ii ACE 40 investments:
Brown Advisory US Sustainable Growth Fund

Why we recommend it

 The fund is managed by Karina Funk and David Powell, who in our opinion, have complementary skills. Funk joined the group in 2009 when the firm she worked for, the ESG-focused Winslow Management, was acquired by Brown Advisory. She spearheads the ESG work for this strategy. Powell, who joined Brown Advisory in 1999, operates out of the firm’s Baltimore headquarters alongside most of its centralised equity research staff. The pair has run this strategy since its 2010 launch in separate accounts. 

The managers seek proven, profitable, tough-to-disrupt business models with shares trading at attractive valuations. They expect steady—not blazing—growth and this forms a part of what the team means when they say they look for “sustainable business advantages,” or SBAs. But SBAs also have an explicit ESG element. The idea is that sustainability practices such as resource conservation or responsible treatment of customers and employees can spur revenue growth, reduce costs, or increase brand value. Every holding in this portfolio must have a clear SBA thesis.

The managers build a relatively concentrated portfolio of 30 – 40 stocks, and while they aim to reduce single stock risk by limiting individual stock sizes to a maximum holding size of 5%, the portfolio can have significant sector bets. 

Fund performance relative to the fund’s benchmark, the Russel 1000 Growth Index, has been strong, with the fund generally outperforming during periods of market weakness.

Opinion
The fund benefits from an experienced manager and an established process. The mangers have complementary skills and benefit from the well-resourced analyst team.

Although this is an ESG-driven strategy, much of its analytical ethos is straightforward growth-stock investing. The managers seek companies with proven, profitable, tough-to-disrupt business models, and shares trading at attractive valuations.

Sustainability criteria

Morningstar Sustainable Attribute: This fund is considered a sustainable investment product based on its prospectus or other regulatory filings. As a General ESG Investment, the fund uses ESG criteria as a central part of the security-selection and portfolio-construction process. These strategies endeavour to promote sustainability and minimize negative impact, without focusing on a specific theme or area of action.