RCS - Brown Advisory US - Results analysis from Kepler Trust Intelligence

Brown Advisory Us Smaller Companies

21/09/2023 15:05

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RNS Number : 2642N  Brown Advisory US Smaller Cos. PLC  21 September 2023

Brown Advisory US Smaller Companies (BASC)

21/09/2023

Results analysis from Kepler Trust Intelligence

In the twelve months to 30 June 2023, Brown Advisory US Smaller Companies'
(BASC) NAV increased 9.8%, outperforming the 7.5% rise in its benchmark, the
Russell 2000 Total Return Index. BASC's share price rose by 10.4% over the
same period, marking a slight narrowing of the discount from 15.3% to 14.8%.
Post-period end, BASC's discount has widened to c. 16%. Brown Advisory took
over management of the portfolio on 31 March 2021, and in the period from then
until 30 June 2023 the NAV fell 1.6% compared to 4.9% for the benchmark index.

The relatively short period since Brown Advisory's appointment has been a
pretty extraordinary one in markets, with rising inflation bringing an end to
the long period of zero interest rates, with a profound effect on investor
sentiment and a much greater focus on fixed interest over equities, all of
which can be considered headwinds for smaller companies, which are generally
considered more risky than large caps.

Against that backdrop, Chris and the team have for some time been pointing out
that there is a widening valuation gap between small caps and large caps in
the US. The team further points out though that even these low valuations are
subject to distortion from many non-profitable companies, and further
adjusting for this means that an active fund manager such as Brown Advisory
has many opportunities to invest at attractive valuations.

BASC trades at a c. 16% discount, which is wider than its own recent average.
Many other smaller companies trusts focused on Europe and the UK are also
trading at double-digit discounts, which helps confirm that there is a general
aversion among investors to smaller companies. Although it's unlikely to be a
straightforward progression from here, we think waning inflation and interest
rates could lead to outperformance by US smaller companies generally and BASC
specifically.

 

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