If you want to invest in the world’s largest companies without doing the legwork yourself, Brunner Investment Trust might just fit the bill.
Brunner has been around a long time and is a balanced fund focusing on income allied to capital growth.
Formed in 1929 by the Brunner family, who still have a 29 per cent stake, the trust is now managed by Lucy Macdonald, the head of global equity investment at German giant Allianz, the trust’s manager.
Long-term view: Brunner has been around a long time and is a balanced fund focusing on income allied to capital growth
Macdonald took over full management of the trust in 2016 when its two discrete portfolios were merged.
Since then, there has been a shift in style with the emphasis now less UK-centric and more global.
A need for pay dividends in sterling will always mean a sizeable amount is invested in companies based here, but the proportion has reduced from 50 per cent in 2016 to about 25 per cent currently.
Macdonald believes that to get good returns and income from large companies you must look further afield.
‘A global focus allows for higher potential returns, more diversification and greater scope for management outperformance than a regional focus solely.’
US software giant Microsoft is the largest holding and a good example of how the investment philosophy works.
Macdonald is a fan of Microsoft’s cloud computing arm Azure, which is one of the fastest-growing parts of the business but was relatively small when the trust first bought into the group over ten years ago.
Amazon and Google are the two other giants in the cloud space, but Microsoft is the only one that pays a dividend.
‘We bought before Satya Nadella became chief executive and when the cloud was only a tiny part.’
Since 2010, Microsoft’s value has risen by about 500 per cent and the business is now worth US$1.3trillion.
In charge: Macdonald took over full management of the trust in 2016 when its two discrete portfolios were merged
Macdonald has trimmed her holding recently but only to keep a lid on its size in the portfolio.
‘It’s not ridiculously over-priced, even now,’ she says.
Microsoft helped Brunner put in a strong performance over the past year, but there were also good gains at US contact lens group Cooper and Taiwan Semiconductor.
Allianz’s global network helped put the trust onto Taiwan Semiconductor, with the group’s analyst in Hong Kong saying it was cheap at this stage of the cycle and given the longer-term growth potential in computer chips.
The diverse nature of these businesses and their geographies underlines the strategy behind the portfolio, adds Macdonald, with active share selection at its heart.
‘We are bottom-up stock pickers.’
At around sixty companies, it is a concentrated portfolio and to make the cut companies must meet thresholds of growth, quality and value, though some of the stocks are held largely for the income they produce.
ESG (environment, social and governance) is also becoming increasingly important and companies failing in this regard and not showing any signs of improvement are unlikely to be considered going forward.
Shell, for example, is the only fossil fuel major in the portfolio with a holding in BP sold last year.
Brunner’s share price has been strong over the past twelve months reflecting the investment performance and a sharp narrowing of the discount to NAV to around 7 per cent.
A restructuring of the balance sheet has helped in this regard, with two expensive debentures now replaced by a £30million loan facility.
Brunner’s impressive dividend record has also done its bit.
The trust is one of trade body the AIC’s ‘dividend heroes’, meaning it has raised the payout for twenty years consecutively.
Indeed, Brunner has raised its dividend for 47 years on the trot with a notable 15 per cent hike at the half-way point of the current year.
Macdonald is confident the rising dividend run will continue.
Last year’s payout was comfortably covered by income, she says, while the trust’s reserves cover more than one year’s worth of payments.
Macdonald expects the current year to see equity markets quieter than 2019, which will make it harder to match the 17 per cent rise in net asset value to yesterday’s close of play valuation of 988p.
A double-digit return would be doing well, she believes, but last year turned out better than expected at the outset and in any case, Brunner is about the stocks and individual non-market correlated ideas.
‘In a flatter year, you have to get more active.’
At 910p, Brunner is valued at £432million and yields 2 per cent.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.