The Brunner Investment Trust — An ‘all-weather’ fund for global investors

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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The Brunner Investment Trust — An ‘all-weather’ fund for global investors

The Brunner Investment Trust (BUT) has welcomed another experienced manager into its team. Julian Bishop joined Allianz Global Investors (AllianzGI) on 1 November 2022, following the departure of Matthew Tillett. He is working alongside BUT’s lead portfolio manager, Christian Schneider, and deputy portfolio managers Marcus Morris-Eyton and Simon Gergel. Schneider says that the trust has a key focus on quality, with the team aiming to outperform BUT’s global/UK composite benchmark in all market environments. The trust is on track for its 51st consecutive year of higher annual dividends and currently offers a 2.1% yield.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Investment Companies

The Brunner Investment Trust

An ‘all-weather’ fund for global investors

Investment trusts
Global equities

30 November 2022

Price

1,010.0p

Market cap

£431m

AUM

£505m

NAV*

1,144.4p

Discount to NAV

11.7%

*Including income. As at 28 November 2022.

Yield

2.1%

Shares in issue

42.7m

Code

BUT

Primary exchange

LSE

AIC sector

Global

52-week high/low

1,130.0p

902.0p

1,229.0p

1,044.0p

*Including income.

Gearing

Net gearing*

6.6%

*As at 31 October 2022.

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 50 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) has welcomed another experienced manager into its team. Julian Bishop joined Allianz Global Investors (AllianzGI) on 1 November 2022, following the departure of Matthew Tillett. He is working alongside BUT’s lead portfolio manager, Christian Schneider, and deputy portfolio managers Marcus Morris-Eyton and Simon Gergel. Schneider says that the trust has a key focus on quality, with the team aiming to outperform BUT’s global/UK composite benchmark in all market environments. The trust is on track for its 51st consecutive year of higher annual dividends and currently offers a 2.1% yield.

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 have a very disciplined approach to bottom-up stock selection based on the three pillars of quality, growth and valuation. The resulting portfolio of 60 to 80 high-quality businesses is diversified by geography, sector and market cap and has exposure to structural growth trends such as digitisation and the switch to renewable energy. This should help the managers navigate what is undoubtably a tough macroeconomic backdrop as rising costs are negatively affecting consumer spending and corporate profitability. In addition, many market participants and corporate leaders have never experienced an environment of persistently higher inflation and rising interest rates, so above-average levels of stock market volatility look set to continue.

Scope for a higher valuation

BUT’s 11.7% share price discount to cum-income NAV is not dissimilar to the 10.5% to 12.0% range of average discounts over the last one, three, five and 10 years. However, the trust has some appealing attributes which offer scope for a higher valuation. In a volatile market environment, BUT’s focus on high-quality businesses and its measured approach to generating both long-term capital and income growth could find favour with investors.

The trust’s NAV total return currently ranks first out of 15 funds in the AIC Global sector over the last 12 months, while it is comfortably above average over the last three and five years. BUT’s NAV has also outperformed its benchmark over the last three, five and 10 years.

Recent developments

4 October 2022 – an announcement that Julian Bishop would join the AllianzGI team managing BUT, effective from 1 November 2022, as a senior portfolio manager with a view to becoming co-lead manager with Christian Schneider in due course. Bishop has 25 years’ investment experience as a global equity analyst and portfolio manager, most recently as a senior global equity portfolio manager with Tesco Pension Investment and before that with Sarasin & Partners.

26 July 2022 – BUT’s board announced that lead manager Matthew Tillett had stepped down and would be replaced by Christian Schneider, one of the trust’s deputy managers, for a minimum of six months. He works closely with BUT’s other deputy managers, Marcus Morris-Eyton and Simon Gergel, AllianzGI’s CIO of UK equities. The board and AllianzGI would continue to review the structure of the team, including the appointment of a permanent lead portfolio manager.

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

The managers’ view: Three pillars of quality, growth and value

While there is a team-based approach in managing BUT’s portfolio, lead manager Schneider has ultimate responsibility, although it is envisaged that in due course, he and Bishop will be co-lead managers. Schneider highlights how BUT’s quality-oriented, balanced portfolio helps to insulate the trust’s performance from style biases in the stock market. The manager is keen to continue generating both long-term capital and income growth supporting BUT’s progressive dividend policy; the annual distribution has increased for the last 50 consecutive years.

Morris-Eyton explains that BUT has a clear investment philosophy where portfolio stocks must fulfil the team’s three broad criteria of quality, growth and value. In terms of quality, investee companies have long-term records of sustainable competitive advantages such as a brand (LVMH Moët Hennessy Louis Vuitton, LVMH) or product (Microsoft). They have strong balance sheets and proven management teams that do not overpromise and underdeliver. These businesses generate high and sustainable returns and have creditable approaches towards ESG issues. BUT’s portfolio companies have secular growth opportunities with potential to grow throughout an economic cycle, while valuation is an important consideration; the managers seek firms that are trading below their estimated intrinsic values. Morris-Eyton notes that on a forward P/E multiple basis, BUT’s portfolio has a modestly higher valuation compared with the global market but it has around twice the estimated year-one earnings growth.

Gergel highlights the very broad resources at AllianzGI that the BUT team is able to draw on, including Grassroots, which he describes as a unique market research platform. The trust has an investment universe of more than 6k stocks and its portfolio is made up of 60–80 holdings selected following diligent stock selection. Gergel says that BUT is a well-diversified actively managed fund; positions are sold if they are reaching or have met full value, a better idea has been identified or if there is a change in the investment case or operating environment – the managers are willing to sell a holding at a loss if that is deemed appropriate.

There are a series of themes represented within BUT’s portfolio. Schneider focuses on digitisation where the fund is invested across the value chain. The trust has infrastructure assets including Microsoft, Visa, Microchip Technology, Amphenol Corporation and Atlas Copco. BUT has a holding in business-to-business company Intuit, which has recurring revenue and growth opportunities from its number-one global position providing online tax-filing services and accounting software for small businesses. The trust also has a holding in business-to-consumer company Charles Schwab Corporation, a dominant online provider of banking, investing and wealth-management services.

Morris-Eyton highlights structural demand growth in the healthcare sector. The projected old-age dependency ratio, which is the number of old-age dependents (persons aged 65 years or over) per 100 persons of working age (aged 20 to 64 years), is increasing significantly, led by Europe, Australia and New Zealand and North America. Over the long term, rising incomes mean there is more wealth available to spend on healthcare systems. According to the manager, BUT has numerous touchpoints with the healthcare sector such as: insurance (UnitedHealth); diagnostics (Agilent and Roche); treatment (Intuitive Surgical, the global leader in robotic surgery, and Cooper Companies, which has an IVF franchise and a contact lens recurring revenue business); outpatient (Ecolab provides infection protection across a range of industries); and aftercare (Novo Nordisk, which has the leading global diabetes franchise and a growing business tackling obesity, and GSK (formerly GlaxoSmithKline)).

Gergel focuses on cheaper, decentralized electricity generation that is fuelling energy demand. He says that climate change is leading to increased efficiency and a shift away from fossil fuels towards renewable energy, with electricity demand expected to double by 2050. The manager says there are powerful growth themes within the energy and related sectors that are represented in BUT’s portfolio, such as Rio Tinto, which he says is fundamental for energy transmission and industrial automation and instrumentation. Gergel comments that there are renewable energy generation projects at well-established energy companies including Shell, TotalEnergies and Iberdrola, while the trust has exposure to grid and infrastructure assets such as National Grid and Schneider Electric.

Turning his attention to one of BUT’s holdings, the manager says that Unilever fits in well with the trust’s quality, growth and valuation criteria. The company has a portfolio of global brands and has a long history of good growth, high returns and pricing power, and is seen as a pioneer in sustainability issues. Unilever has a strong position in emerging markets, which offers the potential for above-average long-term growth. The firm’s valuation was depressed, which provided the managers with an attractive entry point as investors were disappointed with Unilever’s bid for GSK’s consumer assets, some poor operational performance, and less exposure than its peers to the United States, which has performed relatively well this year.

Morris-Eyton highlights BUT’s position in LVMH, which has 85 brands with the most important, Louis Vuitton, generating c 80% of the company’s EBIT. The manager considers LVMH to be an amazingly successful company that grew through the pandemic and continues to take market share. The firm is diversifying its brand portfolio and the company is 60% larger now than before COVID-19, and its leather goods business is 80% larger. While investors have to pay a premium for this superior-quality company, the manager considers its valuation is compelling as LVMH has derated in 2022 along with other growth stocks.

Current portfolio positioning

At end-October 2022, BUT’s top 10 holdings made up 32.2% of the fund, which was a modestly higher concentration compared with 31.1% a year before; five positions were common to both periods. There is a notably higher exposure to UnitedHealth, which has now claimed the top spot in the trust’s portfolio.

Exhibit 1: Top 10 holdings (as at 31 October 2022)

Company

Country

Sector

Portfolio weight %

31 Oct 2022

31 Oct 2021*

UnitedHealth

US

Healthcare providers

5.5

4.3

Microsoft

US

Software & computer services

4.7

5.4

Visa

US

Industrial support services

4.0

N/A

Munich Re

Germany

Non-life insurance

3.5

2.7

Roche

Switzerland

Pharmaceuticals & biotechnology

2.8

2.9

Shell

UK

Oil, gas & coal

2.6

N/A

TotalEnergies

France

Oil, gas & coal

2.3

N/A

AMETEK

US

Electronic & electrical equipment

2.3

N/A

Microchip Technology

US

Technology hardware & equipment

2.2

N/A

Schneider Electric

France

Energy management & automation

2.2

2.3

Top 10 (% of portfolio)

32.2

31.1

Source: BUT, Edison Investment Research. Note: *N/A where not in end-October 2021 top 10.

Exhibit 2 shows that BUT’s portfolio is diversified by both geography and sector. The geographic data is somewhat confusing as the chart is based on where companies are listed. Data from BUT show that looking where investee businesses generate their revenue, the fund’s broad geographic exposure is c 40% North America, around one-third Europe, c 20% Asia-Pacific (including Japan) and c 5% rest of the world.

Exhibit 2: Portfolio geographic (left) and sector (right) exposure at 31 October 2022

Source: BUT, Edison Investment Research

Exhibit 2: Portfolio geographic (left) and sector (right) exposure at 31 October 2022

Source: BUT, Edison Investment Research

Performance and peer group comparison

Exhibit 3: Five-year discrete performance data

12 months ending

Share price
(%)

NAV*
(%)

Benchmark
(%)

CBOE UK All Companies (%)

MSCI All World exUK (%)

31/10/18

(1.9)

(0.2)

2.6

(1.6)

4.2

31/10/19

14.6

10.6

10.7

6.9

12.1

31/10/20

(3.6)

(2.0)

(1.7)

(20.2)

6.9

31/10/21

36.5

38.8

31.9

36.0

29.8

31/10/22

(2.6)

(4.3)

(3.3)

(1.6)

(4.6)

Source: Refinitiv. Note: All % on a total return basis in pounds sterling. *NAV with debt at market value.

Looking at BUT’s relative returns in Exhibit 5, its NAV has outpaced the performance of its benchmark over the last three, five and 10 years, while lagging over the shorter periods shown. It is worth noting the trust’s significant outperformance of the broad UK market over the last three, five and 10 years, illustrating the potential benefits of investing overseas.

Over the last year, BUT’s healthcare stocks, including UnitedHealth, AbbVie and Novo Nordisk, have been important positive contributors to the trust’s relative performance. On the negative side, the largest detractors have been more diverse including Adidas (sportswear manufacturer), Tyman (building products) and Partners Group (private equity).

Exhibit 4: Investment trust performance to 31 October 2022

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.

Exhibit 5: 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

1.1

0.0

(1.7)

0.7

2.2

1.2

13.1

NAV relative to benchmark

(0.5)

(1.8)

(0.5)

(1.0)

3.8

0.9

8.0

Price relative to CBOE UK All Companies

0.8

1.6

1.6

(1.0)

20.0

28.3

65.3

NAV relative to CBOE UK All Companies

(0.8)

(0.2)

2.8

(2.8)

21.9

27.9

57.8

Price relative to MSCI All World ex-UK

1.3

(0.5)

(2.8)

2.1

(3.3)

(6.9)

(7.8)

NAV relative to MSCI All World ex-UK

(0.3)

(2.4)

(1.7)

0.3

(1.8)

(7.2)

(11.9)

Source: Refinitiv, Edison Investment Research. Note: Data to end-October 2022. Geometric calculation.

The AIC Global sector is made up of 15 funds following a variety of investment mandates. Having outperformed over a multi-year period, companies with a growth bias such as Scottish Mortgage Investment Trust and Monks Investment Trust are having a tougher time this year as investor preferences have changed in an environment of sustained higher inflation and rising interest rates. With its balanced approach of seeking both long-term capital and income growth from a portfolio of listed high-quality companies BUT can be considered as more of a ‘core’ or ‘all-weather’ fund.

Exhibit 6: AIC Global sector at 29 November 2022*

% 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

431.2

(1.7)

26.5

43.0

173.2

(11.9)

0.6

No

106

2.1

Alliance Trust

2,840.1

(6.8)

19.3

36.8

174.8

(4.7)

0.6

No

105

2.5

AVI Global Trust

960.4

(7.1)

33.1

42.9

153.5

(8.6)

0.9

No

105

1.7

Bankers Investment Trust

1,307.8

(8.1)

19.2

36.5

189.3

(7.5)

0.5

No

107

2.2

Blue Planet Investment Trust

4.7

(64.4)

(72.0)

(73.9)

(51.6)

(15.3)

5.2

No

151

5.5

F&C Investment Trust

4,759.0

(6.9)

25.5

45.8

206.9

(2.2)

0.5

No

106

1.5

JPMorgan Elect Managed Growth

257.8

(7.4)

18.4

34.7

181.4

(3.1)

0.5

No

100

1.8

Keystone Positive Change Inv

132.1

(27.4)

(33.2)

(29.1)

19.7

(11.5)

0.5

No

109

5.2

Lindsell Train Investment Trust

208.5

(8.7)

9.3

66.4

412.6

2.5

0.8

Yes

100

5.1

Manchester & London Inv Trust

140.1

(37.2)

(16.0)

1.4

61.0

(18.6)

0.7

Yes

100

4.0

Martin Currie Global Portfolio

240.6

(23.6)

7.4

35.7

168.8

(2.6)

0.7

No

109

1.4

Mid Wynd International Inv Trust

468.2

(12.9)

24.9

52.5

245.8

0.8

0.6

No

100

1.0

Monks Investment Trust

2,310.5

(26.6)

15.8

37.3

203.9

(8.3)

0.4

No

108

0.2

Scottish Mortgage Inv Trust

10,792.1

(44.7)

46.8

77.5

438.7

(7.5)

0.3

No

117

0.5

Witan Investment Trust

1,515.3

(11.1)

7.5

17.8

156.6

(6.5)

0.7

Yes

112

2.5

Average (15 funds)

1,757.9

(19.6)

8.8

28.3

182.3

(7.0)

0.9

109

2.5

BUT rank in sector

9

1

3

5

9

13

9

9

8

Source: Morningstar, Edison Investment Research. Note: *Performance to 28 November 2022 based on ex-par NAV. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

Its NAV total returns are comfortably ahead of the peer group averages over the last one, three and five years, ranking first, third and fifth respectively. BUT ranks ninth out of 15 funds over the last decade. Given its above-average returns and balanced investment approach, it is somewhat surprising that the trust’s discount is one of the widest in the peer group. BUT has a competitive ongoing charge and a below-average level of gearing, while its dividend yield is modestly below the peer-group mean.

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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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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.

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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.

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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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Consumer

Britvic — Strong growth despite headwinds

Britvic reported strong double-digit revenue growth across all business units in FY22, reflecting brand resilience despite significant headwinds. Trading benefited from a full year with no COVID-19-related restrictions and hot weather during the summer. Performance was boosted by balanced growth in volume and price, as management mitigated the significant cost inflation in the year through price rises and efficiency initiatives. As such, adjusted EBIT was up 17% while adjusted EPS grew 29.3%. The dividend per share increased 19.8% to 29p. Despite the more challenging macroeconomic environment, management notes no slowdown in consumer demand, with current trading in line with expectations. Although current headwinds on costs and consumer spend are expected to persist into FY23, management believes it is well positioned to navigate these challenges successfully.

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