Brunner

Trading at the widest discount in the AIC Global sector, BUT offers a balanced portfolio of global growth opportunities…

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. The managers look for quality growth opportunities across the globe, but with a focus on the price they pay for that growth.

BUT’s portfolio is stylistically balanced and aimed at delivering consistent returns throughout the cycle. The managers achieve this blend through a purely bottom-up approach, analysing the quality, growth and valuation characteristics of companies to create a portfolio of 60-80 holdings.

BUT’s lead manager changed in May 2020, with Lucy Macdonald being replaced by her deputy, Matthew Tillett. Alongside Matthew, Jeremy Kent and Marcus Morris-Eyton have also joined the team as co-managers from other teams at Allianz. However, there has been no change to the process or approach, and the managers draw on the extensive resources of Allianz, as discussed in the Portfolio section.

The trust has a strong long-term track record, and has outperformed its benchmark in three of the last four years. It has nonetheless lagged its peers in the medium to short term, principally due to its overweight position in the UK and underweight position in the US relative to the rest of the sector. However, as discussed in the Performance section, the trust has rebounded strongly from the coronavirus crash.

BUT is one of the standout trusts in the investment trust universe for dividend growth, having increased its dividend for the past 48 years. It currently yields 2.5%. Last year’s dividend was covered 1.3x by revenue reserves, meaning there should be some support in a difficult year for dividends.

The current discount of around 10.9% is one of the highest of those of conventional trusts in the AIC Global sector.

Kepler View

We believe that BUT offers a way to access some of the themes and countries which have lagged in the immediate aftermath of the pandemic, but which could do very well in a recovery. A close examination of the AIC Global peer group shows that it is the conventional trusts (i.e. those which are not funds of funds) which have performed the best, and which have also had the highest exposure to the US market and the lowest exposure to the UK. Additionally, any overweight position to technology has further enhanced portfolio performance.

However, we believe that after such a strong run for the US and for tech, many investors are looking for ways to diversify into areas of the markets which have lagged. Although it does offer exposure to the likes of Microsoft, BUT’s valuation-conscious approach means it has more exposure to sectors and countries with catch-up potential, such as cyclicals or the UK. For example, in the case of the UK we think that once the Brexit period has passed, the team’s in-depth focus on quality and long-term structural drivers means that they could see a number of UK holdings significantly re-rate. Meanwhile, investors will continue to benefit from a ‘dividend hero’ fund, with a 48-year history of raising the dividend and a yield of 2.5%, supported by strong reserves.

bull bear
Exceptional track record of dividend growth Relatively heavy exposure to the UK, an uncertain market
Attractive discount relative to peers Gearing can exacerbate downside
Improved debt structure Diversified approach will lead to underperformance if a small number of companies continue to drive global returns
William Sobczak
William joined Kepler Partners in February 2018 as an investment trust analyst. Prior to joining, William graduated from the University of Western Australia, with a BSc in Psychology.

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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.

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