brown advisory global leaders strategy · 2018-12-11 · source: factset® and brown advisory...
TRANSCRIPT
Brown Advisory Global Leaders Strategy
Q3 2018
For Institutional Investors Only
2
Brown Advisory: Firm Overview
FIRM INVESTMENT ASSETS GLOBAL LEADERS
1993Launched as an investment management arm of Alex. Brown & Sons
45 equity professionals 20151st May Brown Advisory Global Leaders Strategy launched and UCITS Fund incepted
1998Investment team and management-led buyout enables independence, focus and expansion
15 yearsAverage years of investment experience for our equity research team
$274 millionBrown Advisory Global Leaders strategy assets under management
2008Brown Advisory International Business was established with an office in London
100%Of our colleagues collectively own 70% of the firm’s equity
$68 billionIn total client assets for institutions, private clients and charities
$31 billionInstitutionally marketed strategy assets under management
$8 billion non-U.S. client assets
$146 millionBrown Advisory Global Leaders UCITS Fund assets under management
Independent, fundamentally driven investment management firm
Source: Brown Advisory. Data as of September 30, 2018. Please see the end of the presentation for important disclosures and information regarding assets.
3
The Opportunity
We believe that companies that combine exceptional outcomes for their customers with strong leadership can generate high and sustainable returns on invested capital (ROIC), which can lead to outstanding shareholder returns.
We search across the globe for companies that meet this criteria and invest in 30-40 of these to create a concentrated portfolio of companies that we believe have the ability to deliver attractive returns for their investors.
We focus on quality and seek to purchase these companies when we believe they are undervalued by the market.
ExceptionalCustomer Outcomes
OutstandingShareholder
Returns
High & Sustainable Return OnInvestedCapital
Underappreciatedvalue
4
Our Process: Four Key Global Leader Identifiers
What makes aGlobal Leader?
Quantitative Measures We have to see it in the numbers Look for ROIC >20% or a pathway to 20% Profits turned into cash
Customer Outcome Business Model Moats / Barriers to Entry Sustainable Business Advantage
Franchise Quality
Investability ~ 9 out of 10 companies fail here Probability weighted expected return Absolute cash flow value – not relative
valuation
Ability to allocate capital Management incentives are aligned 50% of the portfolio has founder or family
at the helm
Management Quality
5
The Persistence of Return on Invested Capital
Chart reproduced with permission from McKinsey & Company Inc. as featured in the book, “Valuation: Measuring and Managing the Value of Companies, University Edition.” 6th Edition, 2015. ROIC is calculated as % without goodwill. Please see the end of the presentation for important information. The selected sample is the S&P500 Index.
58%
17%
6%
21%
24%
11%
21%
59%
83%
5-15 15-25 >25
5-15
15-25
>25
ROIC in 2013%
RO
IC in
200
3%
Global leaders tend to stay leaders
Leaders tend to stay leaders.83% of companies with a ROIC of greater than 25% in 2003
had a 25% or higher ROIC a decade later
6
Equity Research Team
CONSUMERERIC CHA, CFA
PATRICK MAHONEY
* DAN MOONEY, CFA
ALEX TREVINO
FINANCIALS* PRIYANKA AGNIHOTRI, CFA
KENNETH COE, CFA
SHA HUANG
CAMERON MATHIS
HEALTH CARE* SANJEEV JOSHI, CFA
MARK KELLY
SUNG PARK, CFA
INDUSTRIALS, BASIC MATERIALS & ENERGYADI PADVA
* SIMON PATERSON, CFA
JAMIE WYATT
TECHNOLOGYJOHN BOND, CFA
* JOHN CANNING, CFA
EMILY WACHTMEISTER, CFA
SUSTAINABILITYEMILY DWYER
KATHERINE KROLL
GENERALIST
* THOMAS FITZALAN HOWARD
MICHAEL POGGI, CFAAssociate Portfolio Manager: Small-Cap Fundamental Value
* RODDY SEYMOUR-WILLIAMS
BUSINESS SERVICES
ROBERT FURLONG, CFA
INVESTIGATIVE
LAUREN CAHALAN
DOUGLAS FALK
RISKERIN CAWLEY
* Denotes Working Group Member Denotes London-based employees Colleague data as of September 30th 2018
DIRECTOR OF RESEARCH
PORTFOLIO MANAGEMENT
ERIC GORDON, CFA
MICK DILLON, CFAPORTFOLIO MANAGER
BERTIE THOMSON, CFAPORTFOLIO MANAGER
The team supports 8 additional U.S. equity strategies, covering a total of 237 companies.<10 companies per analyst.
7
Investment Process
Idea Generation
Fundamental Analysis
Stock Approved/Dismissed
Payoff vs Probability
Risk Factor Analysis
Behavioural Analysis
Stock Selection Capital Allocation
8
Analysts Screens Portfolio Managers Brown Advisory network
FUNDAMENTAL RESEARCH FACTOR INPUTS
Idea Generation
Core Global Leaders process assessment
Moat analysis Industry Analysis: Porter’s 5
forces
Checklist
In-depth Fundamental analysis ESG – sustainable business
advantages Pure primary research
Due Diligence
Investment Process: Buy Discipline
Buy Decision
Weekly working group meeting 2:1 base case
upside/downside Devil’s advocate Tear down analysis Pre-mortem debate
BUY DISCIPLINE PORTFOLIO CONSTRUCTION SELL DISCIPLINE
9
Weekly capital allocation meeting Base case probability assessment Pay off review Factor analysis
ONGOING MONITORING & CONTINUOUS LEARNING
Portfolio Construction
We use a third-party analytics provider to deliver analysis on our portfolio management skills
Quarterly reviews Errors of commission and omission
Behavioural Analysis
Loss aversion: We automatically review holdings after a 20% drawdown
Regret aversion: We aim to be fully invested in a new position within two months
Endowment effect: We regularly conduct blank sheet reviews
Behavioural Checks & Balances
Investment Process: Portfolio Construction
BUY DISCIPLINE PORTFOLIO CONSTRUCTION SELL DISCIPLINE
10
Investment Process: Sell Discipline
BUY DISCIPLINE PORTFOLIO CONSTRUCTION SELL DISCIPLINE
WHAT CAUSES US TO REASSESS?
Valuation Thesis Violation Better Idea
Valuation becomes excessive Business fundamentals have reached
our expectations
Fundamentals of the company are impaired
Falling ROIC can signal a) business outlook deterioration or b) threat to durability of competitive advantage
Loss aversion
Growth in position size distorts the portfolio
In concentrated portfolios, limited membership creates competition for capital
Endowment effect
11
Portfolio AttributesAs of 09/30/2018
12
18.3x 19.0x
EV/EBIT (NTM ex.Financials)
31.2%
11.7%
ROIC (LFY ex.Financials)*
Portfolio Attributes
Source: FactSet® and Brown Advisory calculations. Past performance is not indicative of future results. Portfolio information is based on a representative Global Leaders account and is provided as supplemental information. Portfolio attributes and performance characteristics exclude cash and cash equivalents which was 2.7% and are subject to change. Portfolio attributes show the weighted average returns. ROIC and FCF Yield show the average returns. Numbers may not total 100% due to rounding. Please see the Brown Advisory Global Leaders Composite disclosure at the end of this presentation for additional information and for a complete list of terms and definitions.
Portfolio Attributes as of September 30, 2018Global Leaders Representative Account
UPSIDE / DOWNSIDE CAPTURE
Source: FactSet ®. Inception-to-date period is May 1, 2015 to September 30, 2018. Numbers are based on preliminary estimates which may be subject to change. Annualized Upside / Downside Capture is based on a representative Global Leaders account (net of fees) and is provided as supplemental information. Upside capture ratio is defined as how well a portfolio performs in time periods where the benchmark's returns are greater than zero. For example, if the benchmark's upside capture is 100% and the portfolio's is 107.6%, then when the benchmark is up 10% your portfolio is up 10.76%. This portfolio did better than the benchmark in up markets. The downside capture ratio is defined as how well a portfolio performs in time periods where the benchmark's returns are less than zero. For example, if the benchmark downside capture is 100% and the portfolio's is 71.5%, then when the benchmark is down 10% your portfolio is down 7.15%. This portfolio did better than the benchmark in down periods. The portfolio outperformed in 17 of the 28 up months and 10 of the 13 down months since inception.
Portfolio Attributes as of September 30, 2018Global Leaders Representative Account (net of fees)
*Due to data availability, ROIC & FCF Yield are shown as of 31 December 2017.
PERFORMANCE CHARACTERISTICS GLOBAL LEADERS REP. ACCOUNT RUSSELL GLOBAL LARGE-CAP INDEX
Volatility 11.7% 11.7%
Sharpe Ratio 0.9 0.5
Sortino Ratio 1.3 0.8
Beta 0.9 1.0
Alpha 4.5% --
Annualized Tracking Error (1 Yr.) 4.1 --
Active Share 93% --
Net Debt to EBITDA (ex. Financials) -0.1 1.2
4.1%3.7%
FCF Yield (LFY ex.Financials)*
22.4x 22.1x
P/E Ratio (NTM)
Russell Global Large-Cap Net IndexGlobal Leaders Representative Account 9.8%
6.9%
Sales Growth (3-YrCAGR)
107.6
71.5
36.1
Inception-To-Date
Upside CaptureDownside CaptureSpread
13
Source: FactSet. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. Please see disclosure statements at the end of this presentation for additional information and for a complete list of terms and definitions. Portfolio information is based on a representative Global Leaders account, includes cash and is provided as supplemental information. Please see the Brown Advisory Global Leaders Composite disclosure at the end of this presentation. Numbers may not total to 100% due to rounding.
NEW
As of 09/30/2018
Portfolio HoldingsRepresentative Global Leaders Account
SECURITY % PORTFOLIO SECURITY %PORTFOLIO
1 Microsoft Corporation 6.5 19 eBay Inc. 2.6
2 Alphabet Inc. Class C 4.9 20 Charles Schwab Corporation 2.5
3 Visa Inc. Class A 4.4 21 Hiscox Ltd 2.5
4 Unilever PLC 4.2 22 Electronic Arts Inc. 2.4
5 Safran S.A. 3.8 23 PT Bank Rakyat Indonesia (Persero) Tbk Class B 2.2
6Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR 3.6 24 TJX Companies Inc. 2.1
7 Mastercard Incorporated Class A 3.6 25 Deutsche Boerse AG 2.1
8 JPMorgan Chase & Co. 3.5 26 Ctrip.com International Ltd Sponsored ADR 2.0
9 Sherwin-Williams Company 3.2 27 Flowserve Corporation 2.0
10 Wolters Kluwer NV 3.1 28 HOSHIZAKI Corp. 2.0
11 Schindler Holding AG 3.1 29 Tencent Holdings Ltd. 1.9
12 Edwards Lifesciences Corporation 3.1 30 3M Company 1.9
13 AIA Group Limited 3.0 31 CTS Eventim AG & Co. KGaA 1.8
14 Booking Holdings Inc. 3.0 32 Cognizant Technology Solutions Corporation Class A 1.8
15 Atlas Copco AB Class B 3.0 33 Marvell Technology Group Ltd. 1.8
16 Estee Lauder Companies Inc. Class A 2.9 34 Ecolab Inc. 1.5
17 Facebook, Inc. Class A 2.8 35 HDFC Bank Limited 1.3
18 Cash & Equivalents 2.7 36 Brown-Forman Corporation Class B 1.2
14
Multiple Sources of Competitive Advantage
Source: Brown Advisory Calculations. The categories above are not based on GICS sectors, but on the ‘source of competitive advantage’, as determined by Brown Advisory. The views expressed are those of Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. Past performance is not a guarantee of future performance. Portfolio information is based on a representative Global Leaders account that includes cash and equivalents, and is provided as supplemental information. Please see disclosure statement at the end of this presentation for additional information.
As of 09/30/2018
AIA Group Facebook
Alphabet Inc. Flowserve
Atlas Copco AB Hiscox
Booking Holdings Mastercard
Brown‐Forman Microsoft
Ctrip PT Bank Rakyat Indonesia
CTS Eventim AG Safran
Deutsche Boerse Schindler
eBay Sherwin‐Williams
Ecolab Tencent Holdings
Edwards Lifesciences TJX
Electronic Arts Unilever
Estee Lauder Visa
3M Company Flowserve
AIA Group HDFC Bank
Alphabet Inc. HOSHIZAKI
Atlas Copco AB Mastercard
Booking Holdings Microsoft
Brown‐Forman Safran
Charles Schwab Schindler
Cognizant Sherwin‐Williams
Ctrip Taiwan Semiconductor
CTS Eventim AG Tencent Holdings
Ecolab TJX
Edwards Lifesciences Unilever
Electronic Arts Visa
Estee Lauder Wolters Kluwer
BRAND / IP 29 COMPANIESAlphabet Inc. HDFC Bank
Booking Holdings Hiscox
Charles Schwab Mastercard
Cognizant Marvell
Ctrip PT Bank Rakyat Indonesia
CTS Eventim AG Taiwan Semiconductor
Deutsche Boerse Tencent Holdings
eBay TJX
Ecolab Unilever
Estee Lauder Visa
3M Company Flowserve
Alphabet Inc. HOSHIZAKI
Atlas Copco AB Marvell
Charles Schwab Microsoft
Cognizant Safran
Ecolab Taiwan Semiconductor
Edwards Lifesciences Tencent Holdings
Facebook Wolters Kluwer
Alphabet Inc. Safran
eBay Taiwan Semiconductor
Electronic Arts Tencent Holdings
Mastercard Visa
Microsoft
eBay
We look for businesses with multiple durable economic moats.
EFFICIENT SCALE 1 COMPANY
INVESTED CAPITAL / R&D 9 COMPANIES
NETWORK EFFECTS 26 COMPANIES ECONOMIES OF SCALE 20 COMPANIES
SWITCHING COST 16 COMPANIES
15
Portfolio Attributes
Numbers may not total 100% due to rounding. Please see the Brown Advisory Global Leaders Composite disclosure at the end of this presentation for additional information and for a complete list of terms and definitions.
Representative Brown Advisory Global Leaders AccountRussell Global Large-Cap Index
Diversification – An Outcome Of Our Process Sector Composition (%) As of September 30, 2018, Global Leaders Representative Account Based on the (GICS®) classification system.
Compelling Opportunities Across the GlobeGeographic Composition by Country of Revenue As of September 30, 2018, Global Leaders Representative Account
North America
41%
Europe27%
Rest of World29%
Cash3%
Source: Brown Brothers Harriman and Brown Advisory calculations. Portfolio information is based on a representative Global Leaders account and is provided as supplemental information. Geographic composition includes cash and cash equivalents which was 2.7% and is subject to change.
Source: FactSet®. Portfolio information is based on a representative Global Leaders account and is provided as supplemental information. Sector breakdown includes cash and cash equivalents which was 2.7% and is subject to change. Sectors are based on the new Global Industry Classification Standard (GICS®) classification system(GICS®) which has renamed the Telecommunication Services sector to Communication Services and broadened its composition. The renamed sector encompasses all former telecommunication companies in addition to select companies from the Consumer Discretionary and Information Technology sectors. These changes took effect Friday, Sept. 28, 2018. For more information on this reclassification, please visit the MSCI website.
2.9
3.3
5.1
15.5
11.1
11.9
17.1
6.6
7.7
10.4
8.5
0.0
0.0
4.7
21.6
18.9
3.1
17.1
0.0
8.3
9.8
13.8
0 5 10 15 20 25 30 35
Utilities
Real Estate
Materials
Info. Tech.
Industrials
Health Care
Financials
Energy
Consumer Staples
Consumer Disc.
Communication Services
16
Performance Results
4.8
11.1
19.6
15.8
12.1
4.3 3.9
9.9
13.5
7.8
4.3 3.8
10.3
13.9
7.6
0
5
10
15
20
25
3 Months YTD 1 Year 3 Year Inception-To-Date (1st May2015)
Brown Advisory Global Leaders Composite Net of Fees Russell Global Large-Cap Index Net Return MSCI ACWI Index Net Return
Annualized Performance as of September 30, 2018Global Leaders Composite (% net of fees)
% R
etur
ns
Source: FactSet®. All returns greater than one year are annualized. Past performance is not indicative of future results and you may not get back the amount invested. The composite performance shown above reflects the Global Leaders Composite, managed by Brown Advisory Institutional. Brown Advisory Institutional is a GIPS Compliant firm and is a division of Brown Advisory LLC. Please see the Brown Advisory GlobalLeaders Composite disclosure statement at the end of this presentation for additional information and for a complete list of terms and definitions.
17
Performance Analysis
Source: Universe performance rankings from eVestment®, all other information from FactSet. Past performance is not indicative of future results. The performance rankings may not be representative of any one client’s experience because the ranking reflects an average of the accounts that make up the composite and is provided as supplemental information. eVestment Global Large-Cap Core Equity represents actively-managed Global, ACWI, or Global ex-Japan Equity products that primarily invest in a mixture of growth and value large capitalization stocks. Common benchmarks for this universe include the MSCI ACWI and MSCI World. The minimum criteria necessary for inclusion in an eVestment Universe are 1) minimum of one year of performance history, and 2) updated portfolio characteristics for the product. All products meeting the criteria are evaluated for inclusion. Managers voluntarily populate performance data into the database for inclusion, and the number of managers in each period consists only of managers that provided that data point and were in the universe for that entire period. The composite performance shown above reflects the Global Leaders Composite, managed by Brown Advisory Institutional. Brown Advisory Institutional is a GIPS Compliant firm and is a division of Brown Advisory LLC. Please see the Brown Advisory Global Leaders disclosure statement at the end of this presentation for a GIPS compliant presentation.
Growth of $10,000 as of September 30, 2018Global Leaders Composite (% net of fees) Peer Group (5-95%): Global Large-Cap Core Equity Fund inception: May 1, 2015
U.S
. Dol
lars
($)
$8,000
$9,000
$10,000
$11,000
$12,000
$13,000
$14,000
$15,000
Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18
Top Quartile
2nd Quartile
3rd Quartile
Bottom Quartile
Brown AdvisoryGlobal LeadersComposite Net
Russell Global LCNR USD
$14,786
$12,821
18
*All investments are voluntary and we do not track the level of investment by Portfolio Manager. Please see the Brown Advisory Global Leaders disclosure statement at the end of this presentation for additional information and a complete list of terms and definitions.
We believe in:
Being concentrated Max 40 positions / Top 10 holding weight ~ 40% of portfolio
Being collaborative 25 equity research analysts, 9 working group members
Active management / long-term Typically ~ 95% active share / name turnover ~ 20% per annum
Alignment The Portfolio Managers of the Global Leaders strategy invest alongside their clients*
Self-improvement We use third party analytics to minimise behavioural pitfalls
We do not believe in: Mirroring the benchmark Currently Zero weight in 3 sectors and zero weight in 3 out of the largest 10 countries
Opaque business models No companies with impenetrable accounts or persistent profit-to-cash flow imbalances
Macro-thematic investing No short-term tactical allocation – we invest in businesses not macro factors
Relative valuation We use cash flow driven by ROIC/ growth/ fade to find value not relative multiples
Excessive leverage Approximately half of the companies in the portfolio have net cash balance sheets
What You Can Expect From Us
19
YTD Portfolio Review
20
Year-to-Date Top & Bottom Contributors to Return
Global Leaders Representative AccountTop Five Contributors
SYMBOL NAME AVERAGE WEIGHT (%) RETURN (%)CONTRIBUTION TO
RETURN (%)
MSFT Microsoft Corporation 5.74 35.43 1.81
MA Mastercard Incorporated Class A 3.75 47.71 1.53
EW Edwards Lifesciences Corporation 2.94 54.47 1.30
V Visa Inc. Class A 4.23 32.27 1.24
SAF-FR Safran S.A. 3.53 38.06 1.22
Global Leaders Representative Account Bottom Five Contributors
SYMBOL NAME AVERAGE WEIGHT (%) RETURN (%)CONTRIBUTION TO
RETURN (%)
CI Cigna Corporation 0.79 -19.04 -0.60
EBAY eBay Inc. 1.92 -18.63 -0.59
BBRI-ID PT Bank Rakyat Indonesia (Persero) Tbk Class B 2.01 -18.87 -0.43
CTRP Ctrip.com International Ltd Sponsored ADR 1.18 -12.85 -0.32
700-HK Tencent Holdings Ltd. 0.38 -12.98 -0.24
Source: FactSet®. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. References to specific securities are for illustrative purposes only and do not represent all of the securities purchased, sold or recommended for advisory clients. Returns listed represent the period when the security was held during the quarter. Contribution to return is calculated by multiplying a security’s beginning weight in the portfolio by the security’s return on a daily basis, and geometrically linking the return for the reporting period. The portfolio information provided is based on a Brown Advisory Global Leaders representative account and is provided as supplemental information. Top five and bottom five contributors include cash and cash equivalents. Please see disclosure statements at the end of this presentation for additional information and for a complete list of terms and definitions.
As of 09/30/2018
21
Year-to-Date Additions/Deletions
Source: FactSet®. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. The portfolio information provided is based on a representative Brown Advisory Global Leaders account and is provided as supplemental information. Sectors are based on the Global Industry Classification Standard (GICS) classification system. Please see disclosure statements at the end of this presentation for additional information and for a complete list of terms and definitions.
SYMBOL ADDITIONS SECTOR MONTH ADDED
EBAY eBay Inc. Information Technology March
WKL-NL Wolters Kluwer NV Consumer Discretionary March
CTRP Ctrip.com International Ltd Sponsored ADR Consumer Discretionary April
FLS Flowserve Corporation Industrials May
MRVL Marvell Technology Group Ltd. Information Technology July
700-HK Tencent Holdings Ltd. Communication Services August
SYMBOL DELETIONS SECTOR MONTH ELIMINATED
CI Cigna Corporation Health Care March
SBUX Starbucks Corporation Consumer Discretionary March
HEN3-DE Henkel AG & Co. KGaA Consumer Staples May
FLT FleetCor Technologies, Inc. Information Technology June
PYPL PayPal Holdings Inc. Information Technology August
As of 09/30/2018
Additions
Deletions
Representative Global Leaders Account
22
Appendix
23
Factor & Stock Selection Contribution to Relative Return
Source: Bloomberg. Past performance is not indicative of future results. The portfolio information provided is based on a representative Brown Advisory Global Leaders account and is provided as supplemental information. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. Please see the Brown Advisory Global Leaders disclosure statement at the end of this presentation for a GIPS compliant presentation.
Factor & Selection Effect as of September 30, 2018Global Leaders Representative AccountCumulative Rolling Relative Performance (% net of fees)Fund inception: May 1, 2015
7.2%
-200
100
400
700
1000
1300
1600
1900
2200
2500
Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18
Total Active Return Factor Return Selection Effect
24.0%
16.8%
22
19
16
13
10
7
4
-3
25
1
24
Our Investment Process: Behavioural Analysis
We use a third-party analytics provider to deliver analysis on our portfolio management skills
We challenge ourselves to continuously learn and improve.
Purchases Sales
Case Study: Edwards Lifesciences Corp. (EW)Representative Global Leaders Portfolio Holding since inception (05/01/2015)As of 12/31/2017
Source: FactSet. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. References to specific securities are for illustrative purposes only and do not represent all of the securities purchased, sold or recommended for clients. Please see disclosure statements at the end of this presentation for additional information and for a complete list of terms and definitions.
50
60
70
80
90
100
110
120
130
01/05/2015 01/08/2015 01/11/2015 01/02/2016 01/05/2016 01/08/2016 01/11/2016 01/02/2017 01/05/2017 01/08/2017 01/11/2017
Pric
e ($
)
Edwards Lifesciences Corporation - Price
25
Network Effects – Multiple Forms
Network Effect The value of a good or service increases for both new and existing users as more
people use it.
More Users
Lower Cost↑ Value for Users
One-Sided Network
More Users
More Suppliers
Two-Sided Network
↑ Value for Suppliers
↑ Value for Users
Source: Brown Advisory. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. Past performance is not a guarantee of future performance. Please see disclosure statement at the end of this presentation for additional information.
26
We believe that understanding how a company engages with its stakeholders is key to understanding sustainable value creation
Please see the end of the presentation for important disclosures.
Our Process: Sustainable Business Advantage
Environmental, Social and Governance (ESG) strengths are positive drivers for long-term business franchise sustainability
Management teams that incorporate ESG factors into their philosophy create value for all stakeholders over time
We seek businesses that exhibit sustainable business advantages (SBA) using our proprietary ESG framework to uncover ESG growth and revenue drivers
We check the portfolio against negative screens on United Nations Global Compact Principles (UNGC), with levels of fossil fuels, tobacco, adult entertainment, gambling, military equipment and controversial weapons
Brown Advisory has dedicated ESG equity analysts who perform ESG Risk Assessments on Global Leaders investments
We complete ESG Risk Assessments and Strategic Risk Assessments on all equities owned and being considered for investment
We use MSCI ESG Research to identify and assess company-specific ESG risks, examining the company’s ability to manage both past and present ESG controversies
Key To Our Philosophy Is A Belief That: Brown Advisory’s Dedicated ESG Resources:
The Global Leaders Strategy integrates Brown Advisory’s established sustainable investing capabilities
ESG Analysis In Our Investment Process:
27
SBA Opportunities
Sustainable Business Advantage
Shareholder Value
Optimize hardware, software & energy
=Reduced capex &
opex
Cost reduction
Reduce energy,water, labor,
resource use for customers =
persistent and compelling customer
value proposition
Revenue growth
Ethical, healthy, clean-label products
= customer trust,loyalty
Enhanced franchise value
Potential Risks Sectors
Data Center Energy Use, Power Quality and Cost
Information Technology, Financials
Commodity price volatility, cyclicality
Industrials, Basic Materials
Brand reputation, changing customer preferences
Consumer,Health Care
Investment Challenge
Finding
fundamentally
strong
companies that
capitalize on
these types of
opportunities
28
Portfolio Company: Visa Inc. (V)
Emerging Markets: Over two thirds of the 2.5 billion underbanked people around the world have access to mobile phones. 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. Visa recognizes that connecting emerging markets will generate benefits for shareholders and emerging economies alike.
Fundamental Strengths Sustainability Drivers: Revenue Growth
The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. Please see disclosure statements at the end of this presentation for additional information and for a complete list of terms and definitions.
Attractive business model – high operating margins, tremendous cash generator, relatively little new capital required to grow the business, high barriers to entry, and high value-add to the customer
Growth – Taking share from cash; mobile is the fastest growing medium for Visa in emerging economies
A leading electronic payment provider
Visa Inc.
29
Standard Valuation Models Do Not Fit Reality
Business Lifecycle Theory
Microeconomics is not reality.We challenge ourselves to look at valuation over the long-term,
while the rest of the market tends to keep a short-sighted near-term focus.
Businesses with ExceptionalCustomer Outcomes
RO
IC
TIME
INTR
OD
UC
TIO
N
GR
OW
TH
MA
TUR
ITY
DE
CLI
NE
Source: Brown Advisory. Please see the end of this presentation for important disclosures.
30
Taiwan Semiconductor Manufacturing Co. (TSM)Stock Price Return Relative to Russell Global Large-Cap, ROIC (LTM)
Source: FactSet. Logo has been used with exclusive permission. The ROIC for TSM reflects the most recent available data point, reported from 12/31/17. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. Please see disclosure statements at the end of this presentation for additional information and for a complete list of terms and definitions.
Exceptional customer outcomes can create a virtuous circle of customer and shareholder goodwill,high and sustainable return on invested capital (ROIC)
and excess economic profit at above-market growth rates for extended periods.
As of 12/31/2017
Inde
xed
Ret
urn
(%)
RO
IC (%
)
Stock outperformed by over 100% vs. Index
Case Study: ROIC and Relative Return
0
5
10
15
20
25
30
35
0
50
100
150
200
250
300
12/3
1/06
12/3
1/07
12/3
1/08
12/3
1/09
12/3
1/10
12/3
1/11
12/3
1/12
12/3
1/13
12/3
1/14
12/3
1/15
12/3
1/16
12/3
1/17
Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR - ROIC
Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR - Total ReturnRelative to Russell Global Large Cap
31
PRIYANKA AGNIHOTRI, CFAFinancial Services Research Analyst Lady Shri Ram College for Women, New Delhi. B.A.; Indian
Institute of Management, Ahmedabad, PGDip; Columbia University, M.B.A.
Analyst, Bernstein Research; Analyst, Phoenix Asset Management Partners
Investment experience since 2009; Joined Brown Advisory 2015
MANEESH BAJAJ, CFAFlexible Equity Portfolio Manager University of Pennsylvania, The Wharton School, M.B.A.;
University of Kentucky, M.S. Senior Associate, McKinsey & Company; Senior Associate,
Standard & Poor’s Investment experience since 2003; Joined Brown Advisory
2005
CHRISTOPHER BERRIERSmall-Cap Growth Portfolio Manager; Mid-Cap Growth Portfolio Manager Princeton University, A.B. Vice President, T. Rowe Price Group Investment experience since 2000; Joined Brown Advisory
2005
JOHN BOND, CFATechnology Equity Research Analyst Harvard University, A.B.; Columbia Business School, M.B.A. Senior Analyst and Assistant Portfolio Manager, Nicusa Capital Investment experience since 1999; Joined Brown Advisory
2012
RUPERT BRANDT, CFALatin American Portfolio Manager University of Manchester, BSc, University of Exeter, M.A. Portfolio Manager, Findlay Park Latin American Fund. Merged
into Brown Advisory Latin American Fund on 30th April 2018. Analyst, Foreign and Colonial Investment Trust.
Investment experience since 1994; Joined Brown Advisory 2018
LAUREN CAHALANGeneral Equity Research Analyst Towson University, B.S. Investment experience since 2018; Joined Brown Advisory
2018
JOHN CANNINGTechnology Equity Research Analyst Dartmouth College, B.A. Investment experience since 2014; Joined Brown Advisory
2014
ERIN CAWLEYRisk Equity Research Analyst Loyola University, B.S. Investment experience since 2017; Joined Brown Advisory 2012
PETER CAWSTONLatin American Portfolio Manager University of Cambridge, M.A., MPhil. Portfolio Manager, Findlay Park Latin American Fund. Merged
into Brown Advisory Latin American Fund on 30th April 2018. Analyst and Fund Manager, Baillie Gifford.
Investment experience since 2001; Joined Brown Advisory 2018
ERIC CHA, CFAConsumer Equity Research Analyst University of Virginia, B.A.; New York University, M.B.A. Equity Analyst, Bethlehem Steel Pension Fund; Equity Analyst,
Oppenheimer Funds Investment experience since 2000; Joined Brown Advisory 2007
PAUL CHEW, CFAChief Investment Officer Mount St. Mary’s, B.A.; Duke University, Fuqua School of
Business, M.B.A. International Asset Management Department, J.P. Morgan & Co. Investment experience since 1989; Joined Brown Advisory 1995
KENNETH COE, CFAFinancial Services Equity Research Analyst Wake Forest University, B.A. Analyst, First Annapolis Consulting; Research, Independent
Financial Econometrics Study Investment experience since 2010; Joined Brown Advisory 2013
MICK DILLON, CFAGlobal Leaders Portfolio Manager University of Melbourne, B.A. Co-Head of Asian Equities & Portfolio Manager, HSBC Global
Asset Management; Analyst, Arete Research Investment experience since 2000; Joined Brown Advisory 2014
EMILY DWYEREquity ESG Research Analyst Smith College, B.A. Investment experience since 2014; Joined Brown Advisory 2014
DOUGLAS FALKGeneralist Equity Research Analyst Goucher College, B.A. Investment Analyst and Financial Advisor Merrill Lynch Investment experience since 2014; Joined Brown Advisory 2016
THOMAS FITZALAN HOWARDGeneralist Equity Research Analyst University of Edinburgh, M.A. Investment experience since 2016; Joined Brown Advisory
2016
MICHAEL FOSS, CFAFlexible Equity Research Analyst Virginia Tech, B.A.; University of Pennsylvania, The Wharton
School, M.B.A. Equity Research, Alex. Brown Investment Management;
Managing Director & Portfolio Manager, JP Morgan Fleming; Equity Analyst, Gabelli & Co.; Retail Broker, Tucker Anthony
Investment experience since 1987; Joined Brown Advisory 2004
KARINA FUNK, CFAHead of Sustainable Investing; Large-Cap Sustainable Growth Portfolio Manager Purdue University, B.S.; MIT, Masters in Civil & Environmental
Engineering; MIT, Masters in Technology & Policy; ÉcolePolytechnique - France, Post-Graduate Diploma in Management of Technology
Manager, Massachusetts Renewable Energy Trust; Principal, Charles River Ventures
Investment experience since 2003; Joined Brown Advisory 2009
ROBERT FURLONG, CFABusiness Services Equity Research Analyst York College of Pennsylvania, B.S.; University of Baltimore,
Merrick School of Business, M.S.F. Portfolio Manager, Carson Group; Director of Research, GARP
Research & Securities Investment experience since 2000; Joined Brown Advisory
2018
ERIC GORDON, CFADirector of Equity Research University of North Carolina, Chapel Hill, B.A. Equity Research, Alex. Brown Investment Management;
Investment Banking Analyst, Deutsche Bank Alex. Brown, Merrill Lynch & Co.; Equity Research, Citigroup
Investment experience since 1998; Joined Brown Advisory 2008
BRIAN GRANEY, CFAEquity Income Portfolio Manager George Washington University, B.A. Portfolio Manager, Equity Research, Alex. Brown Investment
Management; Writer/Analyst, The Motley Fool Investment experience since 1996; Joined Brown Advisory
2001
Research & Investment Team
32
TIMOTHY HATHAWAY, CFAHead of Institutional Business Randolph-Macon College, B.A.; Loyola University, M.B.A. Co-Portfolio Manager of Small-Cap Growth Strategy, Brown Advisory;
Investor Relations, T. Rowe Price Investment experience since 1993; Joined Brown Advisory 1995
SHA HUANGFinancials Equity Research Analyst Vassar College, B.A. Investment experience since 2016; Joined Brown Advisory 2016
SANJEEV JOSHI, CFAHealth Care Equity Research Analyst India Institute of Technology – Roorkee B.S.; University of Mumbai,
M.A.; University of Chicago M.B.A. Equity Research, UBS Asset Management; Equity Research, SG Asia
Securities; Equity Research, DBS Securities; Analyst, Kotak Securities
Investment experience since 1994; Joined Brown Advisory 2018
MARK KELLYHealth Care Equity Research Analyst Johns Hopkins University B.A.; Johns Hopkins University M.H.S. Equity Research, Stifel Nicolaus; Managing Consultant, Navigant Investment experience since 2008; Joined Brown Advisory 2017
KATHERINE KROLLEquity ESG Research Analyst University of Vermont, B.A. Shareholder Advocate, Green Century Capital Management;
Operations Coordinator, Renewable Energy Vermont Investment experience since 2015; Joined Brown Advisory 2018
PATRICK MAHONEYConsumer Equity Research Analyst University of Notre Dame, B.S. Associate Analyst, Oppenheimer & Co. Investment experience since 2007; Joined Brown Advisory 2013
CAMERON MATHISFinancials Equity Research Analyst University of Pennsylvania, B.A. Investment Banking, Equity Research, Evercore Investment experience since 2013; Joined Brown Advisory 2018
DAN MOONEY, CFAConsumer Equity Research Analyst Georgetown University, B.S.; University of Virginia, M.B.A. Senior REIT Analyst, CB Richard Ellis Investors; Investment Banker,
Barclays Capital; Equity Research Senior Associate, Green Street Advisors; Fixed Income Research Associate, Bear Sterns
Investment experience since 2001; Joined Brown Advisory 2011
KEVIN OSTEN, CFAProduct Specialist Parks College of St. Louis University, B.S.; University of Missouri
St. Louis, M.B.A. Senior Research Analyst, Summit Strategies; Institutional
Consulting, Merrill Lynch Pierce, Fenner & Smith Investment experience since 1999; Joined Brown Advisory 2012
ADI PADVAIndustrials & Basic Materials Equity Research Analyst Harvard Business School, M.B.A.; Open University of Israel, B.A. Senior Research Analyst, Neuberger Berman Investment experience since 2005; Joined Brown Advisory 2015
SUNG PARK, CFAHealth Care Equity Research Analyst Johns Hopkins University, B.A.; University of Maryland, Smith
School of Business, M.B.A. Associate Portfolio Manager and Research Analyst, Croft
Leominster Investment experience since 2003; Joined Brown Advisory 2006
SIMON PATERSON, CFAIndustrials & Basic Materials Equity Research Analyst Queen’s University, Ontario, Canada B.Sc. and B.A.; Princeton
University, M.A. Senior Equity Analyst, MTB Investment Advisors Investment experience since 2002; Joined Brown Advisory 2011
MICHAEL POGGI, CFASmall-Cap Fundamental Value Associate Portfolio Manager University of Richmond, B.S.B.A. Investment experience since 2003; Joined Brown Advisory 2003
DAVID POWELL, CFALarge-Cap Sustainable Growth Portfolio Manager Bowdoin College, B.A. Investor Relations, T. Rowe Price Investment experience since 1997; Joined Brown Advisory 1999
GEORGE SAKELLARIS, CFAMid-Cap Growth Portfolio Manager; Small-Cap Growth Associate Portfolio Manager Robert H. Smith School of Business, M.B.A.; University of
Maryland, B.S. Portfolio Manager, Credo Capital Management; Director of
Research, GARP Research & Securities Investment experience since 2001; Joined Brown Advisory 2014
J. DAVID SCHUSTERSmall-Cap Fundamental Value Portfolio Manager Georgetown University, B.S.B.A. Managing Director, Citigroup; Managing Director, Lazard Freres &
Co.; Officer, U.S. Army Investment experience since 1995; Joined Brown Advisory 2008
RODDY SEYMOUR-WILLIAMSGeneralist Equity Research Analyst University of Bristol, BSc. Investment experience since 2017; Joined Brown Advisory 2017
KENNETH STUZIN, CFALarge-Cap Growth Portfolio Manager Columbia University, B.A.; Columbia Business School, M.B.A. Senior Portfolio Manager and Quantitative Strategist, J.P. Morgan Investment experience since 1986; Joined Brown Advisory 1996
BERTIE THOMSON, CFAGlobal Leaders Portfolio Manager Edinburgh University, M.A. Senior Investment Manager, Aberdeen Asset Management Investment experience since 2002; Joined Brown Advisory 2015
ALEX TREVINOConsumer Equity Research Analyst University of Virginia, B.S. Investment experience since 2016; Joined Brown Advisory 2016
R. HUTCHINGS VERNON, CFAFlexible Equity Portfolio Manager University of Virginia, B.A. Portfolio Manager & Equity Research, Alex. Brown Investment
Management; Portfolio Manager & Research Analyst, T. Rowe Price, Legg Mason and Wachovia Bank
Investment experience since 1982; Joined Brown Advisory 1993
EMILY WACHTMEISTER, CFATechnology Equity Research Analyst Washington & Lee University, B.A. Junior Associate, Morgan Stanley Investment experience since 2011; Joined Brown Advisory 2013
JAMIE WYATTIndustrials & Basic Materials Equity Research Analyst Johns Hopkins University, B.S. Investment experience since 2018; Joined Brown Advisory 2018
NINA YUDELLPortfolio Manager; Flexible Equity Generalist University of Baltimore, B.S., M.B.A.; Johns Hopkins University,
M.S.B. Portfolio Manager and Investment Analyst, Alex. Brown Investment
Management; Investment Assistant, Oppenheimer & Co., Inc.; Investment Assistant, T. Rowe Price
Investment experience since 1986; Joined Brown Advisory 1992
Research & Investment Team
33
WILLIAM C. BAKER* President and CEO, Chesapeake Bay Foundation Trustee: Johns Hopkins Medicine, Open Society Institute-
Baltimore, The Clayton Baker Trust Director, Central Maryland Transportation Alliance Honorary Director: Garden Club of America, Baltimore
Community Foundation Member, UMBC Board of Visitors
HOWARD E. COX, JR. Advisory Partner, Greylock Board Member: Stryker Corporation (NYSE: SYK), In-Q-Tel,
Secretary of Defense Business Board, Foundation Board of Forum of Young Global Leaders
Member, The Council on Foreign Relations Investment Committee Member: Partners Healthcare, Dana-
Farber Cancer Institute, Museum of Fine Arts, Brookings Institute
Board of Fellows Member, Harvard Medical School Dean's Council Member, Harvard Kennedy School
JOHN O. DOWNING Founder, CDK Investment Management Vice Chairman, Brown Advisory Incorporated Former General Partner, Goldman Sachs & Co. Director, The Medical University of South Carolina Foundation Investment Committee Member, The Hotchkiss School Co-Founder, Vermont 99 Foods
ROBERT J. FLANAGAN President of Clark Enterprises, Inc. Chairman of the Board: Sagent Pharmaceuticals, Inc.
(NASDAQ:SGNT); Federal City Council Board Member: Eagle Oil & Gas Co., Svelte Medical Systems
BENJAMIN H. GRISWOLD, IV* Chairman, Brown Investment Advisory & Trust Company Director and Non-Executive Chairman, W.P. Carey Inc.
(NYSE: WPC) Lead Director, Flowers Foods, Inc. (NYSE: FLO) Director, Signal Hill Capital Group LLC Board Member, Americas Advisory Board - Deutsche Bank Trustee Emeritus, The Johns Hopkins University Trustee Gilman School Dean’s Advisory Committee, Johns Hopkins Carey Business
School
MICHAEL D. HANKIN* President and CEO, Brown Advisory Vice Chairman, Johns Hopkins Medicine Trustee: Johns Hopkins Medicine, The Johns Hopkins
University, Chesapeake Conservancy Chairman of Board of Managers, Johns Hopkins
University Applied Physics Lab Director: Stanley Black & Decker, Inc. (NYSE: SWK),
Tate Engineering Services, Inc. and The Wills Group, Inc.
Chairman, Baltimore Waterfront Partnership and Management Authority
President, Land Preservation Trust Inc. Director: National Steeplechase Association, Center for
Large Landscape Conservation
BEATRICE H.M. HOLLOND Chairman, Millbank Investment Managers Limited Board Director and now Chairman, Millbank Financial
Services Limited, Keystone Investment Trust plc Board Director and Chairman of Audit Committee,
Henderson Smaller Companies Investment Trust plc Non-Executive Director, Templeton Emerging Markets
Investment Trust PLC, M&G Group Limited, Telecoms Plus PLC, Foreign & Colonial Investment Trust PLC
Chair of Investment Committee and Advisory Fellow, Pembroke College, Oxford
Trustee and Investment Committee member, EsméeFairbairn Foundation
Board member, Soho Theatre, London Financial Advisory Group member, Salisbury Cathedral
EARL L. LINEHAN* President, Woodbrook Capital Inc. Board Member: Heritage Properties Inc., AllTrust Networks Trustee/Director: Mercy Hospital, UMBC Board of Visitors,
Cristo Rey Jesuit High School
GLENN R. MARTIN* President, Clay County Port Inc. President, Universal Sales Corp. Trustee: Hospital for the Women of Maryland of Baltimore
City, The Missionary Emergency Foundation, Richard S. Reynolds Foundation
Brown Advisory Board of Directors
*Also a director of Brown Investment Advisory and Trust Company
Our independent Board of Directors provides objective guidance and insights.
ROBERT S. MURLEY Vice Chairman—Senior Advisor and Chairman of
Investment Banking for the Americas, Credit Suisse (NYSE: CS)
Director, Apollo Education Group; Stone Energy Corporation (NYSE: SGY); Trustee, Princeton University; Princeton University Investment Company
Vice Chair, Ann & Robert H. Lurie Children’s Hospital of Chicago
Chair, Lurie Children’s Foundation; Board of Overseers of the UCLA Anderson School of Management
Trustee, Museum of Science and Industry of Chicago
WALTER D. PINKARD, JR.* Senior Advisor Cushman & Wakefield President and Investment Committee Member, France
Merrick Foundation Trustee Emeritus: The Johns Hopkins University,
Baltimore Community Foundation Trustee, Johns Hopkins Medicine Chairman: Hippodrome Foundation, National Advisory
Council of Johns Hopkins School of Nursing Board Member: Stulman Foundation, Dome
Corporation, Central Maryland Transportation Alliance Board of Directors, Chair of Finance and Investment
Committee, Baltimore Life Companies
GORDON F. RAINEY, JR.* Chairman Emeritus, Hunton & Williams Past Rector and Member of Board of Visitors, the
University of Virginia National Chairman, Campaign for the University of
Virginia Senior Trustee, The Colonial Williamsburg Foundation Trustee, Virginia Higher Education Business Council Life Trustee, Virginia Foundation for Independent
Colleges
34
SIMON M. DE ZOETE Director and Former Chairman, Troy Asset
Management Ltd Former Member of Investment Committee: BAE
Pension Trust, Persimmon Pension Fund Former Senior Advisor & Deputy Chairman,
Credit Suisse (Europe) Former Vice Chairman, Barclays de Zoete Wedd
(“BZW”), now Barclays Capital Former Partner, de Zoete and Bevan
BENJAMIN H. GRISWOLD, IV* See biography for Brown Advisory Incorporated
MICHAEL D. HANKIN* See biography for Brown Advisory Incorporated
STEVEN G. HOCH Senior Advisor & Advisory Board Member, Brown
Advisory Limited Trustee and Chairman of the Corporation Board,
Woods Hole Oceanographic Institution Chairman of the Advisory Board, Smithsonian
Tropical Research Institute, Panama Member, Ceres President’s Council Chairman Emeritus, American Swiss Foundation Former Board Member and Nomination &
Sustainability Committee, Nestle S.A., Switzerland
Founding Partner & former CEO of HighmountCapital (joined Brown Advisory in 2015)
*Also a director of Brown Advisory Incorporated
BEATRICE H. M. HOLLOND* See biography for Brown Advisory Incorporated
PETER G. C. MALLINSON Vice Chairman, Brown Advisory Limited Senior Advisor, CDK|Brown Advisory Board Member, Nextam Partners Chairman, The Queen’s Club Vice President: Tennis & Rackets Association,
Save the Children UK Founding Trustee, New Philanthropy Capital Investment Committee, The Health Foundation Trustee, Governor and Chairman, Executive &
Finance Committee of Wellington College Former Partner, Co-Head of Equity Capital
Markets in Europe, Head of Equities Division in Asia ex-Japan & Head of European Equities, Goldman Sachs International
SIR SIMON M. ROBERTSON Founding Member, Simon Robertson
Associates LLP Non-Executive Director: Troy Asset
Management Ltd Trustee, Royal Opera House Endowment Fund Former Chairman, HSBC Holdings plc Former Chairman, Rolls Royce Holdings plc Former Managing Director & President,
Goldman Sachs Europe Ltd. Former Chairman, Dresdner Kleinwort Benson
Brown Advisory International Advisory Board
35
Terms and Definitions Past performance is not a guarantee of future performance and you may not get back the amount invested. The views expressed are those of the author and Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be and should not be relied upon as investment advice and are not intended to be a forecast of future events or a guarantee of future results. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is intended solely for our clients and prospective clients, is for informational purposes only, and is not individually tailored for or directed to any particular client or prospective client.
As of September 30, 2018, Brown Advisory had approximately $68.4 billion in client assets for the following entities: Brown Advisory, LLC, Brown Investment Advisory & Trust Company, Brown Advisory Securities, LLC, Brown Advisory Ltd., Brown Advisory Trust Company of Delaware LLC, Brown Advisory Investment Solutions Group LLC and Meritage Capital LLC.
Brown Advisory had $31.3 billion in firm wide institutional strategy assets, which represents assets under management in institutionally marketed strategies. Total strategy assets include accounts that are excluded from the composite. These assets include (1) single strategy assets of balanced accounts, (2) accounts that do not meet the composite minimum market value requirement and (3) accounts with restrictive guidelines.
The Russell Global Large-Cap Net Index offers investors access to the large-cap segment of the entire global equity universe. The Russell Global Large Cap index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to accurately reflect the changes in the market over time. All Russell indices mentioned above are trademarks/service marks of the Frank Russell Company. Russell® is a trademark of the Frank Russell Company. One cannot invest directly in an index.
The MSCI ACWI® Index captures large and mid cap representation across 23 Developed Markets (DM) countries and 23 Emerging Markets (EM) countries. All MSCI indexes and products are trademarks and service marks of MSCI or its subsidiaries.
All financial statistics and ratios are calculated using information from Factset as of the report date unless otherwise noted. FactSet® is a registered trademark of FactSet Research Systems, Inc. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and Standard & Poor’s. “Global Industry Classification Standard (GICS), “GICS” and “GICS Direct” are service marks of Standard & Poor’s and MSCI . “GICS” is a trademark of MSCI and Standard & Poor’s.
All financial statistics and ratios are calculated using information from FactSet as of the report date unless otherwise noted. ROIC is a measure of determining a company’s financial performance. It is calculated as NOPAT/IC; where NOPAT (net operating profit after tax) is (EBIT + Operating Leases Due 1-Yr)*(1-Cash Tax Rate) and IC (invested capital) is Total Debt + Total Equity + Total Unfunded Pension + (Operating Leases Due 1-Yr * 8) – Excess Cash. ROIC calculations presented use LFY (last fiscal year) and exclude financial services.Average Weight of a position or sector refers to the value of that position or sector relative to the overall portfolio or to a provided benchmark, calculated on a daily basis over the course of the period covered in the report. Weightings may change during the quarter due to market movement or purchase/sale activity. The Total Return of an equity security is the sum of the return from price movement and the return due to dividend payments or other sources of income. Standard benchmark-, sector- and portfolio-level returns are the sums of the weights of each security multiplied by its return, summed and calculated daily and summed over the period covered by the report or by an otherwise-noted period.Contribution To Return is calculated by multiplying a security’s beginning weight as a percentage of a portfolio by that security’s return for the period covered in the report. EV/EBIT is a financial ratio used to measure a company's return on investment. EV/EBIT calculations presented use NTM (next twelve months) estimates.FCF yield is a measure of financial performance calculated as operating cash flow minus capital expenditures. FCF yield calculations presented use LFY and exclude financial services.Sales growth rate is based on reported company revenue for the past three years at the end of the current quarter, provided as a historical average.Price-Earnings Ratio (P/E Ratio) is the ratio of the share of a company’s stock compared to its per-share earnings. P/E calculations presented use NTM (next twelve months) earnings estimates.Tracking Error is the standard deviation of the difference in the portfolio and benchmark returnsActive Share indicates how different the portfolio is from its benchmark. Calculated as the sum of each security's absolute weight difference.Beta is a measure of portfolio volatility. It is equal to the ratio of a portfolio’s volatility relative to its benchmark index’s volatility over time. It is equal to the excess return of a portfolio over a risk-free investment, minus that portfolio’s expected return given its volatility relative to its benchmark index.Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a portfolio and compares its risk-adjusted performance to a benchmark index.Annualized Return is the geometric average amount of money earned by an investment each year over a given time period. It is calculated as a geometric average to show what an investor would earn over a period of time if the annual return was compounded.Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index.The Sharpe Ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return, the performance associated with risk-taking activities can be isolated. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.The Sortino Ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally.
36
1. *For the purpose of complying with the GIPS standards, the firm is defined as Brown Advisory Institutional, the Institutional and Balanced Institutional asset management divisions of Brown Advisory. As of July 1, 2016, the firm was redefined to exclude the Brown Advisory Private Client division, due to an evolution of the three distinct business lines.
2. The Global Leaders Composite aims to achieve capital appreciation by investing primarily in global equities. The strategy will invest in equity securities of companies that the portfolio manager believes are leaders within their industry or country, as demonstrated by an ability to deliver high relative return on invested capital over time.
3. This composite was created in 2015. 4. The benchmark is the Russell Global Large-Cap Net Index. This index offers investors access to the large-cap segment of the entire global equity universe. The index is constructed to provide a
comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to accurately reflect the changes in the market over time. Russell® is a trademark/service mark of the London Stock Exchange Group companies. One cannot invest directly in an index. Benchmark returns are not covered by the report of the independent verifiers.
5. The dispersion of annual returns is measured by the equal weighted standard deviation of portfolio returns. The composite dispersion is not applicable (N/A) for periods where there were five or fewer accounts in the composite for the entire period.
6. Gross-of-fees performance returns are presented before management fees but after all trading commissions, and gross of foreign withholding taxes (if applicable). Net-of-fee performance returns reflect the deduction of actual management fees and all trading commissions. Other expenses can reduce returns to investors. The standard management fee schedule is as follows: 0.80% on the first $25 million; 0.70% on the next $25 million; 0.65% on the next $50 million; and 0.50% on the balance over $100 million. Further information regarding investment advisory fees is described in Part II A of the firm’s form ADV. Actual fees paid by accounts in the composite may differ from the current fee schedule.
7. The three-year annualized ex-post standard deviation measures the variability of the composite (using gross returns) and the benchmark for the 36-month period ended on December 31. The 3 year annualized standard deviation is not presented as of December 31, 2015, December 31, 2016 and December 31, 2017 because 36 month returns for the composite were not available (NA) and the composite did not exist.
8. Valuations and performance returns are computed and stated in U.S. Dollars. All returns reflect the reinvestment of income and other earnings. 9. A complete list of composite descriptions, policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.10. Past performance does not indicate future results. 11. This piece is provided for informational purposes only and should not be construed as a research report, a recommendation or suggestion to engage in or refrain from a particular course of action or to make or
hold a particular investment or pursue a particular investment strategy , including whether or not to buy, sell or hold any of the securities mentioned, including any mutual fund managed by Brown Advisory.
Year
Composite Total Gross Returns
(%)Composite Total Net Returns (%)
Benchmark Returns (%)
Composite 3-Yr Annualized
Standard Deviation (%)
Benchmark 3-Yr AnnualizedStandard
Deviation (%)
Portfolios in Composite at End
of YearComposite
Dispersion (%)
CompositeAssets
($USD Millions)*
GIPS Firm Assets ($USD
Millions)*
2017 35.1 34.0 24.6 N/A N/A 2 N/A 77 33,1552016 -0.6 -1.4 8.1 N/A N/A 2 N/A 38 30,417
2015** 1.23 0.68 -7.11 N/A N/A 2 N/A 24 43,746
Brown Advisory Institutional claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Brown Advisory Institutional has been independently verified for the periods from January 1, 1993 through December 31, 2017. The Verification reports are available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. GIPS® is a registered trademark owned by CFA Institute.
**Return is for period May 1, 2015 through December 31, 2015
Global Leaders Composite