On September 30, 2021, Brown Advisory launched their Sustainable Small-Cap Core Fund which is based on their Sustainable Small-Cap Core Strategy, which targets high-net-worth individuals and institutions, launched in July 2017. The goal is long-term capital appreciation. The strategy is to create a concentrated, ESG-screened “best ideas” portfolio populated by small-cap growth and value stocks.
Brown Advisory describes the strategy this way:
The fund’s investing approach seeks outperformance through a concentrated, low-turnover portfolio of companies with:
- Best-in-breed business models
- Attractive valuations
- Strong or improving sustainable opportunities, stemming from underlying Sustainable Drivers from a company’s products, services, or operations
Sustainable Drivers are characteristics that we believe have potential to drive tangible positive outcomes, in terms of financial performance and environmental and social impact. We believe that our integration of fundamental and ESG research adds an informational edge to our investment process that helps us identify high-quality investments.
Brown has a 30-year record in sustainable investing which is far more than just “green” investing. Questions of board diversity, shareholder rights and business ethics, data security, human capital, and equity & inclusion enter into the equation.
The fund is managed by Timothy Hathaway and Emily Dwyer, with Kenneth Coe III, serving as an associate portfolio manager. Mr. Hathaway helped manage the Small Cap Growth strategy for nine years before being promoted to having responsibility for “equity and fixed income research, portfolio management, and institutional sales and service.” (At least we think that’s a promotion. As a former administrator, Snowball is slightly dubious.) Ms. Dwyer is a senior ESG equity research analyst responsible for ESG integration across Brown Advisory’s institutional equity strategies. Her previous gigs included time at Parnassus Investments, Sustainalytics, and the UN Environmental Programme Finance Initiative. She appears to be a rising star. Mr. Coe, the associate manager, appears to be a very nice person.
To be clear: I’m really excited about the prospects for this fund.
There are two primary drivers of that enthusiasm. Its elder sibling, Brown Advisory Sustainable Growth (BIAWX), kicks butt. The fund has returned 21.5% annually over the past nine years – 370 bps better than its peers – and has the highest Sharpe rating and lowest Ulcer Index of any fund in its 152-member multi-cap growth peer group over that period. It is among the five best funds in risk management: downside deviation, down market deviation, bear market deviation, and maximum drawdown. As part of MFO’s endorsement of sustainable investing, I bought shares of BIAWX in my personal portfolio and it has been my top-performing fund.
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Its doppelganger, Brown Advisory Sustainable Small-Cap Core Strategy, kicks butt. The strategy composite has returned 19.8% annually since inception, 500 bps per year better than its peers, which places it in the top 10% performance of small-core performers. It has an attractive risk profile with a beta of 0.80, a downside capture ratio of 90% paired with an upside capture of 105%, and a smaller maximum drawdown. As befitting a sustainable approach, it sports a vastly smaller portfolio carbon footprint than its peers.
The Investor share class of the fund has a minimum initial investment of $100, and the opening expense ratio is capped at 1.09%. The Institutional share class has marginally lower expenses and a vastly higher minimum. The fund’s webpage is understandably lean, but the strategy’s website offers a fair richness of data and insights.