Brunner 11 May 2022
This is a non-independent marketing communication commissioned by Allianz Global Investors. 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 (BUT) has retained its balanced, ‘core’ style of investing even through today’s difficult markets. BUT is managed by Matthew Tillett, who follows a process which places the greatest weight on the ‘quality’ factor. He is supported by Christian Schneider and Marcus Morris-Eyton two leading Portfolio Managers in the AllianzGI Global Equity team. Thanks to BUT’s global remit the team can invest across the entire market spectrum, with BUT’s portfolio capturing both the value and growth ends of the market. As a result, BUT’s portfolio is well diversified across multiple factors, including geography, sector, and style.
Matthew has a contrarian approach to investing, typically purchasing out-of-favour companies to capitalise on long-term mispricing. We highlight one example of this in the Portfolio section, that being the recent rotation out of ‘commodity capital’ banks and into shunned but higher-quality specialist banks.
Matthew’s balanced approach has paid off in recent months, as BUT has avoided many of the painful drawdowns its peers have suffered. In fact, recent Performance has been so strong that it ranks as the second best-performing global equity trust over the last 12 months, and the third over the last three years. It has also outperformed its benchmark over the last five years.
BUT has a dual mandate for both capital and income growth, and has been highly successful in providing both. within particular this year marks the 50th consecutive increase in Dividends paid. Yet despite BUT’s recent performance and dividend history, it trades on a 10.7% discount at the time of writing, wider than its peers and in line with its own long-term average. However, BUT’s current Discount does reflect a near-term widening, likely brought about by the recent fall in the market’s appetite for risk. There have also been publicised sell downs in investment trusts across the sector by institutional investors who are reducing risk and have created temporary overhangs on the stock.
We believe BUT’s balanced approach and global equity exposure, coupled with its impressive dividend track record and strong ESG credentials, mean it could function as an investor’s primary equity holding. This is especially the case for investors looking for genuine active management, but who ultimately want a ‘fire and forget’ type of investment that they can be confident won’t majorly deviate in style. However, we add the caveat that BUT does have a structurally large allocation to the UK, which may reduce its diversification potential for investors with a strong UK bias.
In the near term, we believe there is a potential opportunity in BUT’s widening discount. Even if the near-term volatility stemming from the Ukrainian crisis subsides, investors will still need to grapple with rising inflation and restricted global supply chains. These factors have driven BUT’s recent outperformance against its peers and may continue to act as a tailwind for BUT’s future outperformance as well, thus being a potential catalyst for BUT’s discount to narrow.
BUT offers something which we believe investors may be increasingly appreciative of in a market dominated by growth stocks: a consistent, concentrated but stylistically balanced global equity portfolio. In today’s increasingly tumultuous markets, investors who are looking to reduce their style exposures (which may certainly be the case for growth-heavy portfolios) might in our view be well served by choosing BUT, as it would allow them to reduce any existing biases while still retaining stock-level diversification. This could not easily be accomplished with a passive product, given the inherently large exposure to the US mega caps that have previously dominated global equity market returns.
- Balanced approach to investing has cushioned it from some of the recent market downturns
- Discount offers attractive entry point
- Celebrates its 50th consecutive year of dividend increases this year
- Large UK bias can reduce diversification benefits
- Gearing can amplify losses on the downside
- Can underperform in periods of stylistically driven markets