How a Once-Stellar Fund Hit Hard Times

Brown Capital Management Small Company BCSIX was once a superstar fund.

Longtime manager Keith Lee and his colleagues evaluate companies based on revenue, not market capitalization. They seek fast-growing companies whose products or services save time, lives, money, or headaches. For years, this was a potent recipe: In the 15 years through June 2020, for example, Brown Capital Management Small Company was the best-performing fund in the small-growth Morningstar Category. Since that time, however, the fund has performed terribly. Not all the warning signs were there in mid-2020; some cracks appeared over time.

In Morningstar FundInvestor’s Red Flags column, we often spotlight a single red flag and point it out in a handful of funds. Sometimes, however, multiple red flags appear at the same fund. Brown Capital Management Small Company is one such situation.

Two long-standing features of this fund always required a close eye. The portfolio often has relatively high valuation measures—such as price/earnings and price/book—and it tends to focus on technology and healthcare stocks. So, for instance, when rising interest rates pressured high-growth, high-valuation stocks in 2022, this fund corrected sharply. And when worries about the impact of artificial intelligence rattled software stocks in early 2026, the fund, which had a large software stake (noted for readers in an April 2025 Red Flags piece), fell well behind most peers.

In isolation, investing in pricey stocks or specific areas isn’t necessarily bad. In fact, the Brown Capital team has historically turned such features to its advantage. But the resulting underperformance put the fund into a vicious circle. Disappointed investors began to pull out, and Brown Capital’s selling to raise cash likely pushed its stocks down further, hurting fund performance even more. As if that weren’t enough, the selling also realized capital gains, leading to huge distributions in 2024 and 2025 that hurt many taxable investors. All told, the fund shrank from more than $7 billion in assets in mid-2021 to $322 million as of April 2026.

Early in this slump, the Brown Capital team held together and stuck to its playbook—just as it did during the fund’s last ugly stretch in the mid-2000s. But that changed in August 2024 when Andrew Fones, one of seven managers on the fund at the time, resigned. Again, taken by itself, this wasn’t too worrisome: A team of six managers running a low-turnover portfolio of 50 stocks or fewer is quite sufficient, and veteran managers like Lee remained in place. More concerning, however, was the departure of manager Daman Blakeney in February 2026. In just 18 months, the strategy had lost two managers—as many as had left in the prior 16 years.

As Morningstar’s analyst covering Brown Capital Management Small Company since 2019, I can’t say I foresaw what would happen here. We try not to make rash judgments based on performance alone—and as I noted, some of this fund’s problematic features ultimately became strengths in other periods. Initially, I saw consistency in Brown Capital’s team and process, and that’s important. But the personnel departures started to change my calculus. Those exits occurred as Brown Capital began to adjust its process by integrating AI and looking to diversify the portfolio by generating more ideas. These changes could help, but with the relative upheaval of the team and its approach, I downgraded the fund’s People and Process ratings to Above Average from High in July 2025 and dropped each of them to Average in February 2026. Now’s the time to step back and see how things play out.

This article first appeared in the April 2026 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.