Brunner Investment Trust (BUT) offers a ‘one-stop shop’ for equity investors with its managers taking a balanced approach to investing in high quality companies, with a dual mandate of both capital and dividend growth. Their bottom-up stock selection focusses on identifying global blue chip companies which are able to provide long-term growth without commanding an excessive valuation.
While COVID-19 has been a difficult year for many income paying companies, the team remark that their quality bias has allowed their holdings to remain resilient over the crisis, with any reduction to the trust’s underlying income being only a short-term phenomenon. The team expect many of their holdings to bounce back sharply, especially as they foresee the quality factor outperforming once the impact of and recovery from COVID-19 ceases to drive markets.
BUT has a strong long-term track record of performance, having outperformed its benchmark over the last five years (see performance section). Over the last 12 months it has managed to generate returns ahead of its benchmark and only marginally behind its peers despite not owning many of the mega cap tech names which drove much of the post-crash recovery. The team have also continued to reduce their weighting to the UK, aligning the portfolio to a more global allocation.
2020 marks BUT’s 49th year of consecutive dividend growth, one of the longest records of any investment trust, qualifying it as one of the AIC’s dividend heroes. Despite its competitive performance and enviable dividend history, BUT trades at a 12.4% discount, after a major shareholder sold down its stake, as we discuss in the discount section.
We believe BUT offers investors a measured approach to global equity investing, avoiding many of the mega-cap names which dominate global equities. Thanks to this BUT could easily diversify an existing global equity allocation, or even act as a single stock allocation thanks to its balanced portfolio and compelling income potential. What we find exceptionally impressive is that BUT’s total return has managed to remain competitive with the wider AIC global sector, despite its dual objective of capital and dividend growth.
As global markets begin to be weaned off the immediate tailwinds of the pandemic recovery, we expect successful stock picking to return to prominence as markets will be driven less by momentum and more by individual stocks. In a similar manner we think the quality factor, which BUT’s portfolio has a clear tilt towards, may have an increasing premium attached to it as investors may value strong balance sheets and business models more than they will style or thematic factors.
BUT’s current discount is also very interesting given that it is largely the result of a one-off sell down by a major institutional investor, who over the last seven months has sold their entire c. 17% stake (see discount). Now that this overhang has cleared, we see no reason for the current discount to persist.
|Balanced approach to global equities with good diversification potential
||Can underperform in growth or momentum driven markets
|Historically wide discount offers good entry point
||Moderate gearing can amplify losses on the downside
|Strong 12-month performance despite avoiding many mega cap tech names
||Investment process restricts access to low and zero dividend payers