Don't Be Afraid of Cash

Ryan Leggio: Hi. I'm Ryan Leggio. I am a mutual fund analyst here at Morningstar, and joining me today for the Morningstar Investment Conference, is Tim Hartch, a portfolio manager at BBH Core Select. BBH Core Select is a large cap fund, which is fairly concentrated, and Tim and his core portfolio managers invest in high quality business, what we at Morningstar call moats. Tim thanks so much for joining us today.

Timothy Hartch: I am excited to be here.

Leggio: Well, the market certainly has been volatile over the last few months and one particularly great aspect of your fund, a very shareholder aspect of your fund is that you publish on your quarterly letters and during conference calls, the price to fair value of your funds. So, could you update shareholders and potential shareholders, where it stands now and where it stood few weeks ago, when the market hit its more recent high?

Hartch: As you correctly noted, we invest in very high quality businesses and it is a concentrated portfolio. So it is typically 25 to 30 companies, today it is about 29 businesses and from a discount to intrinsic value, which is really the way we protect capital as well as grow capital over time, the portfolio is trading at about in the low 70s right now, which is significantly below, you know it was probably close 80 a few weeks ago, and now it is going down closer to 70%. And that is both the decline in the market, as well as we have been able to add some new investments and add to some existing positions that were trading at pretty reasonable discounts to intrinsic value.

Leggio: And I know, shareholders probably also want to know one of the distinguishing aspects of your fund besides earning high quality businesses is that you are willing to own cash when you are not finding values. Can you update shareholders roughly where the cash take is and also roughly now, what the average price to fair value has been since the new team started running the fund?

Hartch: The cash position today is about 3%, which is below what it's been in the last few months. We typically do not ever have you know, 15% or 20% of the portfolio in cash, but we have never been worried about holding cash. We do wait, we have a wish list of business that we want to own and of the great companies that we think we can own over many years, and recently we've been able to find some opportunities with companies that are trading 65% or so of our intrinsic value. So it has been – we have been excited about that.