Performance, Commentary & Portfolio
ISIN GB0001490001 | SEDOL 0149000
Fund Manager’s Review
Dear Fellow Shareholder,
Brunner has a hybrid benchmark which is 70% global (FTSE World ex UK) and 30% UK (FTSE All Share). We provide a solution for long-term investors who want a portfolio that combines exposure to the UK market alongside companies listed overseas. Crudely generalising, the UK market provides plentiful value and free cash flow whereas global markets, the important US market particularly, provide greater quality and growth. Together, this combination provides useful stylistic diversification in itself.
Both components of the benchmark were up around 2.5% in May. The trust performed similarly, with holdings like recent acquisitions Bank of Ireland and Taiwan Semiconductor positively offsetting the relative drag from not holding the US tech mega-caps Nvidia and Apple. The former performed well after reporting another set of strong results. Apple rebounded after a period of relative weakness, reflecting a substantial moderation in their growth rate since 2021.
Brunner’s Net Asset Value (NAV) total return for May was 1.95% compared to 2.55% from the benchmark index.
After a long period of reflection, the trust took three new positions in May; an unusually busy month in the context of our low turnover.
The first new investment is Alphabet, the parent company of Google. This is a company we have long admired. It consistently enjoys over 90% share in sponsored search, their core business. They also make money arranging and placing adverts across their network of third-party websites. Additionally, Alphabet owns and operates YouTube and Google Cloud, where it has emerged as a credible competitor alongside Microsoft and Amazon in the provision of cloud computing services.
Alphabet has become a prodigious generator of free cash flow (one of the key criteria we look for in a company) and has recently paid its maiden dividend. We believe the company will continue to grow, albeit not at the pace seen in the past. The multiple is very reasonable, particularly in the context of its debt free balance sheet. Looking forward, a combination of cash returns, growth and a stable valuation should lead to a solid outcome for investors.
After a long period of reflection, the trust took three new positions in May; an unusually busy month in the context of our low turnover |
Secondly and very differently, we took a position in American Financial Group. AFG is a family-run insurer based in Cincinnati, Ohio. ‘Combined’ loss ratios which measure both incurred payouts on policies written and the expense of running the business have been superior to most other similar insurers over long timeframes. They have also been within a sufficiently narrow corridor for us to be persuaded that their underwriting prowess and risk management abilities are first rate. Growth has been modest but consistent.
Over time, AFG has divested various businesses to focus solely on specialty property and casualty insurance. This is the part of the industry we like best. They generate dependable returns which are largely uncorrelated to macro-economic factors. Cash returns are high; the dividend yield in 2023 was 6.4% based on the share price at time of purchase.
The third new holding is Roper Technologies. Roper is a US listed industrial technology company focused on mission critical, industry specific software for a wide range of industries including education, utilities and insurance. A majority of its revenues are recurring in nature and customer retention is extremely high. We are impressed by management’s focus on creating a predictable, growing, high quality cash flow stream, with growth in the existing business augmented by sensibly judged acquisitions that add new end markets to its range.
To fund these purchases, we reduced several holdings where multiples had expanded to levels which may reduce future investment returns. This included a full sale of Intuit, a US software company where the valuation means we can no longer see a route to a good return in the next several years. Intuit has also remained a profligate user of stock-based compensation for employees, which we believe represents an underappreciated and persistent drag on the true free cash flow attributable to shareholders. Roper, by comparison, generates a far higher and cleaner free cash flow stream. Our valuation work always focuses on the cash that will ultimately come to investors.
We also sold our positions in MarketAxess and Rentokil. In both instances the investment case had not evolved as hoped and performance has disappointed. Given the abundance of opportunities available to the global investor, we deemed it best to move on. We are confident our new holdings provide a meaningful improvement to the overall portfolio.
Yours sincerely,
Julian Bishop & Christian Schneider
14 June 2024
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.
1. Source: AIC, as at the Trust’s Financial Year End (31.11.2023). Ongoing Charges (previously Total Expense Ratios) are published annually to show operational expenses, which include the annual management fee, incurred in the running of the company but excluding financing costs.
Registrations |
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Company No. |
00226323 |
FATCA GIIN No. |
EW9PUZ.99999.SL.826 |
Codes |
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RIC |
BUT.L |
SEDOL |
0149000 |
ISIN |
GB0001490001 |
Awards & Ratings
Morningstar Rating: The Morningstar Rating is an assessment of a fund’s past performance – based on both return and risk – which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision.
A ranking, a rating or an award provides no indicator of future performance and is not constant over time.