Performance, Commentary & Portfolio

Fund Manager’s Review

After plentiful speculation, Chancellor Rachel Reeves announced her UK budget on November 26th. As ever, there were winners and losers. We make no judgement as to whether she achieved the right balance; by and large we sympathise with the predicament of modern politicians trying to manage national finances. The fiscal position in the UK and across much of the developed world is concerning, to put it mildly. Largely thanks to big step-ups after the Global Financial Crisis and during the COVID pandemic, government debt to GDP ratios are at or close to post war highs. Fiscal deficits are persistent and electorates are intolerant of the solutions, which necessarily involve either higher taxes or cuts to services. But Reeves and her peers overseas are answerable to bond markets as well as voters. If there was one notable success of this budget it was that bond markets responded calmly. Higher bond yields lead to higher government interest costs which would worsen the deficit further. It’s easy to envisage how a vicious circle might ensue, something the Chancellor has a responsibility to prevent. 

Brunner’s Net Asset Value (NAV) total return for November was -0.18%, slightly ahead of the benchmark return of -0.37%.

After an extraordinary run since April, some of the steam came out of US markets in November. Artificial Intelligence (AI) chip behemoth Nvidia fell on news that Google’s latest, leading AI model ‘Gemini 3’ was trained on its own, newly developed proprietary silicon (‘tensor processing units’ or TPUS, as opposed to Nvidia’s ‘graphic processing units’ or GPUs) and that Google’s parent company Alphabet were planning on selling these TPUs to third parties such as Meta, the parent of Facebook and Instagram. Nvidia has hitherto had a virtual monopoly on AI chips and sports very high margins as a result. Developments at Alphabet appear to threaten this status and make Google a new entrant in the lucrative AI semiconductor market. This suits Brunner, which owns Alphabet and not Nvidia. Whoever prospers, both companies rely on Taiwan Semiconductor (TSMC), also a Brunner holding, for the physical manufacturing of their products. 

As a general observation, the speed of change in the nascent AI universe is discomfiting for the long-term investor. We have therefore trimmed several AI related stocks in the portfolio; ASML, TSMC and Amphenol have all become highly reliant on AI infrastructure development and we worry that the extraordinary pace of this development may prove unsustainable. Whilst this reduces our investment in the AI theme, we still have reasonable absolute exposure. As a side note, the American market has become extremely concentrated, with the top ten stocks now accounting for almost 40% of the S&P 500’s value. We believe it is important to prioritise our shareholders’ absolute risk over relative risk (ie vs the market) at this point. Most funds and investment trusts are benchmarked against a market, Brunner included. However, we question the usefulness of this if the benchmark itself has become insufficiently diversified and therefore fundamentally risky. We never want to put all shareholders’ eggs in one basket. 

Other winners during the month include Bank of Ireland, whose strong run this year continues. UK electric utility SSE also performed well after announcing its plan for growth to 2030. Whilst the associated capital expenditures do necessitate a small equity raise, the business will grow strongly at reasonable, regulated (ie guaranteed) returns and result in a business mix where 80% of profits are inflation linked. The ‘electrification of everything’ is a powerful, long-term theme and SSE play a vital role in ensuring growing demand for power in the UK is met.

Detractors included Auto Trader and Baltic Classifieds Group. There is mounting perception that classifieds businesses are threatened by AI, which may change how consumers search for information. There is no immediate threat, but perceptions of risk influence discount rates, and higher discount rates push down valuations. We sympathise with this notion of increased risk and are stretching our imaginations to consider how the future may change for businesses of this type. For now, we remain undecided. The cash flow yields these businesses provide are very high, although that will provide little solace should they ultimately be disrupted.

As mentioned above we cut TSMC, ASML and Amphenol after very strong performance. We also reduced GE Aerospace and CME where we think the multiples have become too high to provide a reasonable Internal Rate of Return (IRR) going forward. We added to SSE after the clearing event of the capital raise, payments laggard Corpay, HK based insurer AIA and US bank Charles Schwab. In all instances we think these investments offer the optimal balance of quality, value and growth that we look for.

Julian Bishop & Christian Schneider
12 December 2025

This is no recommendation or solicitation to buy or sell any particular security. Any security mentioned above will not necessarily be comprised in the portfolio by the time this document is disclosed or at any other subsequent date.

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