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Brown Advisory U.S. Massive-Cap Sustainable Worth Technique Q3 2025 Commentary

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Brown Advisory U.S. Large-Cap Sustainable Value Strategy Q3 2025 Commentary

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Once we launched the U.S. Massive-Cap Sustainable Worth technique in October of 2022, we recognized a compelling alternative on the intersection of worth investing and sustainable funding analysis — an area we felt was underappreciated by the broader market. On the time, many methods that combine sustainable funding analysis into the funding course of have been concentrated in high-growth sectors, the place innovation and disruption usually got here with elevated valuations and lofty expectations. Our perception was that sustainable enterprise practices weren’t unique to 1 section of the market. In truth, we noticed quite a few corporations inside sectors which might be generally related to the worth universe adopting best-in-class operational and governance requirements to reinforce long-term monetary efficiency.

We regularly prefer to say that the irony of operating a method referred to as “sustainable worth” is that should you ask ten traders what every of these phrases imply, you’ll probably get twenty totally different solutions. However that’s exactly the place we consider the chance lies. Our “twin lens” strategy — combining rigorous elementary evaluation with a concentrate on sustainable funding analysis — is differentiated throughout the worth area.

Three years into this journey, I’m pleased with the progress our workforce has made in constructing a strong and repeatable funding course of and energized by the funding alternatives we’re seeing out there.

“If there’s one lesson we now have discovered from years of investing in public markets, it’s that the one true fixed is change.”

Free Money Move As Our Compass

For these new to the technique, we outline worth as corporations that constantly generate excessive ranges of free money circulation, exhibit sturdy capital self-discipline by prudent steadiness sheet administration, and commerce at an enticing valuation. These “three pillars” type the bedrock of our strategy, offering a margin of security in periods of market volatility and stress.

We consider that defending capital and minimizing drawdown threat is important to compounding returns over the long run. When corporations show free money circulation, keep a sound capital construction, and commerce at undemanding valuations, we consider shareholders are well-positioned to be rewarded over time.

Past monetary metrics, we search companies and administration groups that embrace sustainable enterprise practices to increase the length and cut back the volatility of their money flows – what we name a Sustainable Money Move Benefit. Whereas all organizations are topic to quite a lot of exterior forces like rate of interest cycles, tariffs, and geopolitical tensions, our focus is on these which might be laser-focused on “controlling the controllables”. Via using our “3P” funding filter, we consider how corporations handle the three areas they will immediately affect: the folks they rent and the tradition they foster, the processes they implement to run their enterprise, and the merchandise or providers they ship to clients.

We consider corporations that leverage sustainable enterprise practices by the 3P’s – whereas actively managing materials dangers – are greatest positioned to realize a Sustainable Money Move Benefit. Although it might sound easy, a constant concentrate on taking good care of workers, operating an environment friendly and adaptive group, and delivering a superior services or products that enables clients to fulfill their targets isn’t solely good enterprise — it’s good for shareholders. Our long-held perception is {that a} “steady enchancment” mindset, when aligned with sustainable enterprise practices, can drive differentiated and significant efficiency over time.

Embracing Change However Staying Disciplined

If there’s one lesson we now have discovered from years of investing in public markets, it’s that the one true fixed is change.

Once we launched the technique in October 2022, the market backdrop was dramatically totally different from the place we stand right this moment. Following a pointy post-COVID rally, markets got here beneath stress in 2022 as aggressive fee hikes from the Federal Reserve sparked fears of a looming recession. These considerations in the end proved unfounded — the S&P 500® Index bottomed in mid-October and has since climbed over 80% in simply three years.1

And but, these twelve quarters of sturdy returns have been something however easy. We’ve navigated persistent inflation and elevated rates of interest, a struggle within the Ukraine, rising geopolitical tensions, commerce disputes, a shift towards deglobalization, and the growth in synthetic intelligence (AI) – to call just a few. We spotlight these occasions to not dwell on the previous, however to underscore a easy fact; predicting the longer term and timing markets is extremely tough. There’ll all the time be unknowns. That’s why, like the businesses we spend money on, we concentrate on “controlling the controllables.”

We leverage the depth and breadth of our analysis workforce to behave with urgency and self-discipline – combing by our investable universe of over 1,000 corporations, balancing pace with endurance and a dedication to our philosophy. If change is the one fixed, then embracing it’s important. Brief-term volatility usually creates long-term alternative. As a workforce we actively hunt down change — whether or not in value, enterprise mannequin, management, or capital allocation — leaning into these inflection factors after they line up with our worth self-discipline.

Latest investments within the technique that have been pushed by such change brokers embody:

  • CRH Plc (CRH)2 – Relocated its major itemizing from Eire to the NYSE in 2023, opening entry to U.S. traders and index inclusion.
  • Dell Applied sciences (DELL)3 – Shifted capital allocation in 2023, committing to return 80% of free money circulation to shareholders through buybacks and dividends.
  • Pentair (PNR)4 – Executed a “Transformation Program” that streamlined operations and improved margins by over 500 foundation factors (bp) over three years, regardless of muted end-market development.
  • Citigroup (C)5 – Undertook a focused divestiture and simplification initiative, consolidating into 5 core enterprise strains to reinforce transparency and returns.

No two market environments are alike, and volatility is inevitable. It’s our job to remain ready and separate the sign from the noise. I’m deeply grateful for the workforce of analysts who’ve supported the technique since inception — their dedication and every day effort are the engine behind our success. Collectively, we proceed to scour the addressable universe for change brokers and inflection factors that would unlock the following compelling alternative.

We settle for errors will occur and that our investing model could fall out and in of favor within the brief time period. However by embracing the identical “steady enchancment” mindset we count on from our portfolio corporations; we attempt to get higher every day — whereas remaining grounded in our course of and disciplined in our worth investing philosophy.

We proceed to consider {that a} portfolio of corporations producing constant free money circulation, possessing a Sustainable Money Move Benefit, demonstrating capital self-discipline, and buying and selling at enticing valuations will ship compelling risk-adjusted returns over the long run — whereas offering a margin of security for our traders.

We respect your continued assist and curiosity within the technique. As all the time, we sit up for staying related and sharing extra because the journey unfolds.

– Mike

Massive-Cap Sustainable Worth Composite Efficiency6

Large-Cap Sustainable Value Composite Performance6

1. Supply: FactSet®, as of 08/31/2025

The listed corporations signify present holdings throughout the Brown Advisory Massive-Cap Sustainable Worth technique as of 9/30/2025. The portfolio info relies on a Brown Advisory Massive-Cap Sustainable Worth consultant account and is supplied as Supplemental Data:

2. Supply: Brown Advisory evaluation and CRH firm experiences.

3. Supply: Brown Advisory evaluation and Dell Applied sciences firm report as of October 5, 2023.

4. Supply: Brown Advisory evaluation and Pentair firm experiences.

5. Supply: Brown Advisory evaluation and Citigroup firm experiences.

6. Supply: FactSet® as of 9/30/2025. All returns larger than one 12 months are annualized. Previous efficiency isn’t indicative of future outcomes and you might not get again the quantity invested. The first benchmark is the Russell 1000® Worth Index. The composite efficiency proven above displays the Massive-Cap Sustainable Worth Composite, managed by Brown Advisory Institutional. Brown Advisory Institutional is a GIPS Compliant agency and is a division of Brown Advisory LLC. Please see the top of this presentation for a GIPS Report, necessary disclosures and an entire checklist of phrases and definitions.

Disclosures

The views expressed are these of the creator and Brown Advisory as of the date referenced and are topic to vary at any time primarily based on market or different circumstances. These views are usually not supposed to be and shouldn’t be relied upon as funding recommendation and are usually not supposed to be a forecast of future occasions or a assure of future outcomes. Previous efficiency isn’t a assure of future efficiency, and you might not get again the quantity invested.

The knowledge supplied on this materials isn’t supposed to be and shouldn’t be thought-about to be a suggestion or suggestion to have interaction in or chorus from a specific plan of action or to make or maintain a specific funding or pursue a specific funding technique, together with whether or not or to not purchase, promote, or maintain any of the securities or issuers talked about. It shouldn’t be assumed that investments in such securities or issuers have been or will probably be worthwhile. References to particular securities or issuers are as an example views expressed within the commentary and don’t signify the entire securities bought, offered or really useful for advisory purchasers. The knowledge contained herein has been ready from sources believed dependable however isn’t assured by us as to its timeliness or accuracy and isn’t an entire abstract or assertion of all out there information.

Sustainable funding issues are certainly one of a number of informational inputs into the funding course of, alongside information on conventional monetary components, and so are usually not the only driver of decision-making. Sustainable funding evaluation might not be carried out for each holding in each technique. Sustainable funding issues which might be materials will range by funding model, sector/business, market developments and consumer targets. Sure methods search to establish corporations that we consider could also be fascinating primarily based on our evaluation of sustainable funding associated dangers and alternatives, however traders could differ of their views. In consequence, these methods could spend money on corporations that don’t mirror the beliefs and values of any specific investor. Sure methods might also spend money on corporations that may in any other case be excluded from different funds that target sustainable funding dangers. Safety choice will probably be impacted by the mixed concentrate on sustainable funding analysis assessments and elementary analysis assessments together with the return forecasts. These methods incorporate information from third events in its analysis course of however don’t make funding selections primarily based on third-party information alone.

Brown Advisory Restricted is registered within the Abu Dhabi World Market (ADGM) as a department of Brown Advisory Restricted domiciled in the UK and is regulated by the ADGM Monetary Companies Regulatory Authority. This materials is communicated on behalf of Brown Advisory Restricted.

An investor can’t make investments immediately into an index.

The Russell 2000® Index measures the efficiency of the small-cap section of the U.S. fairness universe. The Russell 2000® Index is a subset of the Russell 3000® Index, representing roughly 10% of the full market capitalization of that index. It consists of roughly 2000 of the smallest securities primarily based on a mixture of their market cap and present index membership. The index was developed with a base worth of 140.00 as of December 31, 1986. The Russell 2000® Progress Index measures the efficiency of the small-cap development section of the U.S. fairness universe. It consists of these Russell 2000® Index corporations with greater price-to-book ratios and better forecasted development values. The Russell 2000® Progress Index is constructed to offer a complete and unbiased barometer for the small-cap development section. The Russell 2000® Worth Index measures the efficiency of the small-cap worth section of the U.S. fairness universe. It consists of these Russell 2000® Index corporations with decrease price-to-book ratios and decrease forecasted development values. The Russell 2000® Worth Index is constructed to offer a complete and unbiased barometer for the small-cap worth section. The Index is totally reconstituted yearly to make sure new and rising equities are included and that the represented corporations proceed to mirror worth traits.

The technique’s benchmark is the Russell 1000® Worth Index. The Russell 1000® Worth Index measures the efficiency of the large-cap worth section of the U.S. fairness universe. It consists of these Russell 1000 corporations with decrease price-to-book ratios and decrease anticipated and historic development charges. The Russell 1000® Worth Index is constructed to offer a complete and unbiased barometer for the large-cap worth section. The Index is totally reconstituted yearly to make sure new and rising equities are included and that the represented corporations proceed to mirror worth traits. The Russell 1000® Worth Index and Russell® are logos/service marks of the London Inventory Change Group corporations. An investor can’t make investments immediately into an index. Benchmark returns are usually not lined by the report of the impartial verifiers.

Frank Russell Firm (“Russell”) is the supply and proprietor of the logos, service marks and copyrights associated to the Russell Indexes. Russell® is a trademark of Frank Russell Firm. Neither Russell nor its licensors settle for any legal responsibility for any errors or omissions within the Russell Indexes and / or Russell scores or underlying information and no occasion could depend on any Russell Indexes and / or Russell scores and / or underlying information contained on this communication. No additional distribution of Russell Information is permitted with out Russell’s categorical written consent. Russell doesn’t promote, sponsor or endorse the content material of this communication.

The S&P 500 Index is a capitalization-weighted index of 500 shares that’s designed to measure efficiency of the broad home financial system by adjustments within the mixture market worth of 500 shares representing all main industries. Index returns assume reinvestment of dividends and don’t mirror any charges or bills. An investor can’t make investments immediately into an index. Benchmark returns are usually not lined by the report of the impartial verifiers. Normal & Poor’s, S&P®, and S&P 500® are registered logos of Normal & Poor’s Monetary Companies LLC (“S&P”), a subsidiary of S&P World Inc.

FactSet® is a registered trademark of FactSet Analysis Programs, Inc.

FactSet® is a registered trademark of FactSet Analysis Programs, Inc. World Trade Classification Normal (GICS) and “GICS” are service makers/logos of MSCI and Normal & Poor’s. “Bloomberg®”, and the Bloomberg Indices used are service marks of Bloomberg Finance L.P. and its associates, together with Bloomberg Index Companies Restricted (“BISL”), the administrator of the index (collectively, “Bloomberg”), and have been licensed to be used for sure functions by Brown Advisory. Bloomberg isn’t affiliated with Brown Advisory, and Bloomberg doesn’t approve, endorse, evaluate, or suggest Brown Advisory methods. Bloomberg doesn’t assure the timeliness, accurateness, or completeness of any information or info regarding Brown Advisory methods.

Free Money Move (FCF) represents the money an organization generates after accounting for money outflows to assist operations and keep its capital property.

Unique Put up

Editor’s Notice: The abstract bullets for this text have been chosen by Searching for Alpha editors.

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