The Brunner Investment Trust — Debt refinancing provides more flexibility

The Brunner Investment Trust (LSE: BUT)

Last close As at 18/05/2024

GBP11.80

10.00 (0.85%)

Market capitalisation

500m

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The Brunner Investment Trust — Debt refinancing provides more flexibility

The Brunner Investment Trust (BUT) has been sole-managed by Lucy Macdonald at Allianz Global Investors (AllianzGI) since June 2016. She says that following the trust’s refinancing of its high-cost debt in 2018, there is increased flexibility to focus on higher-conviction, more interesting quality growth names, without needing to invest in higher-yielding companies in order to cover BUT’s dividend. The manager notes that despite this shift in focus, the fund’s portfolio yield remains in line with that of the benchmark and the trust has a high level of revenue reserves, equivalent to c 1.5x the last annual dividend payment.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Investment Companies

The Brunner Investment Trust

Debt refinancing provides more flexibility

Investment trusts
Global equities

2 May 2019

Price

782.0p

Market cap

£334m

AUM

£396m

NAV*

871.5p

Discount to NAV

10.3%

NAV**

879.2p

Discount to NAV

11.1%

*Excluding income. **Including income. As at 30 April 2019.

Yield

2.3%

Ordinary shares in issue

42.7m

Code

BUT

Primary exchange

LSE

AIC sector

Global

Benchmark

Composite benchmark

Share price/discount performance

Three-year performance vs index

52-week high/low

814.0p

681.0p

894.5p

756.1p

**Including income.

Gearing

Net*

7.9%

*As at 31 March 2019.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

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

The Brunner Investment Trust (BUT) has been sole-managed by Lucy Macdonald at Allianz Global Investors (AllianzGI) since June 2016. She says that following the trust’s refinancing of its high-cost debt in 2018, there is increased flexibility to focus on higher-conviction, more interesting quality growth names, without needing to invest in higher-yielding companies in order to cover BUT’s dividend. The manager notes that despite this shift in focus, the fund’s portfolio yield remains in line with that of the benchmark and the trust has a high level of revenue reserves, equivalent to c 1.5x the last annual dividend payment.

BUT’s NAV total return has outperformed the benchmark over three years – Macdonald became sole manager on 23 June 2016

Source: Refinitiv, Edison Investment research

The market opportunity

While 2018 witnessed heightened levels of stock market volatility, which may continue this year, this type of environment can provide opportunities for successful stock pickers who invest in high-quality companies with a longer-term view. The US Federal Reserve has put its cycle of interest rate rises on hold, meaning liquidity conditions should remain supportive for a while longer.

Why consider investing in BUT?

May be viewed as a ‘one-stop-shop’ for investment in global equities; manager aims to deliver robust returns in a variety of market environments.

Improved relative investment performance since Macdonald became sole manager in June 2016. NAV and share price total returns of 15.1% pa and 16.1% pa respectively over the last three years.

Progressive dividend policy – the annual distribution has increased for the last 47 consecutive years. Current 2.3% dividend yield and a high level of reserves.

Improved capital structure following the refinancing of high-cost debt.

Narrower discount; regularly trades close to 10%

BUT’s discount has narrowed since late 2016, which is evidenced in the progression of its average discounts: 12.6%, 12.5%, 12.4% and 10.3% over 10, five, three and one year respectively. Its current 11.1% discount to cum-income NAV compares with the 6.1–13.0% range over the last 12 months.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

The Brunner Investment Trust aims to provide growth in capital value and dividends over the long term through investing in a portfolio of UK and international securities. From 25 March 2008 to 21 March 2017, the benchmark was a composite of 50% FTSE All-Share and 50% FTSE All-World ex-UK Index (£). It is now a composite of 70% FTSE All-World ex-UK (£) and 30% FTSE All-Share Index.

14 February 2019: Annual report to 30 November 2018. NAV TR +2.7% versus +4.1% for composite benchmark. Announcement of 6.00p fourth quarterly dividend (flat year-on-year).

4 October 2018: Announcement of 4.05p third quarterly dividend (+15.7% year-on-year).

23 July 2018: Six-month report to 31 May 2018. NAV TR +4.0% versus +4.5% for composite benchmark. Announcement of 4.05p second quarterly dividend (+15.7% year-on-year).

Forthcoming

Capital structure

Fund details

AGM

March 2020

Ongoing charges

0.66%

Group

Allianz Global Investors

Interim results

July 2019

Net gearing

7.9%

Manager

Lucy Macdonald

Year end

30 November

Annual mgmt fee

0.45%

Address

199 Bishopsgate
London, EC2M 3TY

Dividend paid

Jun, Sep, Dec, Mar

Performance fee

None

Launch date

January 1927

Trust life

Indefinite

Phone

+44 (0)800 389 4696

Continuation vote

None

Loan facilities

See pages 7 and 8

Website

www.brunner.co.uk

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

From FY14, dividends have been paid quarterly in June, September, December and March. Dividends are expected to rise over the long term and have increased for 47 consecutive years.

Renewed annually, the trust has authority to purchase up to 14.99%, and allot up to 5% of issued share capital.

Shareholder base (as at 31 March 2019)

Portfolio exposure by geography (as at 31 March 2019)

Top 10 holdings (as at 31 March 2019)

Portfolio weight %

Company

Country

Sector

31 March 2019

31 March 2018*

Microsoft

US

Software & computer services

4.2

3.1

UnitedHealth

US

Healthcare equipment & services

3.3

2.8

Royal Dutch Shell 'B'

UK

Oil & gas producers

2.9

2.9

Accenture

US

Support services

2.6

N/A

Agilent Technologies

US

Electronic & electrical equipment

2.5

N/A

The Cooper Companies

US

Healthcare equipment & services

2.4

N/A

Visa

US

Financial services

2.4

2.0

Roche

Switzerland

Pharmaceuticals & biotechnology

2.4

N/A

Taiwan Semiconductor (ADR)

Taiwan

Technology hardware & equipment

2.3

N/A

BP

UK

Oil & gas producers

2.3

2.2

Top 10 (% of holdings)

27.2

23.7

Source: The Brunner Investment Trust, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in end-March 2018 top 10.

Market outlook: Seeking clarification of macro issues

Global stock markets had a bit of a bumpy ride in Q418, as investors focused on slowing economic growth amid further US interest rate hikes. However, the US central bank has since adopted a more dovish stance, suggesting there will be no rate increases in 2019, which has contributed to a significant upward move in stock prices so far this year. Global economic growth will arguably be lower in 2019 compared with last year when US corporate earnings were boosted by lower taxes. In addition, there are a few significant macro issues overhanging the market, including the US-China trade dispute and protracted Brexit negotiations.

While the Q418 stock market pullback led to more reasonable valuations, on a forward P/E multiple basis global shares continue to trade at a premium to their 10-year average (Exhibit 2, RHS). With this valuation backdrop, it would seem reasonable to believe that further equity market moves should be driven by companies’ income growth rather than by a revaluation of share prices. A trade agreement between the US and China, or further clarity on the UK’s exit from the EU, would be supportive for corporate earnings in 2019 (as well as for investor sentiment).

Exhibit 2: Market performance and valuation

Performance of indices (last 10 years in £ terms)

Datastream World Index valuation metrics (as at 1 May 2019)

 

Last

High

Low

10-year
average

Last as % of
average

P/E 12 months forward (x)

15.0

16.3

9.8

13.6

110

Price to book (x)

2.1

2.1

1.4

1.8

120

Dividend yield (%)

2.5

3.6

2.2

2.6

98

Return on equity (%)

11.6

13.3

4.9

10.8

108

Source: Refinitiv, Edison Investment Research

Fund profile: Broad exposure to global equities

BUT is a well-established investment trust, which launched in January 1927, and is listed on the Main Market of the London Stock Exchange; its largest shareholder continues to be the Brunner family (c 29%). Since 23 June 2016, the lead manager has been Lucy Macdonald, chief investment officer for global equities at AllianzGI. She was previously co-manager focusing on overseas equities and works closely with UK equity specialist Matthew Tillett.

The manager aims to generate long-term growth in capital and income from bottom-up investment in a diversified portfolio of global equities; BUT could be considered a ‘one-stop-shop’ for exposure to world markets. The trust is benchmarked against a composite measure: 70% FTSE World ex-UK index and 30% FTSE All-Share index (previously 50% FTSE World ex-UK and 50% FTSE All-Share until 21 March 2017). To mitigate risk, there are investment limits in place, including a maximum position size of 10% of gross assets in a single stock (at the time of investment). The portfolio must contain at least 50 stocks, diversified by geography and sector. Gearing is permitted up to 20% of NAV at the time of borrowing; net gearing at end-March 2019 was 7.9%. BUT has a 47-year record of growing its annual dividends at a rate higher than the level of UK inflation, and currently offers a 2.3% dividend yield. This compares favourably with the majority of the 20 funds in the Association of Investment Companies (AIC) Global sector.

The fund manager: Lucy Macdonald

The manager’s view: Liquidity has peaked, but cycle extended

Macdonald maintains her view that market liquidity (boosted over the past decade by central bank policy) has peaked; however, now that the US’s Federal Reserve has put interest rate hikes on pause, she believes that the liquidity cycle has been extended. The Fed announcement, along with the fact that the US central bank is no longer shrinking its balance sheet, has contributed to significant share price appreciation so far in 2019; however, Macdonald is confident that the strongest boost to liquidity (from QE and extraordinarily low interest rates) is behind us.

Economic growth has slowed, as the manager expected, including in China, which has been negatively affected by the trade dispute, as well as other parts of the globe such as Europe and the US. Macdonald notes negative corporate earnings revisions, which started towards the end of 2018, particularly for cyclical companies, but she suggests revisions could stabilise in the short term. Overall, Macdonald expects mid-single digit earnings growth in 2019, with less regional variation compared with 2018, when US growth was well above average, supported by tax reforms. Given the lower expected variation in regional earnings, the manager also believes there will be more uniform regional stock market performances in 2019.

In terms of valuation, the manager says that on a cyclically adjusted P/E measure, global equities are trading in line with the long-term average. Because of this, she believes there is no justifiable reason to suggest an environment of double-digit returns for global equities. While acknowledging that the stock market bounce this year “has been great”, reversing the Q418 weakness, Macdonald expects the global market to move sideways, with higher levels of volatility due to macro uncertainty; she says this is a good environment for successful active managers. The US-China trade situation is affecting growth and while there may be a resolution, Macdonald says there are other longer-term tensions such as the protection of intellectual property.

The manager explains that so far this year, market leadership has favoured sectors with better earnings momentum, such as technology. She says that quality companies are leading the charge due to a slowdown in global growth, which is benefiting BUT’s high-quality portfolio. Macdonald explains that since the fund was reorganised from a UK and an overseas portfolio to a single global fund in mid-2016, the quality of UK companies held has improved, which has contributed to better relative investment performance.

Asset allocation

Investment process: Higher-conviction approach

The manager is able to draw on the broad resources of AllianzGI’s investment team, which along with traditional regional and global research teams, also has professionals focusing on other areas, such as environmental, social and governance (ESG) and the proprietary Grassroots market research platform. Macdonald seeks companies that fulfil three criteria: quality (the ability to generate stable, above-average returns); operating in secular growth markets; and trading at a discount to their perceived intrinsic value on a three-to five-year view. Given the manager expects a more range-bound stock market, with higher levels of volatility, there is an increased focus on a company’s quality attributes such as balance sheet strength and the level of cash flows. There is an ongoing drive to incorporate ESG criteria into the investment process. For example, during FY18 AllianzGI engaged with Unilever following its proposal to incorporate the company solely in the Netherlands, abandoning its UK listing; the plan was ultimately withdrawn.

BUT’s portfolio typically holds c 70 stocks selected from an investible universe of around 2,300 companies. Turnover in FY18 was relatively low at 13.9%, which implies a seven-year holding period; the manager typically aims to hold positions for at least three to five years.

Current portfolio positioning

While Macdonald invests on a bottom-up basis, unconstrained by benchmark weightings, it is interesting to note BUT’s geographic and sector breakdown (Exhibits 3 and 4). The trust’s exposure to the key North American market has increased over the past year and is broadly in line with the composite index. It has an overweight position in continental Europe, with underweight exposures to the UK and Asia.

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

Portfolio end-
March 2019

Portfolio end-
March 2018

Change
(pp)

Benchmark
weight

Active weight
vs index (pp)

Trust weight/
index weight (x)

North America

41.6

37.4

4.2

42.0

(0.3)

1.0

UK

26.9

29.8

(2.9)

30.0

(3.1)

0.9

Europe ex-UK

22.8

22.5

0.3

10.8

12.0

2.1

Pacific ex-Japan

6.2

6.6

(0.4)

9.5

(3.3)

0.7

Japan

2.5

2.0

0.5

5.8

(3.4)

0.4

Latin America

0.0

1.7

(1.7)

1.0

(1.0)

0.0

Middle East & Africa

0.0

0.0

0.0

0.9

(0.9)

0.0

100.0

100.0

100.0

Source: The Brunner Investment Trust, Edison Investment Research, FTSE Russell. Note: Excludes cash. Benchmark is 70% FTSE All-World ex-UK Index and 30% FTSE All-Share Index.

While financials make up around a fifth of BUT’s portfolio, its largest overweight bets are in industrials and healthcare, with meaningful underweights in both the consumer services and consumer goods sectors.

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

Portfolio end-
March 2019

Portfolio end-
March 2018

Change
(pp)

Benchmark
weight

Active weight
vs index (pp)

Trust weight/
index weight (x)

Industrials

21.9

20.7

1.2

12.4

9.5

1.8

Financials

21.6

24.6

(3.0)

22.6

(1.0)

1.0

Healthcare

14.0

11.0

3.0

10.3

3.7

1.4

Technology

12.1

11.4

0.7

12.0

0.1

1.0

Consumer goods

8.0

7.7

0.3

12.0

(4.0)

0.7

Consumer services

6.7

7.5

(0.8)

11.3

(4.6)

0.6

Oil & gas

6.5

6.5

0.0

8.2

(1.7)

0.8

Basic materials

5.7

6.3

(0.6)

5.3

0.4

1.1

Utilities

2.5

2.7

(0.2)

3.1

(0.6)

0.8

Telecommunications

1.0

1.7

(0.7)

2.8

(1.8)

0.4

100.0

100.0

100.0

Source: The Brunner Investment Trust, Edison Investment Research, FTSE Russell. Note: Excludes cash. Benchmark is 70% FTSE All-World ex-UK Index and 30% FTSE All-Share Index.

In early 2019, Macdonald took the opportunity to add to positions in the portfolio that had pulled back and which are beneficiaries of China’s long-term growth potential, such as Taiwan Semiconductor Manufacturing Company, German industrial firm Schneider Electric, pan-Asian life insurance company AIA and Itochu, one of Japan’s largest trading companies. The manager notes improvements in China’s recent purchasing manager indices and is encouraged by the government’s significant fiscal and monetary stimulus, along with robust infrastructure spending in the country; she is expecting more evidence of an improving Chinese economy in coming months.

Macdonald highlights a few of BUT’s newer positions:

Intuit – a US company, primarily providing tax and accounting software. The manager says Intuit is a high-quality firm operating in an oligopolistic market. It suffered margin compression while rolling out its online operations, which caused a de-rating of its shares. Now the majority of Intuit’s business is online, margins are improving and growth is accelerating. This is currently a small position in the portfolio as the manager is looking to add exposure on share price weakness.

Assa Abloy – a Swedish lock manufacturer with broad end markets. Macdonald explains that the company is benefiting from a shift to digital products and a higher volume of service revenues, both of which are margin enhancing. She says the company is high quality, with a good percentage of recurring revenues. This too is a small position that the manager will look to add to opportunistically.

St James’s Place – a UK financial services company whose stock price had de-rated on the back of Brexit concerns and fears about a Labour government coming to power. St James’s Place charges higher fees compared with other platforms such as AJ Bell, but its high brand value ensures that it has a ‘sticky’ client base. The company is growing rapidly, helped by the increased requirement for individuals to save more and look after their own pensions. Longer life expectancy means that there is increased demand for higher-margin growth assets, which are held for longer, thus generating a larger fee stream.

In recent months the manager has been selling lower-conviction holdings such as CME (an expensive holding received as part of the proceeds from the NEX takeover); Apple (facing increased competition in its high-margin handset operations); and Walgreens Boots Alliance (operating in a more challenging environment; the position was sold ahead of a recent profit warning, which caused a greater than 10% fall in its share price).

Performance: Solid three, five and 10-year returns

Exhibit 5: Five-year discrete performance data

12 months ending

Share price
(%)

NAV*
(%)

Benchmark**
(%)

FTSE All-Share
(%)

FTSE All-World
ex-UK (%)

30/04/15

9.0

12.7

13.7

7.5

20.0

30/04/16

(0.8)

(4.2)

(2.6)

(5.7)

0.1

30/04/17

29.1

29.3

26.1

20.1

32.0

30/04/18

16.4

10.9

8.0

8.2

7.8

30/04/19

4.1

6.5

9.1

2.6

11.8

Source: Refinitiv. Note: All % on a total return basis in pounds sterling. *NAV with debt at market value. **Until 21 March 2017, benchmark was 50% FTSE All-Share and 50% FTSE All-World ex-UK index. From 22 March 2017, benchmark is 70% FTSE All-World ex-UK and 30% FTSE All-Share index.

Exhibit 6: Investment trust performance to 30 April 2019

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.

Over the last three, five and 10 years BUT has generated NAV total returns between 10.5% and 15.1% pa and share price total returns between 11.1% and 16.1% pa.

Macdonald comments on more recent performance, noting positive contributors include three US companies: analytical laboratory instrument manufacturer Agilent Technologies; Ecolab, which is a provider of water, hygiene and energy technologies and services; and beauty product company Estée Lauder. One holding that has detracted from performance is major US healthcare company UnitedHealth. Although it was one of the fund’s best-performing positions last year, the sector has been under some pressure recently due to political concerns. However, the manager believes that the company will be a long-term beneficiary as the US strives to lower its burgeoning healthcare costs. While all stock markets have rallied so far 2019, BUT’s North American exposure has lagged the performance of the US market due to its underweight position in highly rated technology stocks, which tend not to pay a dividend. Macdonald explains that there is a much higher bar for lower-yielding stocks to gain a place in BUT’s portfolio.

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

1.5

3.2

2.1

(4.6)

5.3

2.9

8.3

NAV relative to benchmark

0.7

1.1

(0.2)

(2.4)

2.8

0.3

1.3

Price relative to FTSE All-Share

2.0

3.7

2.9

1.5

17.4

25.1

27.9

NAV relative to FTSE All-Share

1.2

1.6

0.6

3.8

14.5

22.0

19.7

Price relative to FTSE AW ex-UK

1.3

3.0

1.9

(6.9)

(1.6)

(11.5)

(2.5)

NAV relative to FTSE AW ex-UK

0.5

0.9

(0.4)

(4.7)

(4.0)

(13.7)

(8.7)

Source: Refinitiv, Edison Investment Research. Note: Data to end-April 2019. Geometric calculation.

BUT’s relative returns are shown in Exhibit 7. While lagging the benchmark over one year, its NAV total return is higher than the benchmark total returns over three, five and 10 years. The trust has modestly outperformed the FTSE All-Share index over one year, but has significantly outperformed over three, five and 10 years in both NAV and share price terms, illustrating the potential benefits of investing in overseas companies.

Discount: Maintaining a narrower discount

BUT’s share price discount to NAV narrowed meaningfully between late 2016 and late 2017, perhaps in anticipation of the trust’s repayment of its high-cost debenture in January 2018 (see Capital structure and fees section below), while marketing in the private retail investor space has increased. It now consistently trades around a 10% discount to cum-income NAV. Its current 11.1% discount compares with the 6.1% to 13.0% range over the last 12 months. Over the last one, three, five and 10 years, the trust has traded at average discounts of 10.3%, 12.4%, 12.5% and 12.6% respectively. There is potential for a narrower discount over time, given BUT’s simplified capital structure, and if Macdonald can build on her record of outperformance.

Exhibit 8: Three-year cum-income discount (debt at fair or market value, %)

Source: Refinitiv, Edison Investment Research

Capital structure and fees

BUT is a conventional investment trust with 42.7m ordinary shares in issue. The trust has significantly improved its capital structure in recent quarters. In January 2018, its £18.2m high-cost (11.27%) debenture was paid off using cash reserves and in June 2018, BUT redeemed another £28m high-cost (9.25%) debenture due in May 2023, at a total cost of £39.4m (including accrued interest). The repayment was funded by the issue of a £25m fixed-rate, 30-year loan note at a record low rate for long-term financing (2.84%), plus existing cash and bank debt. BUT also has a £10m short-term revolving credit facility to provide portfolio management flexibility and £0.5m of 5% cumulative preference shares. The refinancing initiatives have significantly reduced the trust’s weighted average interest costs on its structural borrowings to c 3.0%, increasing the potential for dividend growth. As at end-March 2019, BUT had net gearing of 7.9%.

AllianzGI is paid an annual management fee of 0.45% of BUT’s net assets minus short-term liabilities, excluding any funds managed by AllianzGI. In FY18, ongoing charges were 0.66%, 6bp lower than 0.72% in FY17.

Dividend policy and record

BUT has a distinguished dividend history, increasing its annual distribution for 47 consecutive years. Over the period, the trust’s annual dividend has grown at a significantly higher rate than UK inflation. In FY18 (ending 30 November) BUT generated earnings per share of 19.7p per share, 7.1% higher than 18.4p in FY17, while the 18.15p total distribution (1.1x covered) was an increase of 10.0% year-on-year. This growth in the dividend compares very favourably with the 3.2% rise in the Retail Price Index over the period. Revenue reserves following the payment of all four FY18 quarterly dividends are 26.9p (c 1.5x the last annual dividend). BUT pays quarterly dividends in June, September, December and March and currently offers a 2.3% dividend yield.

Peer group comparison

Exhibit 9 shows the nine funds in the AIC Global sector with 15% to 45% UK exposure. BUT’s NAV total returns (with debt at par value) are below average over the periods shown. It has the second-largest discount in the selected peer group, a higher-than-average level of gearing, and the fifth-highest dividend yield, which is in line with the average.

Macdonald comments that some of BUT’s peers are more focused on capital growth than on both capital and income growth. She says that when markets weaken, BUT’s relative performance versus its peers tends to improve due to its lower beta. The manager argues that BUT would be equally at home in the AIC Global Equity Income as the Global sector.

Exhibit 9: Selected global peer group as at 1 May 2019*

% 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

333.9

4.5

47.2

57.9

205.2

(10.4)

0.7

No

108

2.3

Bankers

1,109.6

9.7

60.1

81.6

241.4

(1.3)

0.5

No

100

2.2

BMO Global Smaller Companies

804.7

3.5

45.5

75.1

330.9

(4.4)

0.6

No

103

1.1

JPMorgan Elect Managed Growth

263.8

6.4

48.2

66.6

244.1

(1.4)

0.5

No

100

1.8

Law Debenture Corporation

719.1

2.2

38.6

44.4

238.7

(7.3)

0.5

No

107

3.1

Lindsell Train

331.5

23.2

119.7

216.7

634.5

79.6

0.9

Yes

100

1.3

Majedie Investments

143.2

(1.2)

21.8

51.5

126.3

(13.4)

1.0

No

111

4.1

Scottish Investment Trust

610.8

(0.7)

39.3

57.5

177.7

(8.8)

0.4

No

101

2.7

Witan

1,902.7

5.6

50.6

73.7

242.5

(2.4)

0.8

Yes

111

2.4

Average (9 funds)

691.0

5.9

52.3

80.6

271.3

3.3

0.7

105

2.3

BUT rank in sector

6

5

5

6

7

8

4

3

5

Source: Morningstar, Edison Investment Research. Note: *Performance to 30 April 2019 based on ex-par NAV. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are five independent, non-executive directors on BUT’s board. The chairman is Carolan Dobson who was appointed as a director in December 2013 and assumed her current role in March 2016. She is also chairman of Baillie Gifford UK Growth Fund, BlackRock Latin American Investment Trust and JP Morgan European Smaller Companies. Vivian Bazalgette is the senior independent director and chairman of the remuneration committee; he joined the board in January 2004. Ian Barlow is chairman of the audit committee and was appointed as a director in November 2009. The other two directors and their dates of appointment are Peter Maynard (October 2010) and Jim Sharp (January 2014 – he is connected to the Brunner family by marriage).

The board is planning for the future and has committed to refreshing its composition in the next few years; Bazalgette has announced his intention to retire later in 2019, while Barlow has agreed to stay on the board until late 2020.


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 £49,500 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 Edison analyst 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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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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

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

1,185 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

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

1,185 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

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 £49,500 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

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

1,185 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

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

1,185 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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