).
Consistently generating alpha (a measure which shows the added value of active management) like this has been particularly challenging in US markets over the last decade, as a lopsided market has been fuelled by a very select group of sectors. As a result, these figures stand out.
However, while alpha returns are important, unusually for a fund in this sector, the team also prioritises downside risk management.
This means that when markets fall, they seek to build a portfolio that will not fall as far, a valuable quality at a time when valuations are going through a tumultuous period and the economic outlook is far from clear.
Over the period since the UCITS fund’s creation, the fund’s downside capture has been 84, meaning that its value declined only 84% as much as the index during that period.
The opportunity on the table
With US government support still at heightened levels and looking likely to continue for some time to come, combined with an economy that is rapidly unlocking as its vaccination programme gathers pace, the outlook for US smaller companies as a whole could be positive in the short-to-medium term.
It is worth noting that US smaller companies are very different to those found in the UK. For a start, they are significantly larger with many large enough to qualify for the FTSE 100 were they to be listed in the UK.
As a result, the index contains several well-known multinational brands, such as BASC portfolio holding Bright Horizons Family Solutions, a childcare provider operating in multiple territories including the UK and Ireland. A similarly well-known holding is Zynga, a games developer responsible for popular mobile games including FarmVille and Words with Friends.
From a universe of 2000 companies, the team sources a portfolio of circa 60-80 long-term investment opportunities by focusing on what the team describe as ‘3G’ characteristics. In reality this means they look for companies that have durable growth, sound governance and scalable go-to-market strategies.
As a result, the portfolio is made up of companies that are leaders in their sectors or that are rapidly growing market share, with clearly differentiated business models. Ideally, investee businesses would also see their margins grow as they scale up.
Combined, this approach results in a portfolio of companies with strong long-term growth potential, which the manager aims to capture by holding them throughout this growth trajectory. This approach should also reduce costs, by limiting trading within the portfolio.
In safe hands
While a change in manager can be unnerving for investors, having an investment trust board in place to act on behalf of shareholders means that any such change is driven by the right motivations. Reassuringly for investors, with the team’s strong track record and established process, Brown Advisory has demonstrated that it knows what it’s doing in the US smaller companies space.
Click here to see the latest research on Brown Advisory US Smaller Companies >
Click to visit:
Disclaimer
This report has been issued by Kepler Partners LLP. The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.
Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.
Kepler Partners is not authorised to make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.
The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.
The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.
This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.
Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm’s internal rules. A copy of the firm’s Conflict of Interest policy is available on request.
Read the latest edition of DIY Investor Magazine
DIY Investor Magazine
The views and opinions expressed by the author, DIY Investor Magazine or associated third parties may not necessarily represent views expressed or reflected by EQi.
The content in DIY Investor Magazine is non-partisan and we receive no commissions or incentives from anything featured in the magazine.
The value of investments can fall as well as rise and any income from them is not guaranteed and you may get back less than you invested. Past performance is not a guide to future performance.
DIY Investor Magazine delivers education and information, it does not offer advice. Copyright© DIY Investor (2016) Ltd, Registered in England and Wales. No. 9978366 Registered office: Mill Barn, Mill Lane, Chiddingstone, Kent TN8 7AA.