Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

At first glance, three things about the Brown Advisory US Sustainable Growth Fund stand out - US, Sustainable, and Growth. Generally speaking, each was a characteristic that benefitted investors through 2020. All three together could make for a potent trio.

But it’s not just what it says on the tin that makes this one of our experts’ Select 50 choice of favourite investments, and one of Tom Stevenson’s five fund picks for 2021. What makes it stand out is a robust investment process, a strong valuation discipline and a highly capable team headed by competent management.

To find out more about the fund, Tom recently caught up with one of its managers, David Powell.

Sustainability comes to the fore

Sustainability was a key theme which underpinned Tom’s fund picks for 2021, and it’s partly because of this fund’s strong sustainability focus that we think it’s an attractive choice for the coming year. Environmental, Social and Governance (ESG) focused funds outperformed those that don’t consider ESG factors last year, and sustainability is likely to have a strong bearing on returns this year as well.

Powell explains how every company he holds must demonstrate three “sustainable business advantages.”

First, he’s looking for companies that help improve their customers’ levels of efficiency and productivity - by saving on energy and water costs, for example. He also likes companies that are “sustainability stewards”, i.e. those able to reduce their own consumption levels and save costs in the process. Finally, he’s after companies that drive customer loyalty through a brand that’s built around sustainability.

Quality over quantity

Of course, sustainability is not all he’s looking for. He also wants to see “fundamental strengths and a compelling valuation” in all his holdings.

The former alludes to the fund’s bias for high quality, “growth” companies whose potential to expand is unlimited. The managers operate by a simple mantra: “We think the best companies win over the long term.”

That philosophy has been profitable over the last few years. The best growth companies have gone from strength to strength, while the cheaper, more cyclical-focused “value” stocks have struggled by comparison.

Some of the biggest beneficiaries of growth’s supremacy include tech and healthcare companies, and both industries feature prominently in the fund’s concentrated portfolio - some of its largest holdings include Microsoft, Amazon and UnitedHealth Group.

But Powell isn’t interested in these industries just because they’re popular - in his eyes, they’re home to companies with the best potential for future growth. He explains: “These have always been sectors where we’ve found good ideas and I’m sure we’ll find good ideas in those sectors going forward.” Taking healthcare as an example, he says: “In healthcare, we’re almost twice the index weight. That’s not because we’re calling health care from a top down perspective but just because we found a lot of really interesting ideas there and our view is, if we find ideas in certain sectors, that’s where we’re going to be overweight.”

An ardent focus on bottom-up credentials rather than the economic backdrop means Powell is calm about the prospect of growth style companies falling out of vogue: “Will we be able to outperform in every type of market? Probably not. But over a long period of time - this could be three, five or even ten years - we think we can perform very well if we own the best companies out there - the best ideas - and own them in a concentrated portfolio.”

Valuation is key

The managers operate with a strong valuation discipline which prevents them from paying over the odds - a particularly important consideration now while US prices look stretched. Powell’s valuation process is complex, but its aim is simple. He wants to understand “how much money could we potentially make on this investment or how much could we potentially lose over the next three years.” 

And while we’re only hearing from one person, you get the sense there’s a strong team operating behind the scenes. Powell is keen to credit co-portfolio manager, Karina Funk, with whom he has headed the fund and “made every decision together” since inception. Behind the two sit a 50-strong team of portfolio managers and analysts, including a number who concentrate solely on sustainability analysis.

In an over-populated market like US growth, a strong team is needed to uncover the best opportunities and discard the laggards. It’s just one of many features that helps this fund stand out from the pack.

More on Brown Advisory US Sustainable Growth Fund

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. The Brown Advisory US Sustainable Growth Fund invests in a relatively small number of companies and so may carry more risk than funds that are more diversified. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Topics covered:

North America; Funds; Active investing

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