Want a recipe for picking a successful fund? Start with
top-notch returns. Focus on risk-adjusted returns, not simply raw
performance. Look for proven managers. Hunt for a fund they run
that's new or, for some other reason, has a small asset base. Avoid
paying too much for fees. Then buy and hold patiently.
BBH Global Core Select (symbol
) boasts four of these five ingredients. Having them doesn't
guarantee that a fund will beat the market, but they're hallmarks
of a winner. Let's consider all five of these traits, including the
one BBH lacks.
Great returns. Global Core Select has an older sibling with a
similar name, a sterling record and essentially the same investment
style. Since October 2005, when BBH Core Select (
) underwent a major shift in strategy and personnel, the fund
returned an annualized 9.0%, putting it in the top 1% among funds
that invest in large companies. Over that period, the fund has
beaten Standard & Poor's 500-stock index by an average of 3.6
percentage points per year. (Returns are through April 22.)
Good risk-adjusted returns. Core Select has held up relatively
well in awful markets. During the 2007-09 bear market, Core Select
lost 41.1%, compared with 55.3% for the S&P 500 -- good enough
to put it in the top 3% among its peers. Core Select is about 20%
less volatile than the S&P. So you get the combination that
fund pickers like me always search for: above-average returns
accompanied by below-average risk.
Proven managers. Managers and analysts on the 12-person
investment team work together closely. Tim Hartch and Regina
Lombardi, managers of the new fund, have been part of the team that
has run BBH Core Select since the fund was retooled. Hartch and
colleague Michael Keller will continue as co-managers of Core
Select. Richard Witmer, the other co-manager of Core Select for
many years, now runs the entire money-management business for Brown
Brothers Harriman (the BBH in the funds' names).
A small asset base. All things being equal, managers generally
do better with fewer assets than with more assets. Global Core
Select, launched on March 28, holds a mere $19 million. What's
more, BBH closed Core Select to new investors last year when assets
totaled $3.5 billion, a relatively modest figure for shutting a
fund. So Global Core isn't likely to get too big, either.
True, once you include both global and domestic stock assets,
BBH manages $19 billion in large-company-stock products. But given
the blue chips that BBH focuses on, along with the managers'
tendency to hold stocks for long periods, $19 billion is an
acceptable amount. The funds can be pretty nimble.
A low expense ratio. Superb risk-adjusted returns have proved to
be good predictors of a fund's success, but so have low
expenses--the lower the better. Global Core Select charges 1.50%
annually. That's too much. But you can't always have
everything--and four out of five indicators of success are enough
for me to recommend this fund.
Global Core Select doesn't try to be a fund for all seasons. I
fully expect it to lag in most bull markets. It takes a slow and
steady approach. The managers first look for the highest-quality
companies they can find. Then they wait patiently for them to fall
to 75% or less of what they compute as a stock's intrinsic value.
Once they buy a stock, the managers hold on for an average of five
years. "We look for companies with demonstrable competitive
advantages," says Hartch. "We think of where a business is likely
to be in five years."
Why did BBH launch a global fund? The managers found that they
were doing slightly better with the 10% to 20% of Core Select's
stocks that were typically domiciled overseas than with their U.S.
stocks. They've been planning a global fund for more than two
years. As part of that effort, the firm has hired four new
analysts, one of whom specializes in international finance.
The investment team is based in New York City, but the managers
and analysts have always visited companies overseas. What's more,
the blue chips that the funds specialize in all disseminate a lot
of data that can be obtained from just about anywhere on the
Hartch doesn't think Europe or Japan currently offer great
bargains compared with the U.S. "We don't see a huge difference in
valuations," he says. In fact, Global Core Select doesn't yet own
any Japanese stocks.
But a global fund offers more choices. Just now, about half of
the fund's assets are overseas. Many of the global companies are
familiar names: spirits distributor Diageo (
), food giant Nestlé and drug maker Novartis (
). But other holdings are new to me: Canadian property and casualty
insurance firm Intact Financial, French billboard company JCDecaux
SA and German lubricants manufacturer Fuchs PetroLub AG.
A word about Brown Brothers Harriman, which has been in business
since 1818. Unlike J.P. Morgan and others, BBH never went public.
It's still owned by its partners, currently numbering 41. They
profit from the firm's success but also stand to lose from its
Steven T. Goldberg
is an investment adviser in the Washington, D.C. area.