Kepler Trust Intelligence
Updated 02 Feb 2022
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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.

Much of the media and market’s focus during the pandemic has been on the wilder side of the stock market. High valuations, starry-eyed promises about future growth, and so-called ‘meme stocks’ have all captured headlines in what has been a strange couple of years for investors.

All of this makes it easy to forget that most regular investors aren’t looking to risk their hard-earned savings on the next hot tech stock. Instead, many want something that can deliver steady capital growth over the long-term and, potentially, a source of income.

Sifting through London’s listed funds today, you can find plenty of investment trusts purporting to do this. But Brunner Investment Trust (BUT) is arguably one of the standout performers in terms of consistency.

Managed by investment group Allianz Global Investors, the trust has been active since 1927 and is one of a small number of closed-ended funds to have increased its dividend payouts for almost 50 consecutive years. It has also delivered a more than three-and-half fold total return for shareholders over the past decade.

Valuation, not value

A strong past performance is obviously not a guarantee that the trust will manage to continue delivering in the future. Having said that, it would be unfair to ascribe Brunner’s fortunes to luck. You don’t stay in business for almost 100 years by taking potshots at the market.

The trust, which has been managed since mid-2020 by Matthew Tillett, invests in equities from across the globe and takes a three-pronged approach to the market, looking at the growth, quality, and valuation characteristics of any prospective investments.

Quality in this instance means looking at things like a company’s balance sheet, competitive advantage, and management team. Growth factors might include examining new markets a company can expand into and the sustainability of its current expansion, with a view to avoiding firms that might be more subject to cyclical trends.

Perhaps the most interesting part of Brunner’s investment process though, is that factoring in of value. Investors may take this to mean that the trust takes a standard value-oriented approach to the market but that’s not the case.

The managers of the trust adopt a long-term approach to valuation, recognizing that a wide range of valuations may be justified for companies with varying growth prospects. They are careful to avoid value traps – cheap stocks but with deteriorating fundamentals – but also will not buy growth at any price.  

A unique mix of companies

This approach means the trust has a mix of firms that you wouldn’t typically find in a single portfolio, with higher valued US stocks, like Microsoft and Visa sitting alongside more lowly valued companies such as Rio Tinto and Munich Re.

Although the trust is predominantly invested into large cap stocks, it also holds a number of exciting mid cap stocks, such as the Baltic based online classifieds internet platform Baltic Classifieds, specialist recruiter SThree and the south eastern European discount retailer Jumbo. This creates a mix in the portfolio that investors are unlikely to find elsewhere.

Slow but steady wins the race

Investing in this way has led Brunner to deviate substantially from other trusts in the global equity sector, as well as common benchmark indices, like the MSCI World Index. Some investors may find this attractive if they’re looking for a level of sectoral or stock diversification in their portfolio.

On the other hand, the trust is overweight to the UK and doesn’t have the same level of exposure to technology stocks that’s commonly found in the sector. Over the past five years, that may have left some investors feeling frustrated given the UK market’s underwhelming performance and the tech sector’s success.

This is to slightly miss the bigger picture though. The trust’s UK holdings have a bias towards mid sized companies which have performed better than the large companies that account for the majority of the UK market.

Moreover, over the last decade, the trust has managed to outperform both its own custom benchmark, which it uses to reflect its weighting to the UK, and the MSCI World Index. Outperforming the latter was particularly impressive given the UK’s relative underperformance in that time.

Most importantly, Brunner’s goal has always been to provide that mix of income and capital growth to shareholders, while maintaining a more balanced risk-return profile. In that sense, the trust has consistently achieved what it sets out to do.

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