Brown Advisory US Smaller Companies (BASC) is considering offering a “significant cash exit” to shareholders before its three-yearly continuation vote at the annual general meeting in November.

The £177m company, whose board is led by chair Stephen White, revealed it was in the midst of a strategic review but clarified this was unlikely to lead to a merger or takeover.

While shareholder feedback to the trust, one of only two in the North American Smaller Companies sector, had been supportive, some investors had indicated their wish for a “liquidity opportunity”. 

“Against this backdrop, the board is considering a range of strategic options, including the provision of a significant cash exit opportunity for shareholders. In evaluating these options, the board will also have regard to the scale of the company following any such transaction,” it said. 

“As part of the review, the board will not actively consider the option of a transaction that would be subject to the Takeover Code, and do not believe such a transaction is a possible outcome of that review,” it added.

Baltimore-based Brown Advisory was appointed to replace Jupiter as investment adviser in December 2020 with fund managers Christopher Berrier and George Sakellaris taking on the portfolio with a growth style the following April.

Over five years BASC has badly underperformed its Russell 2000 benchmark, generating a total 10% return against 46% from the index with its shares on a 7% discount. Its rival, the value style JPMorgan US Smaller Companies (JUSC), has also underperformed with an 11% return and stands 4% below net asset value.

Our view

QuotedData senior analyst Matthew Read said: “The board of Brown Advisory US Smaller Companies finds itself in a familiar bind. It has a credible manager, a genuinely interesting asset class, and a portfolio fishing in a part of the US market where valuations look much more appealing than they do among the mega-cap growth names that have dominated returns. However, it needs more scale and it is difficult to see how it can achieve that, even if its absolute returns are good, when it is struggling to keep pace with its benchmark and is sitting on a discount.

“The board deserves credit for not waiting passively for the continuation vote. Fees have already been cut, buybacks remain in use and there is a performance-related tender scheduled for 2028. However, some shareholders want liquidity sooner than that and, while a cash exit could resolve that, it is hard to see the trust retaining enough scale to remain viable and attractive.”