BBH Select Series – Large Cap (the “Fund”) employs a long-term business ownership approach within a discount to Intrinsic Value framework. Our objective is to provide investors with long-term growth of capital. We seek attractive absolute returns while reducing the risk of permanent capital loss in each individual investment. The investment process is driven by a bottom-up, fundamental analysis of individual businesses.
We seek to invest in established, cash-generative businesses that are leading providers of essential products and services with strong management teams. We purchase the publicly-traded equity securities of such companies at a discount to their intrinsic values. Estimates of intrinsic value are based on proprietary analysis of prospective free cash flows and returns on capital. We apply a disciplined investment selection process focused on business, management and financial attributes.
BBH Select Series – Large Cap will generally hold investments in 25-35 companies with market capitalizations greater than $5 billion that are headquartered in North America, as well as in certain global firms located in other developed regions. The targeted holding period is three to five years. Investments are typically sold if they appreciate above our estimate of intrinsic value.
Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in large capitalization publicly traded equity securities. Commonly referred to as large cap stocks, such securities will be issued by domestic and foreign issuers both directly and in the form of depository receipts representing an interest in these securities. The Fund primarily seeks to buy common stock and may also invest in preferred stock. The Fund may use derivatives, including options, to seek to increase the return of the Fund The Investment Adviser considers large cap securities to be securities that at the time of purchase have a market capitalization within the range of companies included in the S&P 500 Index. As of July 31, 2019, the market capitalization range of companies included in the S&P 500 Index was $4.39 billion to $1.04 trillion.
The Fund’s strategy is based on fundamental business analysis and a long-term orientation that blends aspects of growth and value investing. The Investment Adviser selects companies based on their qualitative merits, competitive profile and prospective value creation potential. The Fund follows a “buy and own” approach that does not make use of short-term trades in pursuit of small gains. The Investment Adviser believes that its long-term orientation can benefit the Fund’s net performance results. The Investment Adviser does not expect to hold large amounts of cash in the Fund except in unusual circumstances. Investments may be sold if they appreciate to levels at or near the higher end of the Investment Adviser’s estimated ranges of intrinsic value.
By applying our criteria consistently and adhering to our process, we aim to provide attractive risk-adjusted absolute results for our clients over the long-term. Our key guiding principles are the following:
- We believe that companies that possess specific business attributes, management attributes, and financial attributes are well positioned to create value for investors through varying economic and market environments.
- We feel that the quality of a business and its ability to grow over time are closely linked. Our selection process focuses on owning businesses with leading competitive positions in healthy, growing industries. We focus closely on understanding the cash flow characteristics of each business. It is our expectation that revenue growth, free cash flow growth and management’s ability to effectively allocate capital will be key drivers of a business’ ability to increase its intrinsic value over the long-term.
- We purchase securities when we can identify a Margin of Safety which we define as a meaningful discount between the market price at which a company’s shares trade and our estimate of a company’s intrinsic value. We typically seek to purchase businesses at 75% of our estimate of intrinsic value. We believe that the benefit of investing with a margin of safety is that it provides added downside protection against permanent capital loss and the potential for significant value creation.
Investors in the Fund should be able to withstand short-term fluctuations in the equity markets in return for potentially higher returns over the long term. The value of portfolios changes every day and can be affected by changes in interest rates, general market conditions and other political, social and economic developments.
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.