Weatherproofing your investments

Spells of fine, sunny weather can be likened to periods of economic prosperity and stock market growth. There should be an abundance of investment opportunities in benign conditions like this. Brunner’s portfolio managers, Christian Schneider and Julian Bishop, aim to capture the best of those opportunities globally, by focusing on businesses that have the potential to grow quickly and reliably. Aware of not taking on too much risk though, they refuse to overpay for any of those opportunities.

“To assess long-term growth potential, it is important to understand the secular forces that are shaping the economy and society, such as demographics and digitalisation”, Julian explains. “Whilst we will invest in cyclical companies, a much greater value is placed on the structural element of growth. The combination of a high quality business model and long-term growth is a powerful driver of shareholder value.”

By investing in quality companies with strong growth prospects, Brunner can maintain the potential for long-term outperformance even when broader markets are steadily rising.

Cloudy economic conditions can cast a shadow on the investment landscape. For example, the return of inflation and the cost of living crisis have clouded the outlook over the past couple of years. Christian and Julian aim to mitigate the risk of overcast conditions through their relentless focus on quality. They do this by working hard to understand the intrinsic attributes of a business model. They look for companies with long-term competitive advantages, strong balance sheets and shareholder-friendly management teams. Outperformance can never be guaranteed over any time period but, by carefully selecting businesses that possess enough quality attributes to prosper even through periods of darker skies, Brunner has the potential to deliver positive progress, preserving investors' wealth and generating growth, even through inclement weather.

Rain brings its own challenges, but it is during periods of dull and wet weather that Brunner shareholders can rely on its income generating credentials. The ability to generate a steady stream of quarterly dividends represents an essential part of the trust's total return, particularly in difficult conditions. Indeed, in preparation for prolonged periods of poorer weather, the trust holds more than a year's worth of dividends in reserve. This is literally a “rainy day fund”, which ensures the trust can still pay a dividend to its shareholders even in the dampest of climates.

Fog blankets the landscape with uncertainty, making it difficult to see what lies ahead. To combat foggy conditions, the portfolio managers rely on a consistent investment approach and a focus on the long term, as Christian explains.

“The short-termism of many market participants always confounds us. There is a reluctance, perhaps, to consider the long term because prediction necessarily becomes more uncertain the further out you look. More the reason to consider, with no pretence to precision, an investment’s longevity, resilience and barriers to entry. These characteristics are highly valued by the Brunner investment process.”

This consistent approach acts as a compass, guiding the trust through the foggiest of times.

Windy conditions can threaten to blow an investment off course. However, Brunner’s portfolio managers are renowned for their discipline, staying true to their investment principles and avoiding being swayed by blustery short-term market fluctuations. This disciplined approach allows Brunner to remain resilient and on track to deliver its long-term objectives.

Snowstorms represent some of the harshest of all weather conditions. Christian and Julian place a strong focus on valuation to help protect the portfolio from the prospect of such challenging conditions. By carefully assessing the intrinsic value of potential investments, the managers aim to build in a beneficial margin for error.

“While the Brunner investment philosophy favours high quality companies generating long-term sustainable growth, this has always been matched by a sharp focus on valuation,” explains Christian. “Our valuation work seeks to determine whether there is sufficient upside to warrant investing. In other words, we are looking to invest when any potential downside risks are already reflected in the price.”

Buying shares when they are fundamentally undervalued, therefore, should allow Brunner to withstand even the most severe weather conditions.

In conclusion, the "all weather" Brunner Investment Trust has a track record of more than 50 years of consistent dividend growth, delivered through all sorts of market and economic conditions. Its success lies in a highly experienced portfolio management team that follows a consistent and repeatable process. No investment strategy can ever promise outperformance through all market conditions or over all time periods. But, by balancing quality, growth, and value, Brunner has the opportunity to create wealth in two forms: a steady and rising dividend payout for shareholders and the prospect of long-term capital growth.

With its blend of global and UK equities, Brunner could represent an investment for all seasons, providing investors with elements of shelter when storms lie ahead, alongside the opportunity to participate in a balanced way in market gains when the skies are clear.