Brunner

BUT has generated strong returns over 2021 but still trades at a potentially attractive discount…

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Brunner

Brunner Investment Trust (BUT) offers investors a balanced portfolio of global equities, with the dual objectives of capital and income growth. BUT’s lead manager is Matthew Tillett, with two other experienced Portfolio Managers contributing slightly different styles and areas of expertise to the Trust, helping Matthew create a diversified and balanced portfolio. BUT is not an expensive ‘quality growth’ strategy, nor is it a pure ‘value’ fund. Instead, the process balances companies’ quality, growth, and valuation factors, leading to a concentrated portfolio of distinct companies. These include global giants like Microsoft, alongside smaller companies like SThree, a small-cap UK recruitment firm. We note that BUT also contains a structurally high allocation to the UK, which has increased as a percentage of the portfolio in recent months due to the strong relative performance from their investments here. We cover BUT’s process in more detail in our Portfolio section.

BUT has demonstrated strong recent performance, where over the last 12 months it has outperformed both its benchmark and its peers, ranking as one of the best global equity strategies over the period. Importantly, this performance has been generated entirely through stock selection rather than sector allocation, indicating the managers’ success as bottom-up stock-pickers. However, BUT has underperformed the peer group over the last five years, although we note that this is due in large part to the structural overweight to the UK in the benchmark rather than due to the managers’ active decisions. BUT’s relative performance is also due in part to the team’s comparative risk profile, whereby they take a more risk-conscious approach to investing than many of their more aggressive peers.

BUT has one of the longest track records of consecutive Dividend increases of any investment trust, currently standing at 49 years, with its current dividend underpinned by a portfolio of companies whose strong current and future earnings potential lends itself to a sustainable income stream. BUT currently trades on a 8.9% discount, though this represents a narrowing from its discount at the start of the year.

Kepler View

We think BUT’s recent strong performance has demonstrated the advantages that a balanced approach can offer when conditions are favourable. Unlike what was the case for some years, the current (Q4 2021) equity market no longer favours one style, with a myriad of different risks now making specific style bets riskier. However, BUT has managed to do well and has generated strong year-to-date performance, a direct result of its team’s ability to balance quality, growth, and valuation factors.

We think the future may continue to suit BUT’s approach as many of the current risk factors are still to be resolved, with the managers highlighting the risks of rising inflation and COVID-19’s impact on Asian markets. The sustainable earnings of BUT’s holdings, both historical and expected, should mean they are better able to survive any near-term hazards.

The team’s balanced approach to valuation risk could provide another tailwind for the strategy, with BUT lacking the stretched valuations of some of its peers. Rising inflation brings with it rising interest rate expectations which would be a major headwind to expensive, aggressively growth-focussed companies and low-quality business with poor pricing power. The managers’ strong valuation and quality sensitivity means BUT usually avoids these companies. As a result, we believe BUT’s current discount still provides a potentially attractive entry point, despite its recent narrowing.

bull bear
Balanced portfolio has recently performed well in the current ‘trendless’ markets
Can underperform in an overly style-driven market, e.g. momentum
One of the longest track records of continuous dividend increases of any trust
Structurally large allocation to the UK may reduce diversification benefits to certain investors
Discount offers potentially attractive entry point
Gearing can amplify losses on the downside
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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