Brunner 12 November 2024

Brunner (BUT) is designed to provide investors with an ‘all-weather’ portfolio, capable of adapting to various market environments. To achieve this, managers Julian Bishop and Christian Schneider focus on cash-generative businesses operating in industries with high barriers to entry and benefiting from structural growth drivers, while diversifying the portfolio across market factors including quality, growth, and value. The portfolio is constructed on a bottom-up basis, meaning that the managers do not make macro calls or bet on the prospects of a specific sector or trend.

This approach has worked well over the past five completed financial years, with BUT outperforming its benchmark each year, despite the markedly different market environments over that period.

Since the beginning of the 2024 financial year, the managers have trimmed or sold some higher-quality holdings trading on high valuations and added to value names, some of which are UK-listed.

The trust is likely to have a higher allocation to UK equities compared to AIC Global sector peers, due to BUT’s composite benchmark consisting of 70% FTSE World ex-UK and 30% FTSE All-Share. The managers believe that UK equities provide diversification, as the market leans more toward the ‘old economy’, and they note that valuations in the UK are undemanding at the moment.

Dividends are an important part of the strategy, with BUT boasting a 52-year track record of annual dividend increase. The trust’s prospective yield for 2024 is c. 1.7%. However, the managers believe investors should consider total return rather than solely dividends.

Over the past 12 months, BUT’s Discount has closed, and the trust is now trading at a 2.1% premium.

In our view, BUT has successfully delivered on its ‘all-weather’ goal, outperforming its benchmark in each of its past five financial years. We think it is particularly impressive given the rapidly changing market conditions during this period, including the risk-on environments of 2020 and 2021 and the bear market of 2022. We think the managers’ emphasis on companies with strong balance sheets and the exposure to different market factors result in a resilient strategy. As such, we believe that BUT could work well as a long-term core holding for investors.

We think that BUT offers a differentiated exposure to global equity markets compared to a global tracker or the typical active fund, notably due to its UK bias, but also the managers’ willingness to explore opportunities in the mid-cap space, which we think could increase the potential for Julian and Christian to generate alpha.

While the managers want their investee companies to operate in structurally growing industries, we note that the Portfolio is not excessively exposed to any of them, which we think, also demonstrates diversification.

We also think that BUT’s 52-year track record of dividend increases is an important factor to consider. Although a prospective yield of c. 1.7% may not seem particularly high, a consistently growing dividend enhances the yield over time.