Half Yearly Results to 31 December 2023

Brown Advisory US Smaller Cos. PLC

12 February 2024

 

12 February 2024

Brown Advisory US Smaller Companies PLC (the 'Company' or 'BASC')

Half yearly financial results for the six months ended 31 December 2023 (unaudited)

Legal Entity Identifier: 549300HKKL9K1NY4TW55

Financial highlights for the six months ended 31 December 2023

Ordinary share performance

		31 December 2023	30 June 2023	% change
Net asset value (pence)*	1,459.2		1,431.9	+1.9
Closing price (pence)	1,292.5		1,220.0	+5.9
Russell 2000 Total Return Index (sterling adjusted)	8,471.8		7,860.0	+7.8
Discount to net asset value (%)*	(11.4)		(14.8)	-
Ongoing charges ratio (%)*	1.03		1.00	-

*For definitions of the above Alternative Performance Measures please refer to the Glossary of Terms

Stephen White, Chairman, Brown Advisory US Smaller Companies PLC, said:

"We are pleased to report a net asset value (NAV) per share increase of 1.9% for the Company during a period where smaller companies performed reasonably well despite the mega caps once again leading the advance. The US Federal Reserve's (Fed) December meeting increased optimism and a sudden inflow of funds to the smaller company sector pushed up the share prices of many of the more speculative, unprofitable and leveraged situations which the Company prefers to avoid, impacting relative performance. While geopolitical developments are difficult to forecast, the prospects for the US economy itself and its financial markets appear still reasonably favourable and we remain confident in the Portfolio Manager's ability to identify strong opportunities and to deliver positive results for our shareholders over the long term."

Chris Berrier, Portfolio Manager, Brown Advisory US Smaller Companies, said: "The Company's absolute returns were once again solid for the period despite meaningful market volatility; relative performance was impacted by the surge in the final weeks of the year. We added a number of new businesses to our portfolio in 2023, many of which are below our ultimate intended weight and therefore offer significant buying potential going forward. When combined with our legacy positions, we are well positioned to deploy cash across the portfolio and, more importantly, respond nimbly to market swings. We are unconvinced that the drivers behind December's rally, despite it being a signal of improving investor sentiment and the extreme market concentration towards mega-caps, will hold indefinitely. As such, we believe that our current sector biases and capital deployment plan remain sound as we eagerly anticipate a return to small-cap market leadership, from which BASC will be well positioned to benefit in the long-term."

Contact:

Brown Advisory US Smaller Companies Chris Berrier, Portfolio Manager	[e-mail] [phone]
FundRock Partners Limited, Company Secretary	[e-mail]
Singer Capital Markets, Broker to the Company Robert Peel Asha Chotai	+ 44 207 496 3000
TB Cardew, Financial PR to BASC Tania Wild Henry Crane	[e-mail] 07425 536903 07918 207157

Chairman's statement

Dear fellow Shareholder

Over the six months ended 31 December 2023, your Company's net asset value (NAV) per share rose from 1,431.9p to 1,459.2p, an increase of 1.9%. Having moved within a narrow trading range for much of the period, US equity markets moved ahead again in December as a result of comments made by the US Federal Reserve (the Fed) that the peak in interest rates had probably been seen. While the mega caps again led the advance, smaller companies also performed reasonably well and showed signs of returning investor interest.

Over the period, the Company's benchmark, the sterling adjusted Russell 2000 Total Return index, realised a gain of 7.8%. The underperformance of the Company's NAV as compared with the benchmark arose largely in December. This followed a sudden inflow of funds into the more speculative, unprofitable and leveraged smaller company sector - an area which the Company prefers to avoid.

Over the six months, the Company's share price rose from 1,220.0 p to 1,292.5p, a gain of 5.9%. This resulted in a small narrowing of the discount from 14.8% to 11.4%.

Market review

As mentioned above, for much of the half year under review, US equity markets moved within a narrow trading range, with low volatility, reduced trading volumes and restrained corporate activity.

Geopolitical risks remained elevated with the ongoing war between Russia and Ukraine and then, in October, the Hamas terrorist assaults on Israel and the latter's significant response, but these only impacted to a limited extent on financial markets.

US domestic news, be it political, economic or corporate, continued to be mixed, pulling markets in both directions, unsure as to whether the economy would hit a 'hard' or a 'soft' landing in 2024.

However, the main driver of markets in this period, was the perceived direction of US monetary policy and interest rates as well as an assessment of when a pivot was likely to take place.

Having paused in June, the Fed at their July meeting raised the benchmark interest rate by 25 basis points to a 5.25%-5.50% target range, a 22-year high. The Chairman, Jerome Powell, reiterated that the Fed was focused on bringing down inflation to its 2% target, suggesting that they had 'a long way to go', even though tighter conditions would weigh on economic activity. At subsequent meetings and important speeches, such as Jackson Hole, the Fed and its members stuck to their mantra that inflation risks remained on the upside and that rates would have to stay higher for longer.

Against this background, coupled with data showing the economy and the jobs market to be resilient, bond yields climbed steadily higher, with the 10-year Treasury bond yield briefly touching 5 percent in October. The US equity markets reflecting the bond markets lost value, falling for three consecutive months. Small cap stocks were again the laggards, as investors continued to favour the mega-caps, particularly those now known as the 'Magnificent Seven', and other technology stocks with any perceived connection to artificial intelligence.

November saw the start of a rebound in markets as the Fed began to change its tune. While it held the federal funds rate steady, its Chairman noted that financial conditions had tightened 'significantly'. Reinforced by softening employment and inflation data, this encouraged hopes that the Fed's tightening cycle was over and that a 'soft economic landing' was likely. 10-year yields dropped quickly and as much as they had done at the time of the global financial crisis.

The Fed's meeting in December boosted optimism again as the inflation numbers continued to improve and members of the committee suggested that cuts in interest rates would come during 2024. Share prices responded positively to the further fall in bond yields as investors reallocated monies to the equity market in anticipation of a year-end rally.

Although the mega caps continued to perform well, a general broadening of buying interest fuelled a renewed demand for smaller companies. The sudden large inflow of funds into the sector boosted share prices with especially large gains seen in the more speculative stocks or those that had been heavily shorted as operators rushed to buy back their positions.

As a result, the Russell 2000 had its best December rally ever. However, this did not really benefit the Company, given its limited exposure to lower quality, heavily indebted and speculative stocks. This was the main cause of our underperformance relative to the benchmark. Over the six-month period, in sterling terms the Russell 2000 achieved a total return of 7.8%, comparable to that from the S&P 500 of 7.7%, and only slightly below that of the Nasdaq of 11.0%.

Portfolio Manager and continuation vote

A more detailed commentary on the development of the US smaller company sector over the past six months and our activity and performance is included in the Portfolio Manager's review.

Between 1 April 2021, the date on which Brown Advisory took over the management of the portfolio, and 6 February 2024 the Company's NAV rose by 1.0%, compared to a return of 0.3% from the benchmark. So, over this period, our manager has outperformed the benchmark by 0.7%, despite the above-mentioned headwinds in the last months of 2023. We continue to believe that, over the long term, their philosophy and process will identify successful quality companies enabling them to deliver the positive results they have achieved in the past.

In accordance with the three-year cycle prescribed in the Company's Articles of Association, we held a continuation vote at our Annual General Meeting (AGM) on 6 November 2023. I am pleased to report that the resolution in favour of continuation was passed with 90.5% of voters being in favour of continuation.

Share price and discount

In our annual report, we informed shareholders about a revision to the Company's share buyback policy. The Board remains committed to using share buybacks to reduce discount volatility. Rather than targeting a fixed discount level the Board aims to prevent any discount from diverging significantly from that of similar investment trusts.

Over the period under review, the Company's share price rose 5.9% from 1,220.0p to 1,292.5p. This helped to narrow the discount to NAV from 14.8% on 30 June 2023 to 11.4% on 31 December 2023. Given that for the entire period the discount was within our tolerated range we did not buy in any shares.

As at 31 December 2023, the number of shares held in treasury was unchanged at 6,271,254 and the total number in public hands at 11,952,159.

Gearing

Against an unsettled interest rate background for much of the period and taking into consideration the views of the Portfolio Manager regarding investment opportunities and outlook, the Board did not feel it appropriate to deploy any gearing. However, should conditions improve going forward and the outlook for smaller companies brighten, the Board will review their decision, mindful that the ability to gear to enhance returns is one of the advantages of a closed-end vehicle.

Shareholder communications

The Board encourages shareholders to visit the Company's website (www.brownadvisory.com/ basc) for the latest information, podcasts and monthly factsheets.

Outlook

US equity markets have begun 2024 on a more restrained note, having closed 2023 with a two-month rally which saw values near to their all-time highs and looking somewhat overbought. Certainly, there are good reasons for renewed caution in the short term. The geopolitical situation has, if anything, deteriorated with no resolution to the Russia/Ukraine conflict, rising tensions between China and Taiwan, and risks that the Israel/Hamas hostilities spread to involve Iran or Saudi Arabia. The latter situation has also been made worse by the Iran backed Houthi attacks on shipping in the Red Sea which has given a fillip to oil prices. This, coupled with a still resilient US economy and jobs market, risks putting renewed upward pressure on prices, just at a time when markets and central banks were pointing to a turn in inflation and a downward trajectory in interest rates. Finally, there is the risk that markets are ahead of themselves in their expectations for corporate earnings in the reporting season now underway.

The headwinds cited above may lead to more uncertain and volatile markets in the short term. That said, looking further ahead, while geopolitical developments are difficult to forecast, the prospects for the US economy itself and its financial markets still appear reasonably favourable. Consumer spending, a key driver of the economy, is holding up well, supported by high confidence, continuing jobs growth and rising wages. Despite occasional blips, inflation should continue to trend lower, allowing the Fed to make its first interest rate cut sometime this year, albeit maybe later than the market currently expects.

A resilient economy, falling inflation and cuts in interest rates should provide a favourable background for US equities, with sentiment possibly moving away from the mega caps given their recent performance. In this environment smaller US companies should do well given their sensitivity to the local economy and to interest rates, their attractive valuations versus large caps and the fact that many investors have little exposure to the asset class, being heavily exposed to a small number of mega caps. Within the sector, we also see a return of interest to the quality companies in which we invest.

Having cash in hand and the ability as an investment trust to gear, we will take full advantage of market opportunities as they arise.

Stephen White

Chairman

9 February 2024

Portfolio Manager's review

Our game plan heading into 2023 was to leverage our historical preparation for what would likely be a volatile, sawtooth equity market following a growth-led decline in 2022. Our fundamental assumption was volatility would reign as the crosscurrents of economic growth, inflation, interest rates, and profound geopolitical events push and pulled against one another. Although our turnover remained low, our opportunism led to a high degree of productivity as we added a number of new positions (seven in the second half of 2023), largely to soak up a half dozen historical and present year merger and acquisition driven exits. Overall, absolute returns were solid, although relative returns were negatively impacted by a "dovish" Federal Reserve pivot that led to a fund flow induced surge in the final weeks of the year.

Portfolio philosophy & process

As Shareholders know, the goal of our strategy is to produce an "all-weather" portfolio capable of being owned over a full market cycle where attractive risk-adjusted returns will be generated via bottom-up security selection (offence) and portfolio construction (defence). The bedrock is our 3G approach - we seek businesses with durable Growth, sound Governance, and scalable Go-to-market ability. These characteristics help concentrate our gaze on companies with an above average potential to compound earnings/ cash flows over a multi-year period. The expected result is a high-quality portfolio (i.e. low leverage, above average liquidity, generally historically solid business execution, attractive margins/returns and consistency of earnings...) with defensible valuation characteristics woven in a manner that seeks to produce adequate diversification.

The successful execution of the process is contingent on 1) a strong, well-organised team; 2) deep domain/company expertise; 3) consistent new idea generation; 4) a rigorous sell discipline; and 5) resilience.

Our approach yields high active share, causing substantial short-term variation when compared to standard small-cap benchmarks. Over the long term, however, our results are greatly smoothed. The historical outcome has been higher returns with less risk, and we aim to keep it this way going forward.

"Under the hood": economy, markets & positioning

Most of the absolute gains for period were driven during the final weeks of the year. Our relative underperformance occurred during the same time. Fuelled by $10-12bn of inflows following "dovish" Federal Reserve commentary, the Russell 2000 Index experienced its largest December rally in history. As is typical of these jerky moves, the small-cap market was led by extremely shorted, negative earnings, highly shorted, single-digit share price, penny stocks, negative cash flow, high volatility, stock issuers, low return on equity (ROE), return on invested capital (ROIC), high bankruptcy risk and zombie stocks.

The relative results witnessed at the tail end of the year are not a new stylistic phenomenon. We have experienced very similar short-term variations many times over the past 2 - 3 years... and dozens of times over the past 17 - 18 years. To say that we have become comfortably numb to these gyrations might be a stretch, but we do know they are part of the process of striving to achieve attractive risk-adjusted returns.

The conclusion to 2023 was the predominant force governing our year. However, we would be remiss if we did not take a moment to illuminate a slightly more microscopic view of the portfolio for our shareholders. The topic is relative cyclicality.

The small-cap benchmarks have grown a bit more economically sensitive of late. Strategically, we seek to embrace cyclical businesses that have an excellent chance of driving to demonstrably higher highs and higher lows through the cycle. One could say this makes us quite picky. In addition, based on the uncertainties associated with inflation/interest rate and economic normalisation post-Covid, we placed a premium on stability, resilience, and fundamental visibility as we turned the page from 2022 to 2023. The result was an underweight to cyclicals: consumer, industrials and information technology.

This tilt was not just expressed with sector weights, but the types of businesses owned. For example, Bright Horizons (BFAM, consumer), Waste Connections (WCN, industrials), Casella Waste (CWST, industrials), and CCC Intelligent Solutions Holdings (CCCS, technology) are all housed in cyclical areas, but are relatively stable businesses. This general thread of lower cyclicality hurt returns in 2023 as the severe slowdown in economic growth that occurred in the fourth quarter 2022 stabilized, causing an immense sentiment shift and valuation expansion in these areas. It was further exacerbated by the Fed's dovish pivot - at a time of economic strength! - from December 1st to 13th by Chairman Powell.

On a final note, 2023 cannot be ushered out without a sentence or two on generative artificial intelligence (AI) and GLP-1s (weight loss drugs). These innovations provided structural narratives for investors to hold onto when the rest of the environment appeared muddled. AI was an elixir for Technology, prompting valuations to once again swell. And GLP-1 weight loss drugs weighed on smaller capitalisation health care companies on the logic that skinnier is healthier, thus theoretically lowering long-term demand for certain products and services (i.e. hip/knee replacements, stents, cancer tests, etc...). Added to our lack of high-beta cyclicality, our health care overweight position was not particularly helpful as the sector badly lagged.

Portfolio attribution

For the period under review, the top contributors to performance were: Pinterest, Inc., Neurocrine Biosciences, Inc., Prosperity Bancshares, Inc., Karuna Therapeutics, Inc. and TopBuild Corp.

Pinterest (PINS) continued to demonstrate revenue growth and margin expansion, bolstering confidence in the new management team's strategic plan amidst an improving advertising market backdrop. Prosperity Bancshares (PB) reported reasonably solid results all year. However, it took decent economic growth, a somewhat benign credit environment, and a more dovish Fed to push the stock off the lows incurred post the collapse of Silicon Valley Bank earlier in the year. TopBuild (BLD), a leading residential and commercial insulation provider, rode a surprisingly strong new housing market as the supply of existing homes for sale contracted. Furthermore, the company has been able to add scale through selective acquisitions, consolidating its market share even further.

In contrast, the bottom five were: Establishment Labs Holdings, Inc., Rentokil Initial plc Sponsored ADR, agilon health inc., SI-BONE, Inc. and Phreesia, Inc.

Establishment Labs (ESTA), a leading women's health company, experienced a product approval delay in China and a degradation in market demand, particularly in Europe, which forced channel inventory to correct. Our original thesis hinged on US product approval, a likely 2024 event. Rentokil (RTO), a leading pest control company, declined on weaker results in its US division, which prompted competitive concerns. We believe these trends are primarily related to its ongoing merger integration of Terminex and should be transitory in nature. Agilon health (AGL), an innovative value-based care company focused on the Medicare Advantage market, was impacted by a continued rise in medical cost trend that required to the company to increase its medical reserves for a second sequential quarter. This raised some concerns around the company's ability to accurately forecast future medical expenses. Phreesia (PHR), a leading health care IT company focused on patient intake, dropped when new customer growth came in slightly below expectations for one quarter. Subsequently, the company returned to on-trend customer growth and announced a plan to dramatically improve profitability by curtailing a couple of select near-term investments.

Outlook

We remain of the belief that the future is always uncertain and a long-term view - time arbitrage - is more important than ever in today's headline driven, rapidly moving equity market.

We are deeply committed to our bottom-up investment philosophy and believe in-depth company knowledge is required to take advantage of inhuman volatility. We added a number of new businesses to the portfolio this year, and many of them saw intra-year price movements that altered the risk/reward complexion enough for us to become interested in investing. Although we strive to size all our new investments to within their targeted range quickly, many of the 14 remain below our ultimate intended weight. In fact, we estimate that there remains more than 500 basis points of latent buying potential across our list of new holdings. When combined with our legacy positions, we have the capacity to deploy cash across the portfolio and we are thus comfortable in our ability to respond to Mr. Market's manic mood swings.

The ability to be flexible and adaptable is one of the most important pieces of our investment process. Perhaps the Goldilocks thesis of a solid economy, markedly lower inflation, and lower interest rates that emerged in December will hold, but perhaps it will not. Perhaps the continued leadership of large-caps (8 of last 10 years) and extreme market concentration will hold, but perhaps it will not. We see the "perhaps not" outcome of the above scenarios as having a higher probability than the market currently thinks. We also believe geopolitical risk should be discounted above its current close to 0% rate. On balance, this leads us to conclude that our current sector biases and capital deployment plan remain sound as we prepare for an anticipated return to small-cap leadership, albeit timing unknown.

Conclusion

We encountered a December rally that was relatively unkind given our philosophical bent. However, these vertical "risk-on" moves tend to be unsustainable - at least this is what we have observed over the past 17 - 18 years. (In fact, the first two weeks of 2024 have already rolled back some of December's performance.) And although it may take some time to manifest itself, we believe in a future of sustained small-cap leadership. In our view, the market is simply too concentrated - the largest five names by market capitalisation are 3x the total Russell 2000 Index - and the historical evidence too strong to ignore the category's potential. Although we cannot say the area is a steal (i.e. cheap), we remain off the highs, relative valuation is compelling, and we believe the size segment should move as capital disperses from the Magnificent 7.

Our goal remains to drive attractive risk-adjusted returns over a full market cycle. As previously stated, investment process success is contingent on the following: 1) a strong, well-organised team; 2) deep domain/company expertise; 3) consistent new idea generation; 4) a rigorous sell discipline; and 5) resilience. While we are confident in all aspects of our approach, we will continually strive to improve in each and every area. We think time is on the side of our philosophical approach and we appreciate Shareholders' trust and interest in the strategy as we continue our investment journey.

Brown Advisory LLC

Portfolio Manager

9 February 2024

Twenty largest holdings as at 31 December 2023

		31 December 2023		30 June 2023
		Market value	Percentage of Portfolio	Market value	Percentage of Portfolio
Company	Sector	£'000		£'000
Waste Connections Waste Connections, Inc. provides non-hazardous solid waste collection services for commercial, industrial, and residential customers. The company offers collection, landfill disposal, and recycling services for various recyclable materials, including compost, cardboard, office paper, plastic containers, glass bottles, and ferrous and aluminium metals.	Industrials	6,518	4.0	6,255	3.9
Bright Horizons Family Solutions Bright Horizons Family Solutions Inc. provides childcare and early education services as well as other services designed to help employees and families to better address the challenges of work and life. The company provides services primarily under multi-year contracts with employers who offer childcare and other dependent care solutions as part of their employee benefits packages.	Consumer discretionary	5,203	3.2	5,086	3.2
Prosperity Bancshares Prosperity Bancshares, Inc. is the holding company for Prosperity Bank. The Bank attracts deposits from the general public and uses those funds to originate a variety of commercial and consumer loans. Prosperity Bank operates in the greater Houston metropolitan area and neighbouring counties in Texas.	Financials	4,346	2.7	3,633	2.3
Casey's General Stores Casey's General Stores, Inc. operates convenience stores in the Midwest. The company offers food, beverages, tobacco products, health and beauty aids, automotive supplies, and other non-food items, as well as selling gasoline.	Consumer staples	4,020	2.5	4,050	2.6
SPDR S&P Biotech ETF SPDR S&P Biotech ETF is an exchange-traded fund incorporated in the US. The Fund seeks to replicate the performance of the S&P Biotechnology Select Industry Index, an equal-weighted index. The index tracks all the US common stocks listed on the NYSE, American Stock Exchange, NASDAQ National Market and NASDAQ Small Cap exchanges.	Biotechnology	3,980	2.5	4,003	2.5
Pinterest 'A' Pinterest, Inc. operates and maintains a social networking site. The Company provides an online platform that helps users gather ideas on oddities, decorations, places to visit, recipes and other items. Pinterest serves customers worldwide.	Communication services	3,923	2.4	2,905	1.8
Neurocrine Biosciences Neurocrine Biosciences, Inc. is focused on the discovery and development of therapeutics for neuropsychiatric, neuroinflammatory and neurodegenerative diseases and disorders. The Company is developing therapeutic interventions for anxiety, depression, Alzheimer's disease, insomnia, stroke, malignant brain tumours, multiple sclerosis, obesity and diabetes.	Healthcare	3,874	2.4	2,778	1.8
NeoGenomics Operates a network of clinical laboratories that specialises in cancer genetics diagnostic testing services. The Company's services include cytogenetics, fluorescence in-situ hybridization (FISH), flow cytometry, morphology, anatomic pathology, and molecular genetic testing. NeoGenomics serves pathologists, oncologists, urologists and hospitals.	Healthcare	3,785	2.3	2,388	1.5
HB Fuller H.B. Fuller Company manufactures and markets adhesives, sealants, coatings, paints and other specialty chemical products worldwide. The company's products are sold in countries that include North America, Europe, Latin America, the Asia Pacific region, India, the Middle East, and Africa.	Materials	3,508	2.2	3,091	1.9
ChampionX ChampionX Corporation provides energy solutions. The company focuses on upstream and midstream oilfield technology such as chemistry programs and drilling activities. ChampionX serves customers worldwide.	Energy	3,375	2.1	3,498	2.2
Dynatrace Dynatrace, Inc., through its subsidiaries, develops software intelligence platforms for the enterprise cloud. Its software intelligence platforms allow customers to modernize and automate IT operations, develop and release high quality software faster and improve user experiences for better business outcomes.	Information technology	3,212	2.0	3,742	2.4
Quaker Chemical Quaker Chemical Corporation, trading as Quaker Houghton, produces, develops and markets industrial chemical products. The Company offers heat treatment, metal forming, forging and tin plating fluids, as well as cleaners, casting lubricants, greases, ground control agents and metal rolling oils. Quaker Houghton serves customers globally.	Materials	3,093	1.9	2,834	1.8
Entegris Entegris, Inc. provides materials management products and services to the microelectronics industry on a worldwide basis. The company provides products such as wafer shippers, wafer transport and process carriers, pods and work-in-process boxes. Entegris also provides chemical delivery products such as valves, fittings, tubing, pipe and containers.	Information technology	3,053	1.9	2,831	1.8
EastGroup Properties, REIT EastGroup Properties, Inc. is an equity real estate investment trust. The trust acquires and develops industrial properties in major sunbelt markets throughout the US with a special emphasis in the states of California, Florida, Texas and Arizona.	Real estate	2,912	1.8	2,761	1.7
CCC Intelligent Solutions Holdings Provides cloud-based software as a service (SaaS) platform connecting trading partners, facilitating commerce and supporting mission-critical, artificial intelligence-enabled digital workflows.	Industrials	2,906	1.8	301	0.2
Mister Car Wash Mister Car Wash, Inc. operates as a car wash company. The Company offers car exterior and interior cleaning services. Mister Car Wash serves customers across the US.	Consumer discretionary	2,883	1.8	2,749	1.7
BlackLine BlackLine, Inc. develops and markets enterprise software. The company offers cloud-based software that automates and manages complex, manual, and repetitive accounting processes. BlackLine serves customers globally.	Information technology	2,856	1.8	2,468	1.5
Casella Waste Systems A Provides integrated and non-hazardous solid waste services throughout the Eastern United States. The Company offers collection, transfer, disposal and recycling services, generates steam, and manufactures finished products utilising recyclable materials.	Industrials	2,846	1.8	1,208	0.8
Encompass Health Provides inpatient rehabilitative healthcare services. The Company operates inpatient rehabilitation hospitals, outpatient and rehabilitation satellites, and home health agencies. Encompass Health provides treatment on both an inpatient and outpatient basis.	Healthcare	2,813	1.7	2,620	1.6
MSA Safety MSA Safety Inc. develops, manufactures and supplies safety products that protect people and facility infrastructures. The company's core products include self-contained breathing apparatus, fixed gas and flame detection systems, portable gas detection, head protection and fall protection products.	Industrials	2,808	1.7	2,900	1.8
Total		71,914	44.5

The value of the twenty largest equity holdings represents £71.9 million (30 June 2023: £69.6 million) and 44.5% (30 June 2023: 43.8%) of the Company's total investments.

As at 30 June 2023 and 31 December 2023, none of the Company's assets were invested in the securities of other listed closed-ended investment companies.

Interim management report

Related party transactions

During the first six months of the current financial year no transactions with related parties have taken place which have materially affected the financial position or performance of the Company. Details of related party transactions are contained in the Annual Report & Financial Statements for the year ended 30 June 2023 and in this report.

Principal and emerging risks and uncertainties

The Company is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on shareholders' funds. It is not the aim of the Board to eliminate entirely the risk of capital loss; rather it aims to seek capital growth. The Board reviews the Company's investment strategy and the risk of adverse share price movements at its quarterly board meetings considering the economic climate, market conditions and other factors that may have an effect on the sectors in which the Company invests. Other key risks faced by the Company relate to liquidity risk, the discount to net asset value, regulatory risk, credit and counterparty risk, loss of key personnel, and operational and financial risks.

Further details of the principal and emerging risks and uncertainties associated with the Company's business are set out in the Annual Report & Financial Statements for the year ended 30 June 2023. In the view of the Board, these principal and emerging risks and uncertainties continue to apply and they are constantly under review.

Going concern

The Half Yearly Financial Report has been prepared on a going concern basis. The Directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the Directors took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments and the ability of the Company to meet all of its liabilities and ongoing expenses.

Directors' responsibility statement

The Directors confirm to the best of their knowledge that:

(a)    the condensed set of financial statements, prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company at, or, as applicable, for the period ended 31 December 2023.

(b)   the Chairman's statement, the Portfolio Manager's review and the interim management report include a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R; and

(c)    the interim management report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R on related party transactions.

The Half Yearly Financial Report has not been audited or reviewed by the Company's auditors.

For and on behalf of the Board

Stephen White

Chairman

9 February 2024

Income statement

For the six months ended 31 December 2023 (unaudited)

				Six months to 31 December 2023			Six months to 31 December 2022
				Revenue	Capital	Total	Revenue	Capital	Total
				£'000	£'000	£'000	£'000	£'000	£'000
Gains from investments held at fair value through profit or loss (Note 2)				-	3,715	3,715	-	9,184	9,184
Currency exchange loss				-	(120)	(120)	-	(40)	(40)
Investment income				613	-	613	452	-	452
Total income				613	3,595	4,208	452	9,144	9,596
Management fee				(603)	-	(603)	(583)	-	(583)
Other expenses				(263)	(1)	(264)	(234)	(1)	(235)
(Loss)/return before taxation				(253)	3,594	3,341	(365)	9,143	8,778
Taxation				(80)	-	(80)	292	-	292
Net (loss)/return after taxation				(333)	3,594	3,261	(73)	9,143	9,070
Net (loss)/return per Ordinary share (Note 3)				(2.78)p	30.07p	27.29p	(0.62)p	76.50p	75.88p

The 'Total' column of this statement is the profit and loss account of the Company.

The 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. The Company has no other comprehensive income, and therefore the net return after taxation is also the total comprehensive income for the year.

All items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

The financial information does not constitute 'accounts' as defined in section 434 of the Companies Act 2006.

Statement of financial position

As at 31 December 2023 (unaudited)

	31 December 2023 (unaudited)	30 June 2023 (audited)
	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	161,564	159,134
Current assets
Debtors	79	67
Cash at bank and in hand	13,377	12,444
	13,456	12,511
Creditors: amounts falling due within one year	(612)	(498)
Net current assets	12,844	12,013
Total assets less current liabilities	174,408	171,147
Capital and reserves
Called up share capital	4,555	4,555
Share premium account	19,550	19,550
Non-distributable reserve	841	841
Capital redemption reserve	9,628	9,628
Retained earnings - capital reserve	149,684	146,090
Retained earnings - revenue reserve	(9,850)	(9,517)
Total shareholders' funds	174,408	171,147
Net asset value per Ordinary share (Note 6)	1,459.2p	1,431.9p

The financial statements were approved by the Board of Directors and signed on its behalf on 9 February 2024.

Stephen White
Chairman

Company Registration Number 02781968

Statement of cash flows

For the six months ended 31 December 2023

	Six months ended 31 December 2023 (unaudited)	Six months ended 31 December 2022 (unaudited)
	£'000	£'000
Cash flows from operating activities
Investment income received (gross)	517	358
Deposit interest received	88	23
Investment management fee paid	(591)	(292)
Other cash expenses	(291)	(140)
Net cash outflow from operating activities before taxation and interest	(277)	(51)
Taxation	(80)	(49)
Net cash outflow from operating activities	(357)	(100)
Cash flows from investing activities
Purchases of investments	(18,975)	(28,799)
Sales of investments	20,385	32,588
Net cash inflow from investing activities	1,410	3,789
Cash flows from financing activities
Net cash inflow from financing activities	-	-
Increase in cash	1,053	3,689
Cash and cash equivalents at the start of the period	12,444	8,218
Realised loss on foreign currency	(120)	(40)
Cash and cash equivalents at end of period	13,377	11,867

Statement of changes in equity

For the six months ended 31 December 2023 (unaudited)

						Retained earnings
	Called up share capital	Share premium	Non-distributable reserve	Capital redemption reserve		Capital reserve		Revenue reserve*	Total
For the six months to 31 December 2023	£'000	£'000	£'000	£'000		£'000		£'000	£'000
Balance at 1 July 2023	4,555	19,550	841	9,628		146,090		(9,517)	171,147
Net return for the period	-	-	-	-		3,594		(333)	3,261
Balance at 31 December 2023	4,555	19,550	841	9,628		149,684		(9,850)	174,408
						Retained earnings
	Called up share capital	Share premium	Non-distributable reserve	Capital redemption reserve		Capital reserve		Revenue reserve*	Total
For the six months to 31 December 2022	£'000	£'000	£'000	£'000		£'000		£'000	£'000
Balance at 1 July 2022	4,555	19,550	841	9,628		129,726		(8,460)	155,840
Net return for the period	-	-	-	-		9,143		(73)	9,070
Balance at 31 December 2022	4,555	19,550	841	9,628		138,869		(8,533)	164,910
						Retained earnings
	Called up share capital	Share premium	Non-distributable reserve	Capital redemption reserve		Capital reserve		Revenue reserve*	Total
For the year ended 30 June 2023 (audited)	£'000	£'000	£'000	£'000		£'000		£'000	£'000
Balance at 1 July 2022	4,555	19,550	841	9,628		129,726		(8,460)	155,840
Net return for the year	-	-	-	-		16,364		(1,057)	15,307
Balance at 30 June 2023	4,555	19,550	841	9,628		146,090		(9,517)	171,147

*   Under the Company's Articles of Association any dividends may be distributed only from the revenue reserve element of retained earnings and, as at 31 December 2023, there were no available earnings of this type.

Notes to the financial statements

For the six months to 31 December 2022

1.  Accounting policies

The accounting policies applied for the condensed financial statements are as set out in the Company's Annual Report & Accounts for the year ended 30 June 2023. They have been applied consistently during the period ended 31 December 2023.

FRS 104, 'Interim Financial Reporting', issued by the FRC in March 2015 has been applied in preparing the financial statements included in this half yearly report.

Basis of accounting

The accounts of the Company are prepared on a going concern basis under the historical cost convention, modified to include fixed asset investments at fair value through profit or loss and in accordance with the Companies Act 2006, UK GAAP and with the Statement of Recommended Practice ('SORP') for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies ('AIC') in November 2014 and updated in April 2021.

The functional and reporting currency of the Company is pounds sterling because that is the currency of the primary economic environment in which the Company operates.

In accordance with the SORP, the Income Statement has been analysed between a revenue account (dealing with items of a revenue nature) and a capital account (relating to items of a capital nature). Revenue returns include, but are not limited to, dividend income, operating expenses and tax. Net revenue returns are allocated via the revenue account to the retained earnings, out of which dividend payments may be made. Capital returns include, but are not limited to, profits and losses on the disposal and revaluation of fixed asset investments and currency profits and losses on cash and borrowings. Net capital returns may not be distributed by way of dividend and are allocated via the capital account to the retained earnings.

2.  Gains on investments held at fair value through profit or loss

	Six months to 31 December 2023	Six months to 31 December 2022
	£'000	£'000
Net (losses)/gains realised on sale of investments	(3,382)	1,901
Movement in investment holdings gains	7,097	7,283
Gains on investments held at fair value through profit or loss	3,715	9,184

3.  Return per Ordinary share

	Six months to 31 December 2023	Six months to 31 December 2022
	£'000	£'000
Net revenue loss	(333)	(73)
Net capital return	3,594	9,143
Net total return	3,261	9,070
Weighted average number of Ordinary shares in issue during the period	11,952,159	11,952,159
Net revenue loss per Ordinary share	(2.8)p	(0.6)p
Net capital return per Ordinary share	30.1p	76.5p
Net return per Ordinary share	27.3p	75.9p

4.  Transaction costs

During the period, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:

	Six months to 31 December 2023	Six months to 31 December 2022
	£'000	£'000
Purchases	20	27
Sales	18	19
Total	38	46

5.  Comparative information

The financial information contained in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the six months to 31 December 2023 and 31 December 2022 has not been audited.

The information for the year ended 30 June 2023 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 30 June 2023 have been filed with Companies House. The report of the auditors on those accounts contained no qualification or statement under section 498(2) or (3) of the Companies Act 2006.

6.  Net asset value per Ordinary share

The net asset value per Ordinary share as at 31 December 2023, calculated in accordance with the Articles of Association, was as follows:

	31 December 2023		30 June 2023
	Net asset value per share attributable	Net assets attributable	Net asset value per share attributable	Net assets attributable
	(p)	£'000	(p)	£'000
Ordinary shares	1,459.2	174,408	1,431.9	171,147

Net asset value per Ordinary share on the balance sheet is based on net assets of £174,408,000 (30 June 2023: £171,147,000) and on 11,952,159 (30 June 2023: 11,952,159) Ordinary shares, being the number of Ordinary shares in issue at the end of the period.

7.  Fair valuation of investments

The fair value hierarchy analysis for investments held at fair value at the period end is as follows:

	31 December 2023				30 June 2023
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investments	161,564	-	-	161,564	159,134	-	-	159,134

Financial instruments include fixed asset investments, derivative assets and liabilities.

Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The classification of financial instruments depends on the lowest significant applicable input, as follows:

Level 1 - Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities. Included within this category are investments listed on any recognised stock exchange.

Level 2 - Quoted prices for similar assets or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment. Examples of such instruments would be those for which the quoted price has been recently suspended, forward exchange contracts and certain other derivative instruments.

Level 3 - External inputs are unobservable. Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instruments. Included within this category are unquoted investments.

8.  Related parties and transactions with the manager

FundRock Partners Limited (FundRock) has been appointed as AIFM to the Company pursuant to an Alternative Investment Fund Management Agreement between FundRock and the Company. FundRock has also been appointed to provide company secretarial services to the Company.

Brown Advisory has been appointed to provide portfolio management services pursuant to a Portfolio Management Agreement between the Company, FundRock and Brown Advisory.

The management fee has been calculated at an annual rate of 0.7% on the first £200 million; 0.6% of the next £300 million; and 0.5% thereafter of the Company's adjusted net assets.

The management fee is payable by the Company to FundRock, who shall deduct from the management fee the amounts due to it as AIFM and for company secretarial services and shall pay the balance to Brown Advisory.

The management fee is calculated and payable on a quarterly basis.

The investment management fee payable to FundRock for the period 1 July 2023 to 31 December 2023 was £603,000. For the period 1 July 2022 to 31 December 2022 the fee payable was £583,000.

The appointment of Brown Advisory and FundRock may be terminated by not less than six months' notice.

There are no transactions with the directors other than the remuneration paid to the directors as disclosed in the Directors' Remuneration Report on pages 51 to 54 of the 2023 Annual Report & Accounts and as set out in Note 5 to the Accounts on page 71 and the beneficial interests of the directors in the ordinary shares of the Company as disclosed on page 53 of the 2023 Annual Report & Accounts.

Availability of Half Yearly Financial Report

The Half Yearly Financial Report will shortly be available on the Company's website www.brownadvisory.com/basc

A copy of the Half Yearly Financial Report will also be submitted to the National Storage Mechanism and will soon be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

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