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Equities Fixed Income External Managers Private Equity and Real Estate Sustainable Investing

Equities

We follow a philosophy that low-turnover, concentrated portfolios derived from sound bottom-up fundamental research provide an opportunity for attractive performance results over time. We have a culture and firm equity ownership structure that help us attract and retain professionals who share those beliefs, and we follow a repeatable investment process that helps us stay true to our philosophy.

Brown Advisory Equity Strategies

Fixed Income

We follow a philosophy that fixed income strategies built from a foundation of stability coupled with fundamental credit research can seek to generate alpha and control risk. We have a culture and firm equity ownership structure that attract and retain professionals who share those beliefs, and we follow a repeatable investment process that helps us stay true to our philosophy.

Brown Advisory Fixed Income Strategies

External Managers

Investment Solutions Group

The Investment Solutions Group is an investment-management team within Brown Advisory that specializes in asset allocation, manager selection, hedge funds and other alternative investment strategies. Dedicated to open-architecture solutions, our team has established a strong track record of identifying high-quality, third-party investment managers across the hedge fund, long-only and private equity universes. We leverage this expertise to help clients assemble portfolios that we believe best fit their needs and goals, offering clients a range of solutions from complete portfolio management to fulfillment of specific hedge-fund and alternative-asset mandates.

Private Equity and Real Estate

Private Equity and Real Estate

Brown Advisory has incorporated private equity and real estate investments in client portfolios since our founding. Today, we can provide that exposure in three distinct ways.

Feeder Funds and Multimanager Funds
We introduce clients to investment opportunities in early- and late-stage venture capital and buyout funds, as well as select real estate funds. We also construct these feeder funds into multimanager funds through our Private Equity Partners (PEP) and Real Estate Partners (REP) vehicles to make private equity investing as easy as possible for our clients.

Customized Private Equity Portfolios
For most clients, private equity is one component of a balanced portfolio that we manage. Other clients, however, come to us specifically for custom-built private equity and real estate portfolios.

Sustainable Investing

Sustainable Investing Strategies

  • Multi-Manager Strategies
  • For clients seeking an open-architecture solution, we have access to several of the premier sustainable managers in the industry - all vetted by internal research.
  • Private Equity
  • Our private equity team is focused on evaluating the growing universe of private impact investments to identify standout opportunities that target various issues of particular concern to our clients. To date, we have placed assets in investments targeting a variety of impact themes such as community impact, microfinance, education technology, sustainable real estate, water initiatives and others.*
  • *Many alternative investments by regulation may only be sold to Accredited Investors (institutions with at least $5 million in assets) or Qualified Purchasers (institutions with at least $25 million in investments).

Customized Portfolios

This diverse assortment of solutions will meet many clients’ sustainability objectives; however, we understand the continued evolution of this space and seek to be able to react quickly to client needs.

For clients with unique missions, value-aligned investing programs, or who simply wish to ensure that they do not own certain controversial companies or have access to certain industries, we offer the following customized options:

Additional Screening: To the extent we have reliable data and can build rules into our compliance systems, we can add specific screens to a separate account to restrict companies (e.g. oil and gas providers) or industries (e.g. tobacco or weaponry).

Customized and Thematic Portfolios: Within a separate account, we can work together to solve for a sustainability need. From a universe of securities researched from both the bottom-up and for their ESG profile, we can assemble a custom portfolio of securities designed to meet many specific sustainable goals or outcomes.

Investment Insights and Thoughts from Brown Advisory
Asset Allocation Low Correlation in Stocks: A Good Opportunity for Active Managers
J.R. Rodrigo
June 19, 2018

In equity markets, even the best active managers tend to struggle when stocks are all moving in lock step with each other. But when there’s more differentiation in returns across stocks and sectors, there’s more opportunity for managers to generate alpha.

We have seen a great deal of differentiation in the S&P 500® Index so far in 2018 (see chart below). With all its ups and downs, the Index currently sits close to where it started the year, but underneath that flat number there’s been widely divergent sector performance. 2018 results highlight a few persistent themes at play in the market this year. (All return figures cited refer to sectors and subsectors of the S&P 500 Index).

S&P 500 Index: GICS Sector Performance, YTD as of 5/31/2018

Source: Bloomberg.

Technology upswing: The tech sector is up 10% so far this year, and drilling further down, the application software subsector is up more than 25% and the internet retail subsector is up more than 40%. Investors are very clearly rewarding this body of big technology companies that have built powerful economies of scale and positive network effects in recent years.

While valuations are rising in the space, earnings growth has also been notable this year in the technology sector, with earnings up 8.1% so far in 2018 vs. 4.3% for the Index overall.

Renaissance for…department stores? Department store stocks that were left for dead last year are among the best performing stocks so far in 2018—the department store subsector is up more than 22% year to date. Few would argue that brick and mortar retail companies have a rosy, long-term outlook, but sometimes hard-hit stocks and sectors present true value opportunities.

Doldrums for consumer staples: At the other end of the spectrum, consumer staples is off more than 12% for the year; the packaged foods subsector is down more than 17%. The sector has been punished by a variety of factors from e-commerce disruption, to price competition, to an increasing reliance on leveraged M&A activity to bolster growth—all of which has been a recipe for pressure on already-low profit margins, and for poor stock performance.

Reckoning for “bond proxies”: For years after the financial crisis, investors fled to higher-yielding stocks and sectors (for example, stocks in the utilities, REIT and telecom sectors) for income that they couldn’t get from the bond market. These stocks have lagged the market considerably this year; the yield on 10-year U.S. Treasuries rose above 3% in April, and bonds are viewed once again as a viable source of income. Even cash (using one-to-three month T-bills for a proxy) is yielding near 2% today vs. a near-zero yield as recently as 2015.

Active managers benefiting from more return differentiation

More differentiation between stocks has coincided with better results from active managers. According to Morningstar, 43% of active managers outpaced their passive counterparts in 2017, a notable improvement from 2016 when only 26% outperformed. Of course, an environment with greater differentiation merely provides opportunity for an active manager—it does NOT guarantee that the manager will capitalize on that opportunity. But with prudence, patience and a disciplined investment process, good managers are often able to extract value when the market offers a large spread in returns between fundamental winners and losers. 

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. 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. Past performance is not a guarantee of future performance and you may not get back the amount invested.

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 or asset classes mentioned. It should not be assumed that investments in such securities or asset classes 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.

The Standard & Poor's 500® Index is a market capitalization weighted index of the 500 largest U.S. publicly traded companies by market value. The S&P 500 is a market value or market capitalization weighted index and one of the most common benchmarks for the broader U.S. equity markets. Other common U.S. stock market benchmarks include the Dow Jones Industrial Average (DJIA) or Dow 30 and the Russell 2000 Index, which represents the small-cap index.
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AUTHOR

J.R. Rodrigo

Investment Solutions Group