Inflation protection
How an all-weather trust can help protect you from rising inflation
Higher interest rates and rising inflation have caused a fair amount of economic pain over the past couple of years. It may have felt like investors were running low on safe options for their savings. By providing both capital growth and a rising dividend, the Brunner Investment Trust aims to help investors weather the inflationary storms we’ve been facing.
Key takeaways
- Brunner aims to deliver a dual objective of capital growth and rising income.
- The managers pick companies because they like their business models, not because of prevailing economic conditions.
- It's not a fund that will only work in one market, we think it has the flexibility to do well in most.
Whatever the weather
Anyone living in the UK may have had a few complaints to make about the supposed Great British Summer in 2023. July was a washout and August barely even sunglasses weather before September dazzled us (for a few days). It was a mixed bag, even by British standards, but mainly in a bad way.
The same could be said about economic conditions, which were similarly variable. Rising interest rates and high inflation brought on a stormy front, which the Brunner investment trust has been weathering resiliently. But a few sunny spots cropped up following the challenging year global equities saw in 2022, creating some attractive valuation opportunities for investors. The time is ripe for skilled stock pickers, and these opportunities are exactly what Brunner aims to capture.
Co-lead portfolio manager, Christian Schneider, explains that despite some cold fronts, “We continue to drive wealth creation for our shareholders. We believe we achieve this in two ways, one is of course a steady and rising dividend and pay-out for the shareholders. And the second one is capital growth”. We believe that an unwavering focus on quality1, with as much growth as possible, all while not overpaying, means the trust is well-prepared, whatever the weather.
“It's not a fund that will only outperform and work in one market, we think it has the flexibility to do well in most. We're not betting the farm, and therefore we hope to achieve good consistent outperformance.”
Julian Bishop, Senior Portfolio Manager
A dual objective
The Brunner team retains a sharp focus on valuations and long-term sustainable growth, looking for companies which can help them to deliver the trust’s dual objective of capital growth and rising income. This means the trust invests in some of the world’s most high-quality businesses, diversified across most major geographic regions and industries. The biggest investment style or sector bets are eschewed in the interest of long-term stability of capital return and provision of a steadily rising dividend.
For the investment managers, it’s the quality of the company that matters, not the location. They take a longer-term view of the stock market to build a diversified portfolio from the bottom up. In other words, they pick companies because they like their business models, not because they think they’ll respond well to the prevailing economic conditions or macroeconomic predictions.
According to fellow co-lead portfolio manager Julian Bishop, the most superior companies in the world have strong balance sheets, long-term competitive advantages, and shareholder-friendly management teams, and it’s these companies the managers carefully look out for. Allocations (how much the trust has in a particular industry, sector or geographical location) are a by-product of stock selection, with the team aiming for performance to be similarly driven by the individual returns of each company.
Protection against inflation
The trust, which has grown consistently over time and paid out a regular dividend, aims for stable total returns all year round. “A combination of steadily rising pay-outs and capital growth in the underlying net asset value is what drives wealth creation for our shareholders,” says Christian.
Where others may find themselves more vulnerable to the vagaries of the changing macroeconomic environment, the Brunner trust strictly sticks to seeking out good companies which generate profits over time, without spending too much on them. As these profits and business models are often tied to inflation, that can help the trust weather most storms, including an inflationary environment.
Julian comments, “It's not a fund that will only outperform and work in one market, we think it has the flexibility to do well in most. We're not betting the farm, and therefore we hope to achieve good consistent outperformance.” While the market may take a shorter-term view on any prevailing economic conditions, Julian and Christian focus squarely on company fundamentals.
Brunner strives to be a long-term investment company for shareholders to buy and hold, hopefully making their lives a little better a few years down the road. Investors benefit from a highly experienced portfolio management team that adopts a repeatable investment process, as they constantly scan the global horizon for the best companies. 52 years of consistent dividend growth, delivered throughout hugely varied market conditions, is a true testament to the ‘all-weather’ success of the strategy.
1 Quality refers to specific company characteristics that are believed contribute to long-term success and outperformance.
