In July 2020, BBH Select Series – Large Cap Fund (“BBH Select” or “the Fund”) rose by 6.03%, which compared to a gain of 5.64% for the S&P 500 Index. Our top performer in the month was Linde and our largest detractor was Novartis.
Linde delivered solid Q2 results during the month. Despite volume reductions related to the COVID-19 pandemic, earnings per share (EPS) excluding currency increased by 8%, operating margin expanded by 230 basis points1, and operating cash flow grew 76% year-over-year, demonstrating the resiliency of Linde’s integrated industrial gas supply model. Price improvement was attained across all geographic segments, and the company continued to make progress on its productivity initiatives. We were pleased with the strong growth in adjusted operating profit year-over-year given the current economic challenges, and the notable improvement in operating leverage recorded in the quarter highlighted Linde’s sharp focus on operational excellence. We continue to have high conviction that Linde has a leading competitive position and attractive growth prospects in the structurally attractive industrial gas business.
While Novartis reported an in-line set of results in July, investors reacted negatively to the reduction of revenue guidance to the bottom end of its previously estimated range. Management highlighted that the largest contributor to the reduction was its ophthalmology franchise, in which COVID-19 shutdowns severely limited patients’ ability to seek physician-administered treatment. Despite this headwind, we found the company’s results to be relatively solid considering the backdrop of the current pandemic, and we believe the overall business remains strong. With its two core franchises (pharmaceuticals and generics), a strong track record of research and development (R&D) productivity, a growing global footprint, and several new and growing product lines, we believe that Novartis is well positioned in healthcare. It maintains a healthy product pipeline, exposure to attractive areas of healthcare, and a lower risk profile with respect to potential U.S. drug pricing reform, in our view. Management has undertaken significant portfolio restructuring and has created focus and critical mass in new technologies. This should add considerable optionality to Novartis’ R&D work, helping to position the company as more of a diversified biotechnology company than a traditional pharmaceutical manufacturer.
Holdings are subject to change. Totals may not sum due to rounding.
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Turnover ratio is the rate of trading in a portfolio; higher values imply more frequent trading.
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The Fund is ‘non-diversified’ and may assume large positions in a small number of issuers which can increase the potential for greater price fluctuation.
International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.
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Brown Brothers Harriman & Co. ("BBH"), a New York limited partnership, was founded in 1818 and provides investment advice to registered mutual funds through a separately identifiable department (the "SID"). The SID is registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. BBH acts as the Fund Administrator and is located at 140 Broadway, New York, NY 10005.
Not FDIC Insured No Bank Guarantee May Lose Money
IM-08294-2020-08-12 BBH003024 Exp. Date 09/30/2020
 Basis point (bps) is a unit that is equal to 1/100th of 1% and is used to denote the change in price or yield of a financial instrument