Brunner 22 August 2023
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Brunner (BUT) has generated a consistency of performance which has been particularly hard to come by for active global equity managers over recent years. The focus on constructing a balanced, high-quality-focussed portfolio, the longstanding UK bias and a greater focus on protecting against inflation have contributed to BUT’s 7.7% and 31% outperformance of the MSCI ACWI Index and global sector average, respectively, over the past five years (see Performance). As discussed in Management, BUT’s co-lead portfolio managers, Christian Schneider and Julian Bishop, are closely supported by Marcus Morris-Eyton and Simon Gergel. This four-strong management team leverage their individual expertise to provide a balanced global equity portfolio capable of generating both capital and income growth across a variety of market conditions.
As discussed in Portfolio, the long-term investment strategy is strictly bottom-up-focussed, with individual stock decisions based on balancing quality, growth and value characteristics with the dual goal of generating both consistent capital and dividend growth. Naturally, this leads to a portfolio geared towards key secular growth trends that the managers believe will drive long-term growth. This includes the overarching theme of digitisation, where the managers have sought to gain exposure across the value chain and within sectors, such as healthcare, financial services and sustainable energy.
The allocation to high-quality, sustainably growing companies and c. 24% allocation to UK equities has provided investors with a consistent and growing Dividend over 51 years, giving it one of the longest track records of any of the AIC’s ‘dividend heroes’. BUT is currently trading at a Discount of 12.7%, which compares to its five-year average discount of 10.8% and the five-year average global sector discount of 3.8%.
We believe the consistency of BUT’s Performance over both short and long-term time horizons proves its capabilities as an all-weather investment solution which is likely to suit a wide range of investors looking to tap into the long-term growth potential offered by investing in global equities. The managers’ active, benchmark-agnostic approach, focussing on the fundamental strength of portfolio holdings, should continue to reduce the portfolio’s exposure to broader macroeconomic and stylistic factors that have driven financial markets over the past several years.
There has been some turnover in the lead manager role in recent years, with the introduction of Julian Bishop in November 2022 to co-lead, alongside existing manager Christian Schneider. However, in our view, this has not affected the underlying investment strategy, providing further stability and balance across the four portfolio managers’ investment styles. In our view, this is welcome and should continue to prove particularly valuable during unsettled market environments. We think BUT’s focus on long-term secular growth themes, combined with the high-quality, market-leading nature of the listed companies within the portfolio, is likely to remain the driver of long-term returns. In our view, this should make the strategy less susceptible to higher interest rates and should continue to provide a valuable inflationary hedge, due to their staple-like characteristics compared to more speculative areas of the market.
BUT’s progressive Dividend is an attractive feature, given its long-term consistency and reflection of the strength of the portfolio’s holdings. Combined with the long-term consistency of performance and well-balanced nature of the investment strategy with exposure to a range of the world’s highest-quality companies, we think this may lead to a narrowing of the wide Discount over time, despite it being close to its five-year average.
- All-weather approach has delivered consistently strong performance, even in recent difficult conditions
- Well-experienced and diverse management team
- Progressiveness of dividend provides relatively attractive yield compared to alternative global equity strategies
- UK bias can reduce diversification benefits
- Has traded at a wide discount to NAV for a prolonged period
- Although well-managed, gearing may exaggerate losses on the downside