HEAD-TO-HEAD: Brown Advisory and Pictet

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Investment approach

Both the Brown Advisory fund and the Pictet funds are relatively new products with only six to seven years of track record.

Although the top sector and two of the top five holdings for the two funds coincide, the two funds adopt relatively different approaches when it comes to investment approach.

The Brown Advisory fund is a high conviction portfolio of 30-40 stocks.

The fund adopts a bottom-up strategy based on the fund house’s own internal research and largely ignores wider macro-economic factors.

“The aim of the fund is to invest in market-leading businesses with ‘superior customer outcomes’ that should be able to solve a problem that no one else can. This should then enable them to generate consistently high and sustainable returns on invested capital,” said McDermott.

The team’s investment philosophy is driven by academic research, which shows that companies that are global leaders tend to stay global leaders,” he added.

In the research process, all companies go through a four-stage process, these are – franchise quality (companies need to offer an exceptional customer outcome); quantitative measures (companies must have a 20% return on invested capital or a pathway to that within five years); management quality; and investability (this is the valuation part of the process and most companies fall down at this point).

A company must pass all four stages to be included in the fund.

Currently, the fund invests almost 40% of its assets under management (AUM) in the information technology sector, followed by 20.7% in the financial sector and 10% in the industrials sector.

On the other hand, the Pictet fund invests in twice as many securities as the Brown Advisory fund.

Although the fund also uses a bottom-up approach, the fund invests in “the best ideas” across a series of thematic themes at the asset manager.

McDermott identified Pictet as a leader in the thematic investing space with thematic fund launches dating back to 1995.

According to Pictet, research is undertaken to unearth the most dynamic areas of the global economy – industries whose growth prospects are being transformed by profound structural “megatrends”.

Areas that fit into this trend include water, clean energy, timber, nutrition. health, premium brands, digital; security and robotics.

“The universe for this portfolio is incredibly large; many of the selected companies are very focused in their business activities, with ‘pure plays’ making up a significant part of the investible market,” said McDermott.

“Pure plays are always favoured over more diversified companies and are a deliberate focus of the team.”

Similar to the Brown Advisory fund, the Pictet fund also allocates most of its AUM to the information technology sector (28.93%). It is followed by health care (21.33%), and industrials (19.32%).

The fund invests a huge 74.53% of its assets in the US, followed by almost 6% in China and 5.36% in France.

Fund characteristics

Sector allocation:

Source: Fund factsheets, July 2022

Country allocation:

Source: Fund factsheets, July 2022

Top 5 holdings:

Source: Fund factsheets, July 2022

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