THE BRUNNER INVESTMENT TRUST PLC
Final Results for the year ended 30 November 2022.
The following comprises extracts from the company’s Annual Financial Report for the year ended 30 November 2022. The full annual financial report is being made available to be viewed on or downloaded from the company’s website at www.brunner.co.uk . Copies will be posted to shareholders shortly.
MANAGEMENT REPORT
Chair’s Statement
Dear Shareholder
Review of the 2022 Financial Year and Performance
2022 was a significant and distressing year in both economic and geopolitical terms. A war, of the scale we thought we would never see again, raged throughout the year in Ukraine and increasingly strident statements by China raised questions about the wisdom of extensive cross-border supply chains. Sanctions on Russia drove European gas prices to levels previously thought impossible. After years of central banks manipulating interest rates downwards and flooding the monetary system with excess money, the inevitable consequence of these actions eventually appeared in the very high inflation rates seen across the world, prompting central banks to raise interest rates sharply.
Stock prices swung wildly throughout the year driven by nervous sentiment on the back of news flow and data releases. There were wide divergences in returns between sectors and investment styles. The previous market focus on a few titans of the tech sector that I mentioned last year, in which we did not participate as our managers believed the valuations to be extreme, has contributed significantly to equity market price falls.
Against this backdrop, we are pleased to report that the company’s Net Asset Value (NAV) per ordinary share rose 3.0% on a net dividends reinvested basis with debt at fair value, our key performance measure. This was ahead of the composite benchmark index (70% FTSE World Ex-UK and 30% FTSE All Share Index) which rose by 1.4% on a total return basis over the period. This marks a fourth year of outperformance against the benchmark. In the extremely varied and volatile conditions of these years we believe this is a continuing testament to the company’s investment strategy.
Our manager describes the effects of these macroeconomic and geopolitical factors in more detail in the Investment Management Report starting on page 23 of the annual report.
Environmental, Social and Governance (ESG)
Whilst the strategy of the trust does not aim to meet any specific sustainability criteria, the board considers that it is in shareholders’ interests to be aware of and consider environmental, social and governance factors when selecting and retaining investments and believes that active stewardship is a key task of a responsible asset owner.
In addition to considering investment performance, understanding the manager’s approach to ESG within the investment process has continued to be a focus for the board over the past year. We take account of our performance in this area against our objectives using the manager’s internal analysis and external measures and benchmarks. We believe that well run companies will outperform in the long term.
We give a full and clear account of ESG considerations within this report (see page 21 of the annual report) and we also have a page on our website that describes the manager’s ESG process in more detail. Since the beginning of 2020 we have included quarterly updated ESG measurements on our monthly factsheet, showing the rating of the Brunner portfolio on ESG risks compared to the rating of the benchmark, however imperfect that comparison may still be.
We are pleased to see continued efforts by regulators and the industry in general to harmonise nomenclature and metrics. We hope this represents progress towards more universally accepted descriptions and reliable measurement for the benefit of all investors.
Earnings per Share
Over the past year most companies have been able to continue paying dividends at or above the recovery level of 2021 after the constrained 2020 year during the first Covid lockdown. This meant the portfolio’s earnings grew once more in 2022, with earnings per share for the year rising by 11.3%, from 20.4p to 22.7p. This has put Brunner in the strong position once again to pay an increased dividend whilst increasing dividend reserves.
Dividend
The proposed final dividend of 6.05p, if approved by shareholders, will be paid on 4 April 2023 to shareholders on the register on 24 February 2023. In line with board’s dividend policy, which is outlined on page 14, the total dividend for 2022, including the proposed final dividend, will be 21.5p. This represents an increase of 6.7% over the 2021 dividend which was 20.15p and means Brunner has now reached 51 years of consecutive dividend increases, maintaining its place as one of the AIC’s “Dividend Heroes”.
Revenue reserves will remain strong at 25.9p (2021: 24.7p) after the payment of the proposed final dividend.
Board Succession
The board is continuing its cycle of recruitment as existing directors retire from the board. We were pleased to welcome Elizabeth Field to the board with her appointment on 1 December 2022. Elizabeth was a senior corporate lawyer with extensive experience of advising public and private companies on a wide range of corporate transactions across a variety of sectors, specifically including investment trusts. As described in the company’s previous annual report, Peter Maynard is to retire from the board at the Annual General Meeting in 2023. Following Peter’s retirement, Andrew Hutton will be appointed as Senior Independent Director. Peter has given long service, invaluable challenge and guidance to the board, staying slightly beyond his planned retirement date to provide additional continuity on the board through the Covid pandemic. We thank Peter for his considerable service to the trust and wish him well for the future.
AIFM (“Alternative Investment Fund Manager”)
As we had notified shareholders in 2021, our management contract with Allianz Global Investors GmbH (‘AllianzGI’) for investment management, accounting, company secretarial and administrative services as AIFM of the trust is due to transfer to Allianz Global Investors UK Limited (‘AllianzGI UK’) which is a new FCA authorised and regulated UK entity taking on all activities of the UK Branch of Allianz Global Investors GmbH. This change is taking place as a result of the UK leaving the EU and is to take place once the legal set up is arranged to ensure compliance with the UK regulatory regime. This process is continuing but is expected to be made final in the coming months. The board is assured that there will be no change to the portfolio management services nor to the administration services received by the trust. With this change there will be no increase in the management or administrative expenses of the company. Details of the existing arrangement with the AIFM are on page 108 of the annual report.
Lead Portfolio Manager Change
In July we announced that Christian Schneider, who is Deputy CIO for AllianzGI’s Global Growth franchise, would be taking over from Matthew Tillett, who left AllianzGI. Christian, together with Marcus Morris-Eyton, an experienced investment manager at AllianzGI, had already been working directly alongside Matthew on the Brunner portfolio and Christian has worked in what is now the Global Growth team for more than two decades. He is consequently well versed in the strategy and investment approach. Christian took over as interim Lead Portfolio Manager on Matthew’s departure for a minimum period of six months and will continue to work with Marcus and with Simon Gergel, AllianzGI’s CIO UK Equities. All have worked closely on the management of Brunner for a number of years.
Matthew had worked on the Brunner portfolio for many years, and we wish him all the best in his future endeavours and thank him for his steadfast and valuable contribution to Brunner. Julian Bishop subsequently also joined the AllianzGI team managing the company’s portfolio on 1 November 2022 as a senior portfolio manager. He will become Co-Lead Manager with Christian Schneider after the Annual General Meeting on 31 March and shareholders will have the opportunity to meet with him at the AGM. Julian has 25 years investment experience as a global equity analyst and portfolio manager, most recently as a senior global equity portfolio manager with Tesco Pension Investment and before that with Sarasin and Partners.
The Brunner Investment Trust will continue to be managed as an all-weather portfolio appropriate for a multitude of different market conditions with its balanced approach to portfolio construction and strong focus on valuation.
Marketing
Promoting Brunner to as wide an audience as possible remains a priority and the board supports the manager in sales and marketing efforts to further that aim. The trust’s balanced nature means it is a long-term holding that can, in our view, form the cornerstone of an investor’s diversified portfolio. Attracting more investors, particularly individual investors, generally has the effect of improving liquidity of the trust’s shares.
The board met with the manager in early 2022 to discuss a refresh of how the trust is described. We agreed that we should refer to Brunner as an ‘all-weather’ global equity portfolio”:
Brunner – an ‘all-weather’ global equity portfolio
Aiming to grow consistently your investment over time and pay out a regular and rising dividend, targeting stable long-term stock market returns whatever the economic or market background.
To do this we:
– Invest in some of the world’s best companies with superior business models delivering strong and consistent profitability with long-term growth potential
– Manage a diversified portfolio with exposure to most major geographic regions and industries
– Aim for growth in both capital and income, with a 51-year track record of continual dividend growth for shareholders
– Employ the expertise and scale of global asset manager AllianzGI to provide robust investment processes and oversight
– Provide all of this in a cost-effective, actively managed fund.
What does this mean in practice?
– Not being skewed too heavily to any one sector or theme
– Longer term view on investments
– True bottom-up stock picking, where stock selection is the predominant driver of risk and return in the portfolio – looking at what an individual company does and considering how they will be affected by the macro environment rather than to pick a portfolio that will react well to the prevailing conditions.
Outlook
2023 continues with some of the most troubling factors currently affecting the world: the ongoing war in Ukraine which confounds both logic and decency; and the inflation-fuelled cost of living crisis being felt tangibly by so many closer to home.
However, there are indications of inflation moderating. That may mean interest rate rises may be nearing their high but there is definitely central bank rhetoric in conflicting directions on the subject. The more soothing comments from China, as it reopens the economy, is a welcome development. A more in-depth analysis of that backdrop and the possible outcomes is given in the Investment Manager’s Review from page 24 of the annual report.
We continue to believe that the best approach for Brunner is to chart a steady path and continue to be an ‘all-weather’ global equity portfolio for investors, eschewing the biggest bets in the interest of long-term stability of capital return and provision of a steadily rising dividend to our shareholders.
Annual General Meeting
In 2022 we were happy to be able to welcome many shareholders to a physical Annual General Meeting after two years constrained by Covid lockdowns. We look forward to welcoming shareholders again this year to the AGM which is to be held at Trinity House, Trinity Square, Tower Hill, London, EC3N 4DH, at 12 noon on Friday 31 March 2023. Attending shareholders will receive a presentation from the investment managers before the formal business takes place and the meeting will be followed by a light lunch. We would be delighted to meet with all those shareholders who are able to attend.
Shareholders can send any questions to be answered at the AGM by the board and manager care of the company secretary at investment-trusts@allianzgi.com or in writing to the registered office (further details are available on page 60 of the annual report) and we will publish questions and answers on the website after the meeting. We encourage all shareholders to exercise their votes in advance of the meeting by completing and returning the form of proxy.
Carolan Dobson
Chair
14 February 2023