Politically it’s going to be a turbulent next six months for the US, not least in light of the weekend’s shocking events. However, the US equity market has been a lot less turbulent and a lot more stellar.
With the potential of a new president incoming, in the guise of ex-President Donald Trump, who seems to be a lot more isolationist in the manner of the 1930s US approach to the rest of the world, making America great again will likely be driven from the bottom up, from Main Street not Wall Street, as the trend has been over the last few decades. We wrote recently about the potential investment repercussions of a Trump presidential victory.
The US stockmarket has been a powerhouse over the past few years, but the larger end of the US equity market is dominated by global titans like Microsoft NASDAQ:MSFT, Pfizer [NYSE:PFT], JP Morgan Chase NYSE:JPM and Amazon NASDAQ:AMZN although big names in the United States are global companies that derive a big chunk of their earnings from the Rest of the World.
A good window on the smaller end of the US market (which to be fair are still often significant global entities) is the Brown Advisory US Smaller Companies fund [LON:BASC] which is in a sector of two in the Association of Investment Companies’ (AIC) North American Smaller Companies sector, a bed it shares with JPMorgan US Smaller Companies [LON:JUSC].
The GBP250m fund was launched in 1993, and over one year (on a share price total return basis) returned 10.92% against 11% for the JPM fund. Over five years investors enjoyed a 21.9% return and over 10-years, returned 106.25%
The fund aims to achieve long-term capital growth by investing in a diversified portfolio primarily of quoted US smaller and medium-sized companies and is managed from Baltimore, Maryland by Christopher Berrier. Berrier has been with Brown’s since 2005, and has managed the strategy since 2006 and the fund since 2021. Berrier is assisted by George Sakellaris.
Diverse and dynamic market
Berrier claims to take a disciplined approach to investment managers, emphasising long-term risk-adjusted returns. He believes that the US smaller and medium-sized company sector is a diverse and dynamic part of the North American market and continues to provide opportunities for capital growth over the long-term.
The sector is highly diversified with a great many companies from which to choose. Many companies are relatively immature, whether financially or operationally or in terms of management or market position. They tend to be highly geared to growth and are particularly vulnerable to market and other changes.
Against this background, the fund has adopted an investment style that focuses on companies with durable growth, scalable go-to-market strategies and well-aligned management and shareholder interests, and whose shares are considered by Berrier and Sakellaris to offer above-average capital growth at attractive valuations.
The portfolio isn’t vast, but has at least 40 positions with no one position exceeding 5% of the total assets of the portfolio. The fund doesn’t hold derivatives, unless the board of directors greenlights a derivative position. The fund has the flexibility to invest in unlisted securities, but has an upper limit of 5% of the portfolio value and has a cap of 10% of total assets on other closed-ended funds and can leverage up to 20% of the portfolio.
Massive long-term opportunity in US small caps
Berrier said: “There’s a massive long-term opportunity in [US} small caps. There’s a couple of thousand companies in the US to choose from and the US is a vibrant economy, historically, with a lot of new business formation, not just out of Silicon Valley, but these days, due to technology all around the country.”
“And that’s our opportunity set – one of 2,000 companies that are growing – and our biggest challenge is not finding stuff to buy, but narrowing down that list to a select few that we’re focused on which can grow from being smallcap into midcap companies, and if we’re a little bit lucky into larger cap business over time.”
The fund aims to drive growth of around 200 basis points per annum and do that over a full market cycle, but managing risk. The manger isn’t looking for what is the best part of the US economy, and sinking all its chips there, but finding “best-of-breed businesses” in each area of the economy, that is diversified and as Berrier puts it: “all-weather” that can grow in both a bear or a bull market.
Top five holdings as at 30th June 2024
| Investment | Sector | Weighting |
| Waste Connections NYSE:WCN | Business Consumer | 4.4% |
| Bright Horizons Family Solutions NYSE:BFAM | Childcare | 3.5% |
| ChampionX Corporation NASDAQ:CHX | Oil & Gas | 2.5% |
| Casey’s General Stores NASDAQ:CASY | Consumer Discretionary | 2.5% |
| Valmont Industries NYSE:VMI | Diversified Industrial | 3.0% |
Source: Brown Advisory
The fund trades at a discount to premium of -11.5% and has a 1% ongoing charge.
The Brown Advisory US Smaller Companies fund offers investors exposure to a dynamic segment of the US market. The fund boasts a history of strong returns and a focus on companies with durable growth potential. By prioritising well-aligned management interests and “all-weather” businesses, the fund seeks to deliver consistent capital appreciation over the long term. While the potential political turbulence in the US is acknowledged, the fund’s focus on smaller companies insulated from global giants may offer a hedge against broader market fluctuations.
