Fund Profile

Brown Advisory US Smaller Companies 08 December 2023

Disclaimer

This is a non-independent marketing communication commissioned by Brown Advisory. 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.

Overview
BASC’s manager believes low valuations may offer a starting point for long-term outperformance…
Overview

Brown Advisory US Smaller Companies (BASC) aims to provide investors with a core US small-cap holding, with a risk-controlled approach emphasising compounding returns over the long term. BASC is managed by Chris Berrier, who has been managing similar strategies for Brown Advisory for over 18 years, and could be considered the architect of the philosophy behind them. Chris is supported by associate portfolio manager George Sakellaris, and overall Brown Advisory has c. 40 equity analysts providing the team with insights. The team manages c. $6.3bn in similar strategies to BASC.

The team focus on quality growth companies and valuation, which translate to typical portfolio characteristics of lower debt, higher return on capital and higher growth prospects than the average for the benchmark. Although US small-caps have underperformed large-caps more recently, the team has a long-term track record of outperforming the benchmark, which itself has outperformed US large-cap equities over the long term.

Brown Advisory was appointed to manage the trust at the end of March 2021. Since then, market conditions have not been favourable for US small-cap equities, but nevertheless the team’s strategy has outperformed the benchmark, with the NAV declining 7.0% compared to a 8.5% decline for the benchmark to 27/11/2023. Against a backdrop of unfavourable markets and widening investment trust discounts, BASC’s discount has widened to c. 13 %, compared to its five-year average of c. 11%.

The board has recently amended its share buyback policy, committing to using share buybacks to reduce discount volatility and working to reduce any discount should it become significantly wider than those of similar investment trusts. The board has not bought back any shares during 2023.

Kepler View

As is the case for UK smaller companies, historical data shows that US smaller companies tend to outperform large-caps, and perform well in absolute terms, when rising interest and inflation cycles start to peak and reverse. This is, at least in part, because the precursor to that particular set of conditions usually involves quite negative sentiment, which leads to very low valuations. Analysis that Chris and the team have undertaken shows that US small-caps, with both a growth and a value bias, are trading at very low valuations compared to history as well as to large-caps. If one needed further validation that sentiment is very negative, BASC’s own discount of c. 13% is part of a wider trend across the investment trust sector that is partially explained by negative sentiment.

Over the long term, investors in investment trusts would no doubt like to see BASC deploying modest gearing, and indeed the board notes that it is cognisant that this is one of the advantages of the investment trust structure. Negative markets since Brown Advisory took on the mandate, however, validate the decision not to gear in the short term. It is of course impossible to pinpoint in advance the moment when the cycle for US small-caps will change, but in the meantime, the long-term investor may find the combination of low underlying valuations and a wide discount appealing.

Bull

  • A steady, risk-controlled approach in an asset class that can be volatile
  • Wide discount to NAV compared to historical average
  • US small-caps are trading at very low valuations compared to history

Bear

  • Does not pay a dividend
  • Interest rates may stay higher for longer, providing a headwind
  • Smaller companies can be riskier than large companies
Continue to Portfolio

Fund History

03 Jul 2024 A really great stockmarket, the best, some tell me the best they’ve ever seen
US equities should be the bedrock of any diversified portfolio…
19 Jul 2024 Brown Advisory US Smaller Companies
Chris Berrier
Join this webinar as part of our July online series 'Small caps - take two' hosted by the team at Kepler Trust Intelligence...
07 Jun 2024 Monthly round-up of investment trust news - #1
Jo and Ryan discuss the latest news in the investment trust world...
20 Jun 2024 Brown Advisory US Smaller Companies
Chris Berrier
Join this webinar as part of our week-long June online series 'Small caps - a lost decade' hosted by the team at Kepler Trust Intelligence...
29 May 2024 It’s a small world after all
A recent rally in smaller companies could be the start of a long-term recovery…
20 May 2024 Investing in US small-caps with BASC manager Christopher Berrier - Podcast: Trust Issues #31
We discuss opportunities for investors in the US small-cap sector with BASC manager Christopher Berrier...
03 Jan 2024 Probably better asking an octopus
Our investment trust experts uncurl a tentacle each and choose their ‘top picks’ for 2024…
08 Dec 2023 Fund Analysis
BASC’s manager believes low valuations may offer a starting point for long-term outperformance…
30 Oct 2023 Everything is connected
Brown Advisory US Smaller Companies’ manager identifies why one European mega-cap’s success may be leading to over-pessimism in some US small caps…
21 Sep 2023 Results analysis: Brown Advisory US Smaller Companies
BASC has outperformed its benchmark since Brown Advisory took the helm in 2021, but US smaller companies remain undervalued…
06 Sep 2023 You should be dancing…
North America should be a core part of any portfolio…
19 Jul 2023 Simply the Best
Investing in high quality companies was a successful strategy for many years, but has its time passed?
27 Feb 2023 Fund Analysis
BASC: small cap quality growth in the world’s largest equity market...
29 Sep 2022 Results analysis: Brown Advisory US Smaller Companies
BASC’s managers took advantage of falling markets, in a tough year for small caps…
28 Sep 2022 Mind the gap
While chaos reigns in the short-term for markets, some investors see a growing disconnect between prices and reality...
28 Sep 2022 Slides and Audio: Brown Advisory US Smaller Companies
Download the presentation and listen to the audio from our 'Growth at an unreasonable price' event from 21 September...
07 Sep 2022 American muscle
Beating US indices is a monumental task. We examine the closed- and open-ended North American sectors to see how they have fared…
01 Jul 2022 Fund Analysis
BASC’s wide discount could prove an interesting long-term entry point…
17 Mar 2022 It's the end of the world as we know it
We examine five potential themes for investors seeking long-term returns in a troubled and uncertain world...
26 Nov 2021 Fund Analysis
BASC has performed strongly under its new manager…
17 Nov 2021 How Do You Like Them Apples
Judging whether the US market is expensive is not as easy as many make it out to be…
02 Nov 2021 Results analysis: Brown Advisory US Smaller Companies
BASC has made a solid start under the new manager, generating significant outperformance….
06 Oct 2021 Slides and Audio: Brown Advisory US Smaller Companies
Download the presentation and listen to the audio from our 'Now that's what I call a discount!' Autumn conference on 30 September...
15 Sep 2021 Bargains galore
We review our discounted opportunities portfolio, with one constituent rallying more than 30% in just two months…
30 Apr 2021 Slides and Audio: Jupiter US Smaller Companies
Our research team at Kepler Trust Intelligence hosted a Q&A webinar with Chris Berrier, the new lead manager of the trust at Brown Advisory...
28 Apr 2021 Fund Analysis
JUS’s new manager brings a new strategy, and scope for the discount to narrow…
22 Apr 2021 FAANGs for the memories
The massive outperformance of mega-cap tech last year could become a thing of the past if anti-trust legislation and negative sentiment starts to bite...
09 Dec 2020 Flash update: Jupiter US Smaller Companies
Brown Advisory has been appointed to manage Jupiter US Smaller Companies, utilizing their small cap growth strategy…
13 May 2020 Sea change
While global giants like Amazon still hold the weather gauge, we examine the long term prospects for a shift in the prevailing wind...
11 Sep 2019 Nanny knows best: how regulation is influencing returns
New research suggests disruption is threatened by increased regulation, with clear consequences for investment strategists...
14 May 2019 Fund Analysis
Jupiter US Smaller Companies Trust, run by Robert Siddles for the past 18 years, looks to invest in the areas of the market that lacks positive sentiment...
31 Oct 2018 The Trump effect
Two years after the shock election of Donald Trump, we take a look at what the Trump administration has really meant for US markets and the trusts that invest in them...
30 Oct 2018 Fund Analysis
Performance has been dull over the medium term, however, 2018 has seen an extraordinary turnaround for the trust...
26 Apr 2018 The $23.9 trillion dollar question*
Are US equities, which have hit record highs on 71 occasions in the last 12 months, overpriced or are they actually trading at a price worth paying?
20 Apr 2018 Fund Analysis
The trust aims to achieve long-term capital growth for shareholders from a diversified portfolio primarily of quoted US smaller and medium-sized companies.
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