Brown Advisory US Smaller Companies (BASC)

02/11/2021

Results analysis from Kepler Trust Intelligence

Brown Advisory US Smaller Companies (BASC) has made a solid start under the new manager. From 01/04/2021, when Brown Advisory and Chris Berrier took over management, to 26/10/2021 the trust generated NAV total returns of 7% compared to a total return of just 4% for the Russell 2000 benchmark.

BASC has just reported results for the year ending 30/06/2021, during which period the previous manager, Robert Siddles of Jupiter, retired. The portfolio has now been aligned with the US Small-Cap Growth Strategy Chris has run for over 15 years, generating strong outperformance with lower than market levels of risk.

Kepler View

BASC has made a strong start under the new manager, despite quite challenging markets with rotations in style and macro uncertainty abounding. Yet despite generating good absolute returns and outperforming its benchmark significantly, the trust has seen its discount widen to 12% (as of 01/11/2021). This may reflect some profit taking in the US and global markets after a strong reflationary rally and late summer worries about a winter COVID resurgence. We believe it could represent a good long-term entry point.

Chris' strategy is to identify companies which can generate compound growth higher than the market over the long run. There is therefore a strong quality growth tilt to his style which contributes to attractive downside performance characteristics - something he explicitly targets.  The focus on repeatable earnings and downside risk means there is a bias to companies with a track record and good cash generation, which means 'meme stocks' and profitless companies are unlikely to feature in the portfolio. Chris runs a highly active strategy, with an active share typically in the 90% - 95% range.

While the strategy is new to the closed-ended space, Chris has been running it for many years in the open-ended space with success. Over the ten years to the end of August, the Brown Advisory US Smaller Companies UCITS Fund outperformed both the Russell 2000 Index and the Russell 2000 Growth index, with a beta below one and superior downside performance.

The current wide discount seems unwarranted to us and we believe this could be a good entry point to a strategy with an excellent long-term track record.

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