i. Concentrated portfolio of 10-15 investments
ii. Focused on small cap public companies
Strategy Objectives
Our Concentrated Small Cap Equity Strategy seeks to deliver attractive absolute returns and outperform the Russell 2000 Index over full market cycles. As active managers, we build concentrated portfolios with high active shares and low turnover, and have a long-term ownership mentality.
Key Investment Goals
- Achieve strong long-term, after-tax investment returns on an absolute basis
- Reduce likelihood of permanent loss of capital on any single investment
- Seek to outperform the Russell 2000 after all fees and expenses, over a long-term period (five-plus years)
Exceeding is the expectation.
Our long-term equity strategy applies demanding investment criteria to durable businesses. As part of this disciplined investment strategy, we purchase securities at a meaningful discount to estimated intrinsic value. We perform multifaceted fundamental analyses to measure companies’ long-term wealth creation potential and invest with strict criteria – because our priority is reducing risk and creating enduring value for you and your portfolio.
Buy Discipline:
- Initiate a position if:
- Company is a strong fit with investment criteria
- Due diligence is completed
- Stock is trading at a discount to intrinsic value
- Company is a strong fit with investment criteria
- Consider additional purchases when appropriate
Sell Discipline:
- Sell/trim a position based on:
- Convergence of market price with intrinsic value
- Position size relative to risk/reward assessment
- Emergence of a more compelling investment opportunity
- Deterioration of fundamentals or criteria fit
- Sensitivity to and preference for long-term capital gains
- Convergence of market price with intrinsic value
i. Focus on durable businesses
ii. Apply demanding investment criteria
iii. Perform multi-faceted fundamental analysis focusing on company’s long-term wealth creation potential
iv. Private equity approach to public equity investing
v. Deep fundamental research with strict investment criteria
i. Essential products and services
ii. Secular growth tailwinds
iii. Strong customer loyalty
iv. High levels of recurring revenues
v. Limited and rational competition
vi. High returns on investment capital
vii. Strong free cash flow generation
i. Multi-year horizon which may be materially different to the market’s perspective over the next quarter or 12-month period
ii. Allows us to invest in long-term compounders and benefit from reinvestment of capital at attractive returns over extended periods
Our primary edge is applying our demanding investment criteria, with a focus on business quality, and the consistency with which we execute our investment process. We focus on deep due diligence, have a limited number of holdings, and have a long-term perspective.
Risk Management
We define risk as the likelihood of sustaining a permanent capital loss on any investment rather than equating it with market volatility.
The Margin of Safety concept is a key part of our risk management approach, and we believe it has two critical components that must exist in tandem:
- Business Risk Mitigation – Focus on businesses with resilient financial and fundamental characteristics that enable them to manage through periods of economic or market stress, and well-managed risks, including environmental, social, and governance (ESG) factors.1
- Price Risk Mitigation – Purchases are made at levels we believe to be attractive against our estimate of intrinsic value, both on absolute terms and relative to the market.2 Positions are adjusted based off our assessment of market expectations, position size relative to the overall portfolio, and/or valuation.
What Makes Us Different?
How it’s done matters.
- Our deep fundamental and actionable research is not predicated on making macroeconomic projections.
- Extensive industry and company due diligence form the foundation of our investment process.
- We foster independent thinking and innovate every day for the long term.
- We deliver excellence with humility and act with unwavering integrity.
Every member of our investment team is committed to delivering excellence and brings a unique level of focus and depth to our research.
How to Invest
Our Concentrated Small Cap Strategy can be accessed through a variety of investment vehicles. To learn more please contact a member of our institutional relationship management team.
1 A less favorable ESG profile may not preclude a manager from investing in a company, as the consideration of ESG factors is not more influential than the consideration of other investment criteria.
2 Intrinsic value is an estimate of the present value of the cash that a business can generate over its remaining life.
The BBH Concentrated Small Cap Equity Strategy was previously called was previously called the Small-Mid Cap Equity Strategy.
This communication is for informational purposes only and does not constitute an offer or a solicitation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor’s circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. Any views and opinions are subject to change at any time.
Strategies are shown without regard to whether they are offered as separately managed account mandates or through pooled vehicles. Any discussion of or reference to any given strategy herein should not be taken as a recommendation or solicitation of any pooled vehicle which has an investment objective featuring or similar to such strategy.
This material does not constitute an offer or solicitation in any jurisdiction where or to any person to whom it would be unauthorized or unlawful to do so.
Risk Considerations
There is no assurance that a portfolio will achieve its investment objective or that the strategy will work under all market conditions. The value of the portfolio can be affected by changes in interest rates, general market conditions and other political, social and economic developments. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.
The Strategy portfolio may assume large positions in a small number of issuers which can increase the potential for greater price fluctuation.
Investing in small or medium sized companies typically exhibit greater risk and higher volatility than larger, more established companies.
The strategy may engage in option trading and hedging techniques which may magnify losses and increase the volatility of the fund.
Foreign investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.
Investment Advisory Products and Services:
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
