Brunner

BUT trades at a historically wide discount, despite recent competitive performance and 49 years of dividend increases…

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Brunner. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Brunner

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.

Kepler View

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.

Bull
Bear
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
David Johnson
David is an investment trust analyst and joined Kepler in September 2020. Prior to this he ran multi-asset model portfolios at a discretionary fund manager, and has worked in both asset management and investment banking during his career. He holds a Masters in Finance from the University of Warwick and is a CFA charterholder.

Fund History

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

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