Delivering capital growth and rising income in volatile markets

Markets have seen some highs and lows over the past five years. The global pandemic, increasing geopolitical tensions and higher inflation have given rise to a period of market volatility. Some sectors have shot the lights out and others have fallen behind.

As the Brunner Investment Trust isn’t beholden to any particular investment style, its portfolio managers have the flexibility to invest in any company from around the world, largely irrespective of sector or region. This freedom allows a nimble approach to portfolio construction, which aims to deliver capital growth and rising income in most economic environments, certainly on a relative-to-benchmark basis.

In the face of recent volatility, this approach seems to have been a success; not many managers can claim Brunner’s five consecutive years of outperformance against benchmark, net of fees². When it comes to performance in the face of volatility, the proof does appear to be in the pudding, though of course this is no indicator of future returns.

The Brunner team takes a balanced, long-term approach to portfolio construction, seeking an equal blend of quality, value, and growth stocks³. The managers want to avoid ‘echo-chamber’ thinking which may give rise to one particular investment style. They want to keep a completely open mind and look for the right businesses, rather than be pigeonholed as a particular type of investor. It’s about solid fundamentals⁴ bought for a good price, and prudent financial risk management. Co-lead portfolio manager, Julian Bishop, explains, “We believe quality is really important, so is market position, profitability, balance sheet strength and growth. Then, we just try to balance that without overpaying.”

Since interest rates started to come down towards the end of 2023, some great businesses have seen their valuations take off. Brunner’s managers have aimed to capture some of these opportunities by keeping flexible, pivoting into better value stocks as they see fit.

The fundamental aim is to always invest in strong businesses. Fragile businesses are more vulnerable to changes in interest rates, credit losses and other wider economic factors which affect the cost of borrowing. Businesses that borrow, or are highly levered (using debt), can see a huge change in profits when interest rates hike up. Julian clarifies, “The best protection comes from holding strong businesses that aren't fragile [are not highly leveraged] and are resilient in the face of unforeseen events.”

When it comes to all-weather investing, it’s also important to have holdings that generate a lot of cash. Uncertainty is an inherent part of investing, but having a decent cash yield in the portfolio can provide some protection against volatility.

The trust’s income payments also help cushion investors from more volatile market conditions, increasing its investor appeal during economic downturns. Brunner’s regular rising dividend, paid out for the past 52 years, makes it one of the Association of Investment Company’s ‘Dividend Heros’⁵. A healthy revenue reserve (prudently accumulated by the board during good years) meant the dividend was even paid out with an increase during the COVID-19 pandemic, when markets were down almost across the board and many companies cut dividends. The Brunner managers are proud of this achievement which shows that even in the face of potential share price uncertainty and volatility, the trust still aims to deliver a growing income stream.

Brunner is a global equity investment trust which aims to weather volatility and deliver growth by taking a balanced approach. It looks for strong businesses with a decent cash yield. The managers have the freedom to choose any company from across the globe, whatever the sector or region. This flexibility ultimately aims to curate an investment trust portfolio of resilient companies which could generate smooth returns in the face of volatility and changing economic conditions. The trust’s strong dividend track record also illustrates its ability to deliver rising income in the face of market turbulence.

¹ Source: Dividend Heroes | The AIC
² Net of fees means fees have been deducted. In other words, the trust has still outperformed benchmark even after the cost of fees has been deducted.
³ Quality, value and growth refer to specific company characteristics that are believed contribute to long-term success and performance.
⁴ Fundamentals include a company’s profitability, revenue, liabilities, and growth potential.
⁵ Source: Dividend Heroes | The AIC