The Brunner Investment Trust — A one-stop global equity shop for all weathers

The Brunner Investment Trust (LSE: BUT)

Last close As at 20/06/2024

GBP11.80

10.00 (0.85%)

Market capitalisation

500m

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Research: Investment Companies

The Brunner Investment Trust — A one-stop global equity shop for all weathers

The Brunner Investment Trust (BUT) is led by a very strong team at Allianz Global Investors (AllianzGI). Its two co-managers, Christian Schneider (deputy CIO Global Growth) and Julian Bishop (global equity specialist), are supported by deputy managers Marcus Morris-Eyton (European equity specialist) and Simon Gergel (CIO UK Equities). The trust has notably outperformed its benchmark over each of the last four financial years despite significant market rallies and falls and periods of growth and value stock leadership. BUT’s NAV total return is above the average of the 13 funds in the AIC Global sector over the last one, three and five years (ranking second over three years). The trust has delivered 51 consecutive years of higher dividends plus capital growth for investors.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Investment Companies

The Brunner Investment Trust

A one-stop global equity shop for all weathers

Investment trusts
Global equities

15 May 2023

Price

1,065p

Market cap

£455m

Total assets

£513m

NAV*

1,197.0p

Discount to NAV

11.0%

*Including income. At 11 May 2023.

Yield

2.0%

Ordinary shares in issue

42.7m

Code/ISIN

BUT/GB0001490001

Primary exchange

LSE

AIC sector

Global

Financial year end

30 November

52-week high/low

1,105.0p

902.0p

NAV* high/low

1,241.5p

1,044.0p

*Including income

Net gearing*

6.5%

*At 31 March 2023.

Fund objective

The Brunner Investment Trust aims to provide growth in capital value and dividends over the long term through investing in a portfolio of global equities. Its benchmark is a composite of 70% All-World ex-UK (£) Index and 30% All-Share Index.

Bull points

Balanced portfolio of global equities, aiming to generate both capital and income growth.

Long-term record of outperformance versus its benchmark and 51 consecutive years of higher dividends.

Scope for a higher valuation.

Bear points

The fund is likely to underperform in a market led by very high growth or deep value stocks.

Structural gearing of £25m will amplify capital losses in a market sell-off.

Dividend is modestly below the peer group average.

Analyst

Mel Jenner

+44 (0)20 3077 5700

The Brunner Investment Trust is a research client of Edison Investment Research Limited

The Brunner Investment Trust (BUT) is led by a very strong team at Allianz Global Investors (AllianzGI). Its two co-managers, Christian Schneider (deputy CIO Global Growth) and Julian Bishop (global equity specialist), are supported by deputy managers Marcus Morris-Eyton (European equity specialist) and Simon Gergel (CIO UK Equities). The trust has notably outperformed its benchmark over each of the last four financial years despite significant market rallies and falls and periods of growth and value stock leadership. BUT’s NAV total return is above the average of the 13 funds in the AIC Global sector over the last one, three and five years (ranking second over three years). The trust has delivered 51 consecutive years of higher dividends plus capital growth for investors.

NAV outperformance versus the benchmark over the last three years

Source: Refinitiv, Edison Investment Research. Note: Total returns in sterling.

The analyst’s view

BUT’s managers bring complementary geographic experience to the table. Bishop is the newest member of the trust’s team, having joined AllianzGI on 1 November 2022. His integration has been seamless as he shares the same philosophy used to manage BUT for many years. Interestingly, the trust’s three largest holdings were among the largest positions in the portfolio that Bishop managed at his previous employer. The managers also have diverse sector specialisms; for example, Schneider has deep experience of analysing industrial and financial companies, while Bishop has a particular focus on global consumer stocks.

Given the trust’s strong performance record, in particular its outperformance versus its benchmark over the last four financial years despite significant changes in the investment backdrops over the period, one could argue that BUT deserves to trade on a narrower discount. FY23 has also started well as the trust is building on its positive track record. The unusual benchmark (70% global, 30% UK) allows the managers to balance the requirement for growth in both capital and income as the UK market offers an above-average yield, whereas the US, for example, provides more growth opportunities.

The latest 11.0% share price discount to NAV could provide an interesting opportunity for new and existing investors, as it essentially implies an 11% discount on the price of some of the best companies in the world and is equivalent to around 18 years of ongoing charges.

Market outlook: Caution warranted amid volatility

Global stocks have performed considerably better than the UK market over the last decade (Exhibit 1, left-hand side). However, UK stocks have proved to be more resilient since the beginning of 2022, a period that has been characterised by high inflation, rising interest rates and above-average stock market volatility. The economic environment is uncertain as inflation remains elevated and the impacts of higher interest rates are feeding through, meaning investors are concerned about the risk of recession. Given this backdrop, it would seem prudent to take a longer-term perspective, focusing on high-quality companies with pricing power that are trading on reasonable valuations.

As shown by the Datastream World Index in Exhibit 1 (right-hand side), in aggregate, on a forward P/E multiple basis, global stocks do not look overvalued, as they are trading at a discount to their 10-year average. However, while earnings generally held up well in Q123, with deteriorating economic conditions, current earnings estimates may prove to be too optimistic, which reinforces the case for market participants to remain selective when considering potential investments.

Exhibit 1: Market performance and valuation

Performance of indices (past 10 years in £ terms)

Datastream World Index valuation metrics (at 12 May 2023)

 

Last

High

Low

10-year
average

Last as % of
average

P/E 12 months forward (x)

15.0

19.9

12.5

15.5

97

Price to book (x)

2.2

2.5

1.5

1.9

114

Dividend yield (%)

2.4

3.4

1.8

2.4

102

Return on equity (%)

12.7

14.0

7.3

11.1

115

Source: Refinitiv, Edison Investment Research

The fund managers: Christian Schneider, Julian Bishop, Marcus Morris-Eyton and Simon Gergel

The managers’ view: Continue to seek quality and value

Schneider refers back to when our last BUT report was published in November 2022, commenting that then all eyes were on inflation and rising interest rates. However, this year there is more discussion about risks to the economy and the potential for recession, given elevated inflation and higher interest rates. The manager notes that financing conditions are now more difficult, economic activity has declined and the war in Ukraine is ongoing, although inflation seems to be abating and central banks are more cautious about the risks to the economy from high interest rates. With cracks having started to appear in the US and European financial systems in March 2023 due to the failure of US regional banks Silicon Valley Bank and Signature Bank, and in Europe, UBS’s hurried acquisition of Credit Suisse, investors are concerned about what impacts these events will have on the wider economy. If there is a recession, there are question marks around its severity and duration. Schneider says that yield curves are implying that bond markets are now pricing in less aggressive rate hikes, as central banks are more wary about recession risks. The manager comments that while lower overall inflation is positive for the economy, some problem areas remain, such as in the services sector where higher wage rates are proving to be sticky. He suggests that central banks are concerned about a classic wage spiral; hence interest rates remain high despite elevated costs of living as central banks are trying to create some slack in the labour market.

Bishop emphasises that the managers do not take a macroeconomic view in terms of BUT’s portfolio construction. He suggests that the last few years have shown that this is a sensible approach as a pandemic, war in Europe and bank runs have ‘come out of nowhere’ and there has been ‘runaway inflation’. The manager says these unpredictable events demonstrate the benefits of having a robust portfolio, essentially an all-weather fund that can outperform regardless of the economic backdrop. This view is validated by BUT’s performance, as the fund has outperformed its benchmark for the last four consecutive financial years (ending in November) and is ahead in FY23 to date despite a range of stock market environments in the last five years. Bishop highlights that this outperformance has been generated from a fund of around 60 individual stock ideas, each of which has idiosyncratic risks, and a portfolio beta of close to one.

The manager says that many companies are reporting that sales growth is a function of higher pricing not increased volumes. A recent example is consumer products company Unilever, which reported strong organic sales growth led by higher pricing. Bishop comments that, in general, companies are surprised by how well the economy has held up despite inflation and higher interest rates. He explains that during the pandemic there was high demand for technology products as everything was moving online. However, subsequent growth rates slowed, and investor expectations were high, so technology stocks experienced a sharp correction in 2022. BUT benefited from this as it had no holdings in Amazon or Tesla, for example. Bishop reports that demand for technology products and services is stabilising. He comments that in the technology sector there is a lot of ‘buzz’ around artificial intelligence (AI).

BUT’s largest holding, Microsoft, has a significant stake in AI company ChatGPT, which the manager explains is helping Microsoft to deliver an improved proposition across all its product offerings. The company is very bullish on the prospects for both its cloud and on-premise products. Bishop comments that Microsoft has delivered outstanding results in an uncertain economic environment. He does not believe that the company is overvalued as it has so many good growth attributes. The manager explains that Microsoft’s products are deeply embedded in its clients’ businesses, which provides good growth opportunities. The company operates in an environment where there are barriers to entry, it generates high returns on capital, has no debt and is returning cash to shareholders; essentially, ‘it ticks a lot of boxes’, opines Bishop.

Current portfolio positioning

At end-March 2023, BUT’s top 10 holdings made up 32.0% of the portfolio, which was a modestly higher concentration compared with 30.9% at end-March 2022.

Exhibit 2: Top 10 holdings (at 31 March 2023)

Company

Country

Sector

Portfolio weight %

31 March 2023

31 March 2022*

Microsoft

US

Software & computer services

6.0

5.1

UnitedHealth

US

Healthcare providers

4.0

4.5

Visa

US

Industrial support services

3.7

3.5

Munich Re

Germany

Non-life insurance

3.4

2.5

Novo Nordisk

Denmark

Pharmaceuticals & biotechnology

2.7

N/A

Microchip Technology

US

Technology hardware & equipment

2.6

2.2

Shell

UK

Oil, gas & coal

2.6

2.2

Schneider Electric

France

Energy management & automation

2.5

2.4

Taiwan Semiconductor (ADR)

Taiwan

Technology hardware & equipment

2.4

2.6

Yum China

China

Travel & leisure

2.2

N/A

Top 10 (% of portfolio)

32.0

30.9

Source: BUT, Edison Investment Research. Note *N/A where not in end-March 2022 top 10.

The largest geographic changes in BUT’s portfolio in the 12 months to end-March 2023 were a lower North American weighting (-3.5pp) and a higher allocation to Pacific ex-Japan (+2.0pp). Although stocks are selected on a bottom-up basis, at end-March there was a notable 16.5pp overweight position in Europe ex-UK, while the largest underweight exposure was the UK (-5.9pp).

Exhibit 3: Portfolio geographic exposure versus benchmark (% unless stated)

Portfolio end-
March 2023

Portfolio end-
March 2022

Change
(pp)

Benchmark
weight

Active weight
vs benchmark (pp)

Trust weight/
benchmark weight (x)

North America

41.1

44.6

(3.5)

45.0

(3.9)

0.9

Europe ex-UK

26.0

25.9

0.2

9.6

16.5

2.7

UK

24.2

22.9

1.3

30.0

(5.9)

0.8

Pacific ex-Japan

5.9

3.9

2.0

9.2

(3.2)

0.6

Japan

2.8

2.8

0.0

4.6

(1.8)

0.6

Latin America

0.0

0.0

0.0

0.7

(0.7)

0.0

Middle East & Africa

0.0

0.0

0.0

1.0

(1.0)

0.0

100.0

100.0

100.0

Source: BUT, Edison Investment Research. Note: Excludes cash. Numbers subject to rounding.

Looking at changes in BUT’s sector exposure in the year ending 31 March 2023, the largest decrease was consumer discretionary (-3.2pp), while the largest increase was financials (+2.2pp). Compared with the benchmark, there were notable overweight positions in industrials (+8.8pp), financials (+5.5pp) and healthcare (+5.2pp). The largest underweight exposures were consumer staples (-4.4pp), basic materials (-4.1pp) and consumer discretionary (-3.2pp).

Exhibit 4: Portfolio sector exposure versus benchmark (% unless stated)

Portfolio end-
March 2023

Portfolio end-
March 2022

Change
(pp)

Benchmark
weight

Active weight
vs benchmark (pp)

Trust weight/
benchmark weight (x)

Financials

21.9

19.7

2.2

16.4

5.5

1.3

Industrials

21.5

20.3

1.2

12.7

8.8

1.7

Healthcare

16.9

18.4

(1.5)

11.7

5.2

1.4

Technology

15.7

14.3

1.4

16.8

(1.1)

0.9

Consumer discretionary

10.2

13.4

(3.2)

13.4

(3.2)

0.8

Energy

4.7

4.0

0.7

6.7

(2.0)

0.7

Consumer staples

4.6

3.1

1.5

9.0

(4.4)

0.5

Utilities

2.8

3.0

(0.2)

3.3

(0.5)

0.9

Basic materials

1.0

2.9

(1.9)

5.1

(4.1)

0.2

Real estate

0.7

0.9

(0.2)

2.6

(1.9)

0.3

Telecommunications

0.0

0.0

0.0

2.5

(2.5)

0.0

100.0

100.0

100.0

Source: BUT, Edison Investment Research. Note: Excludes cash. Numbers subject to rounding.

Schneider and Bishop discuss recent transactions in the portfolio. In March 2023, the position in UBS was sold as the company was forced to buy Credit Suisse in a deal brokered by the Swiss government and the central bank, which changed UBS’s investment case. The managers say it is an admirable bank with a large wealth manager business, which has low capital intensity, and has a sticky customer base. However, UBS’s balance sheet is now two times the size of Switzerland’s GDP, making it too large to be rescued if there are future problems. As the bank is higher risk, it will likely be subject to increased regulatory scrutiny and higher capital requirements, resulting in lower growth in profit and cash returns to shareholders.

There is a new position in business services company Rentokil Initial. Most of its revenues are generated from pest control, which the managers explain is a non-cyclical business with long-term growth opportunities, helped by growth in population, the global middle class and climate change. Rentokil is a global company with operations in Europe, the United States and emerging markets, providing services to both commercial and residential customers. The company recently acquired Terminix, a US termite-eradication business, which doubled Rentokil’s US pest control market share. Schneider and Bishop believe that the combination should be margin enhancing, with initiatives including reducing the number of branches and increasing route density.

In February 2023, the managers initiated a new position in DNB Bank. The company is Norway’s largest bank, and among the best capitalised in Europe, with high market shares in corporate and consumer loans, and other services such as investments and insurance. DNB has built up a strong balance sheet and generates sector-leading returns on equity. At the time of purchase, the bank’s shares looked attractively valued given the potential for further upward earnings revisions, and DNB returns cash to shareholders via a healthy dividend.

There were three new holdings in December 2022. Admiral Group is the UK’s largest motor insurer, with a c 14% market share. It benefits from industry-leading margins due to a low-cost structure and the sector is in an upcycle with very strong premium growth. The managers consider that Diageo is a steady, high-quality growth company. It is a multinational alcoholic beverage firm with more than 200 brands including Smirnoff, Baileys and Guinness. The company is gaining market share thanks to fast-growing categories such as tequila and whisky, and is benefiting from premiumisation (people trading up to higher-quality products). Diageo was purchased on a share-price pullback due to macroeconomic concerns. US-based Arthur J. Gallagher is one of the world’s largest insurance brokers; these businesses are capital light. The managers say that the company has a good long-term growth record, helped by rising insurance premiums, and it generates high levels of cash flow, providing opportunities for strategic mergers and acquisitions.

Last December, five positions were sold as the managers found better opportunities elsewhere. Schneider considers that activity in the month led to a ‘quality upgrade’ in the portfolio. Four of the disposals were: Ashmore Group (a UK emerging markets investment manager); Ecolab (a US company that provides water, hygiene and infection-prevention services); International Flavors and Fragrances (a US company that, as its name suggests, produces flavours and fragrances); and Intuitive Surgical (a US company that manufactures robotic products for minimally invasive surgery). The fifth sale was Adidas, which the managers admit had not been a successful position. It operates in a market where there is good end-market growth, but the company experienced a perfect storm. The global COVID-19 pandemic meant shops were closed, it has a large business in China, which was negatively affected by the country’s zero-COVID-19 policy, and the firm experienced supply chain issues. Adidas’s previous management team underperformed; for example, it was slow to market with new products, unlike its competitor Nike. While the company’s management has changed, Schneider and Bishop anticipate that any turnaround will be costly and protracted.

Performance: Solid record of outperformance

Exhibit 5: Five-year discrete performance data

12 months ending

Share price
(%)

NAV*
(%)

Benchmark**
(%)

CBOE UK All Companies (%)

MSCI All World exUK (%)

30/04/19

4.1

6.5

9.3

2.5

12.1

30/04/20

4.2

(5.8)

(5.4)

(17.2)

(0.3)

30/04/21

21.4

36.8

31.7

25.3

33.9

30/04/22

10.1

7.0

6.0

9.1

4.3

30/04/23

5.2

7.9

4.0

7.0

2.3

Source: Refinitiv. Note: All % on a total return basis in pounds sterling. *NAV with debt at market value. **Benchmark is 70% All-World ex-UK and 30% All-Share Index.

Schneider and Bishop discuss BUT’s performance attribution so far in FY23. Stocks that have made a positive contribution include:

Novo Nordisk is a Danish pharma company operating in a duopoly for diabetes care, for which there is growing demand. One of the side effects of its diabetes medication is weight loss, so the company is benefiting from additional demand for this indication. Obesity is a global health problem, so effective weight-loss medications help to reduce costs for healthcare systems across the world.

Jumbo is a Greek retailer, which is expanding into other European countries including Romania and Bulgaria. The company sells a range of toys, homewares and seasonal items and is a favoured destination in areas with few retailers. Jumbo is opening new stores, generating positive same-store sales and has cash on its balance sheet. Its shares have re-rated following the company’s strong results.

Align Technology is a US manufacturer of orthodontic 3D digital scanners and Invisalign clear aligners. In 2022, the company faced a perfect storm: difficult comparisons versus very strong post-COVID-19 growth rates in 2021; its Chinese operations were negatively affected by big city lockdowns; and foreign exchange rates also hurt Align’s results. The company’s share price has rallied in 2023, and is an example of stock market rotation, where investors gravitate towards shares that performed poorly in the prior year and have potential for improvement. As Align’s shares had performed so well, BUT’s position was trimmed.

Stocks that have detracted from BUT’s performance in FY23 include: Charles Schwab (a US financial services company whose share price has been negatively affected by the concerns about US regional banks); UnitedHealth (a major US healthcare services firm that has suffered from stock market rotation, as its shares performed very strongly in 2022); and Agilent (a US life science tools company, which has been another victim of stock market rotation).

Exhibit 6: Investment trust performance to 30 April 2023

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

BUT’s relative returns are shown in Exhibit 7. Its NAV has outperformed the benchmark over all periods shown. Over the last three years, the trust’s share price has lagged its NAV performance, leading to a wider discount. It is interesting to note how well BUT has performed versus the broad UK market over the last five and 10 years, illustrating the potential benefits of investing overseas.

Exhibit 7: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to benchmark

(1.7)

2.7

2.9

1.1

(3.1)

1.7

13.4

NAV relative to benchmark

0.5

1.0

4.4

3.8

8.9

5.7

7.8

Price relative to CBOE UK All Companies

(4.1)

0.9

(3.2)

(1.7)

(3.9)

22.8

52.9

NAV relative to CBOE UK All Companies

(1.9)

(0.8)

(1.9)

0.9

8.0

27.6

45.3

Price relative to MSCI All World ex-UK

(0.6)

3.5

5.8

2.8

(1.6)

(4.4)

(3.2)

NAV relative to MSCI All World ex-UK

1.6

1.8

7.3

5.6

10.6

(0.7)

(8.0)

Source: Refinitiv, Edison Investment Research. Note: Data to end-April 2023. Geometric calculation.

Peer group comparison

BUT is one of 13 funds in the AIC Global sector. While the peers follow a variety of mandates, with its balanced approach of aiming to generate both capital and income growth BUT can be considered a ‘core’ or ‘all-weather’ fund. Its portfolio of high-quality companies is straightforward, with no unlisted firms or derivatives, and the managers are much more likely to invest in long-term growth opportunities rather than hyper-growth, more speculative businesses.

Despite high levels of stock market volatility over the last 12 months, BUT has retained its solid relative performance record, with above-average NAV total returns over the last one, three and five years, ranking seventh, second and sixth, respectively. Considering this achievement, one may consider that the trust’s above-average discount is unwarranted. BUT’s ongoing charge is in line with the mean, its gearing is modestly below the sector mean and its dividend is below average, ranking seventh out of 13 funds.

Exhibit 8: AIC Global sector at 12 May 2023*

% unless stated

Market
cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount
(cum-fair)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield

Brunner Investment Trust

454.7

7.3

45.0

43.0

134.4

(11.6)

0.6

No

106

2.0

Alliance Trust

2,860.9

8.1

40.5

43.4

145.3

(6.3)

0.6

No

105

2.4

AVI Global Trust

904.3

1.9

55.2

36.2

115.3

(11.0)

0.9

No

109

1.7

Bankers Investment Trust

1,267.0

6.0

27.8

37.4

146.2

(10.7)

0.5

No

106

2.3

F&C Investment Trust

4,649.2

2.7

34.5

40.7

158.8

(4.2)

0.5

No

108

1.5

Keystone Positive Change Inv

127.0

15.3

(7.4)

(29.9)

2.6

(17.0)

0.9

No

108

5.5

Lindsell Train Investment Trust

210.0

7.5

17.5

63.9

364.9

(3.1)

0.8

Yes

100

5.0

Manchester & London Inv Trust

164.8

5.9

(13.8)

9.9

70.9

(12.0)

0.7

Yes

100

3.4

Martin Currie Global Portfolio

261.9

15.7

19.3

49.2

157.6

0.6

0.7

No

111

1.2

Mid Wynd International Inv Trust

437.3

(0.0)

26.8

50.1

196.2

(2.8)

0.6

No

105

1.0

Monks Investment Trust

2,249.4

8.3

18.0

34.8

168.2

(11.3)

0.4

No

105

0.2

Scottish Mortgage Inv Trust

8,741.3

(2.9)

13.1

59.6

357.8

(22.3)

0.3

No

116

0.6

Witan Investment Trust

1,503.6

7.6

39.0

20.9

117.9

(8.8)

0.8

Yes

113

2.5

Average (13 funds)

1,833.2

6.4

24.3

35.3

164.3

(9.3)

0.6

107

2.3

BUT rank in sector

8

7

2

6

9

10

7

7

7

Source: Morningstar, Edison Investment Research. Note: *Performance to 11 May 2023 based on ex-par NAV. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

Dividends: 51-year run of higher payments

BUT has a very distinguished dividend history; its annual distributions have increased for the past 51 consecutive years, at an average rate above the level of UK inflation. In FY22, the trust’s earnings per share of 22.7p were 11.3% higher than 20.4p in FY21. The annual dividend of 21.5p per share was 6.7% higher year-on-year. After the payment of the FY22 final dividend BUT had 25.9p per share in revenue reserves (4.9% higher than 24.7p per share in FY21), which is equivalent to c 1.2x the FY22 distribution.

Exhibit 9: Dividend history since FY17

Source: Bloomberg, Edison Investment Research

Valuation: Range-bound discount over the last year

An overhang in BUT’s shares was removed following Aviva’s sale of its residual holding in the trust in April 2021. BUT’s discount subsequently narrowed, but widened again in 2022 in an environment of rising interest rates and increased investor risk aversion. Over the last year, the trust has broadly traded in a 10–15% discount range. The latest 11.0% share price discount to cum-income NAV is not dissimilar to the 10.6% to 11.9% range of discounts over the last one, three, five and 10 years.

Exhibit 10: Discount over three years (%)

Exhibit 11: Buybacks and issuance

Source: Refinitiv, Edison Investment Research

Source: Morningstar, Edison Investment Research

Exhibit 10: Discount over three years (%)

Source: Refinitiv, Edison Investment Research

Exhibit 11: Buybacks and issuance

Source: Morningstar, Edison Investment Research

Fund profile: Balanced focus on growth and income

BUT is one of the oldest UK investment trusts (launched in January 1927) and is listed on the Main Market of the London Stock Exchange. Former lead manager Matthew Tillett stepped down in July 2022 and the trust now has two co-lead managers: Christian Schneider, who is deputy CIO of AllianzGI’s global growth team, and Julian Bishop, who was formerly a global equity portfolio manager with Tesco Pension Investment. Schneider and Bishop work closely with Marcus Morris-Eyton, who is a growth equity specialist and Simon Gergel, who is AllianzGI’s CIO UK Equities.

The managers aim to generate long-term growth in capital and income from a diversified portfolio of global equities, and BUT’s performance is measured against a composite benchmark (70% World ex-UK Index and 30% broad UK index, versus a 50:50 split until 21 March 2017). To mitigate risk, a maximum 10% of gross assets (at the time of investment) may be invested in a single holding, while the portfolio must contain at least 50 stocks. Gearing of up to 20% of NAV (at the time of borrowing) is permitted. BUT has a long-term record of dividend growth: its annual distribution has increased in each of the past 51 consecutive years, compounding at a rate higher than the level of UK inflation.

Investment process: Fundamental stock selection

The managers aim to generate long-term capital growth and a growing level of income from a portfolio of global equities that is diversified by geography and sector. BUT’s portfolio currently consists of 60 stocks, with 85% invested in companies with market caps greater than $10bn and is selected from an investible universe of c 6,000 securities. Positions may be sold if there is a change in the investment case, on valuation grounds or if a better opportunity is identified. Portfolio turnover is running at c 15% pa, implying around a seven-year holding period. The BUT investment philosophy is based on three pillars:

Quality – seeking companies with stable or improving, above-average returns (important features are long-term competitive advantages, operating in a business with high barriers to entry, strong balance sheets, well-respected management teams and sound environmental, social and governance (ESG) credentials).

Growth – looking for firms experiencing long-term secular growth, while avoiding those in structural decline.

Valuation – a range of methods is employed, focusing on companies that are trading at a discount to their perceived intrinsic value, not just looking at how ‘cheap’ a company is based on simple multiples.

AllianzGI’s investment team is very well resourced, and along with portfolio managers and analysts focusing on fundamental research includes ESG specialists, the proprietary Grassroots market research platform and online discussion platform Salesforce Chatter.

BUT’s approach to ESG

BUT’s managers employ an integrated ESG strategy. This approach aims to incorporate material ESG risk considerations into BUT’s investment process, seeking to obtain a better risk/return profile for the fund. An analytical framework is used to manage tail risks and/or weaknesses in a company’s ESG profile. The integrated ESG approach does not restrict the investment universe, but BUT’s managers are required to monitor ESG risks for each portfolio holding. ESG analysis is considered an integral part of BUT’s fundamental research process and AllianzGI believes that there is a link between integrated ESG analysis and enhanced long-term shareholder value.

Every stock researched is considered in terms of its ESG credentials. If the managers are considering initiating a position in a company with a low ESG rating, they need to understand the issues and be able to justify the purchase (some low ratings relate to a lack of disclosure rather than bad behaviour). BUT’s managers regularly engage with investee companies, which has multiple benefits including enriching investment analysis and decision-making and helping to assess a firm’s leadership and culture. These meetings are not just about holding managements to account, but also about influencing company strategy, maybe in conjunction with other shareholders, and promoting effective governance, to help improve long-term performance. In particular, there is a focus on the sustainability of companies’ business models and factors such as the environmental impact of their operations, social policies and capital management.

Gearing

BUT’s capital structure improved significantly following the repayment of two high-cost (11.125% and 9.25%) debentures in 2018. It now has £25m of fixed-rate 30-year 2.84% loan notes (repayable on 28 June 2048), a £10m short-term revolving credit facility (RCF) and £450k of 5% cumulative preference shares. The RCF is fully drawn down, its interest rate is set each month and is made up of a fixed margin plus SONIA. Under this agreement £10m was rolled over on 27 December 2022, with a maturity date of 27 June 2023. The repayment date of the revolving facility is the last day of its interest period, and the termination date is 27 June 2025.

Fees and charges

AllianzGI is paid an annual management fee of 0.45% of gross assets minus short-term liabilities, excluding any funds managed by AllianzGI; it is charged in a 70:30 ratio between the capital and revenue accounts. In FY22, ongoing charges were 0.63%, which is in line with FY21.

Capital structure

BUT is a conventional investment trust with 42.7m ordinary shares in issue. Over the last 12 months, the trust’s average daily trading volume was c 37k shares. Although c 29% of BUT’s share base is owned by the Brunner family, there are multiple owners within the family, some of whom trade their shares.

Exhibit 12: Major shareholders

Exhibit 13: Average daily volume

Source: The Brunner Investment Trust, at 30 April 2023.

Source: Refinitiv. Note: 12 months to 12 May 2023.

Exhibit 12: Major shareholders

Source: The Brunner Investment Trust, at 30 April 2023.

Exhibit 13: Average daily volume

Source: Refinitiv. Note: 12 months to 12 May 2023.

At end-FY22, BUT’s shareholder base was split as follows: investment platforms 31.4% (vs 28.0% at end FY21); direct holdings including Brunner family members 29.4% (vs 29.5%); wealth managers 23.5% (vs 24.1%); financial institutions 12.6% (vs 15.8%); and other 3.1% (vs 2.6%). There is further increased retail demand for the trust’s shares as evidenced by the higher weighting on investment platforms, while demand from financial institutions continues to decline. Higher retail ownership has been helped by AllianzGI’s efforts to promote the trust to a wider audience.

The board

Exhibit 14: BUT’s board of directors

Board member

Date of appointment

Remuneration in FY22

Shareholding at end-FY22

Carolan Dobson (chair since March 2016)

December 2013

£42,000

4,750

Jim Sharp

January 2014

£26,500

117,218

Amanda Aldridge

December 2019

£32,500

4,000

Andrew Hutton

April 2020

£26,500

6,000

Elizabeth Field

December 2022

£0

Source: The Brunner Investment Trust

BUT’s board has five independent, non-executive directors. It aims to have board members with backgrounds in investment, accountancy and law and a director with commercial expertise, who has a connection to the Brunner family, in order to provide a balanced line-up; Jim Sharp is connected to the Brunner family by marriage.

Elizabeth Field was appointed as an independent, non-executive director on 1 December 2022. She was a corporate lawyer for 35 years, gaining extensive experience of advising public and private companies on a wide range of corporate transactions across a variety of sectors, including investment trusts.

Peter Maynard retired at 2023 BUT’s AGM, which was held on 31 March. He had served on the board since October 2010, staying beyond his planned retirement date to provide continuity during the global COVID-19 pandemic.

General disclaimer and copyright

This report has been commissioned by The Brunner Investment Trust and prepared and issued by Edison, in consideration of a fee payable by The Brunner Investment Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by The Brunner Investment Trust and prepared and issued by Edison, in consideration of a fee payable by The Brunner Investment Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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