THE BRUNNER INVESTMENT TRUST PLC
Final Results for the year ended 30 November 2023.
The following comprises extracts from the company’s Annual Financial Report for the year ended 30 November 2023. 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 2023 Financial Year and Performance
2023 was another year of difficult and volatile stock markets in uncertain economic conditions. The sheer pace and reach of how news now travels round the world, coupled with the amount of short-term trading done in markets by maths models, may mean that this is how most years will look in the future.
Global equities climbed out of a dip through December 2022 and January 2023, but over February and early-March gave back most gains. It was a repeating picture over the remainder of the year as gains from March to August were largely given back up to a point in October which was barely above the start of the year. From that point though markets rallied to finish the calendar year strongly ahead. Our financial year reporting period is from 1 December 2022 to 30 November 2023 and therefore captures only a proportion of the gains from the 2023 year-end rally, but the strong December will be in our 2024 fiscal year.
Globally inflation continued to be more persistent than expected, subduing only towards the end of the year. This allowed central banks to make more optimistic statements about future cuts in interest rates, spurring the year end stock market rally.
In geopolitical terms we are approaching the second anniversary of the war in Ukraine and are in the middle of another war in the Middle East; neither conflict has a clear end in sight. Our thoughts remain firmly with all those affected by conflicts and political instability around the world, as well as those affected by the many natural disasters seen in 2023.
In environmental terms, global temperatures broke new records and COP-28 saw nations further galvanise behind the movement away from fossil fuels, though how that is achieved remains unclear.
The development and scale of implementation of Artificial Intelligence dominated headlines through the year. (The mega-capitalisation companies – dubbed ‘The Magnificent Seven’ (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla) were significant beneficiaries of this. AI offers both opportunity and concern from the perspective of humanity. Whilst that debate is not one to have here, from an investment perspective it will be crucial to understand if regulation will be imposed and if it will ultimately help or hinder those firms at the cutting edge.
Against this volatile backdrop, Brunner once again beat its benchmark over the year to 30 November 2023. Brunner’s Net Asset Value (NAV) per ordinary share total return (calculated on a net dividends reinvested basis with debt at fair value) was +8.7%, versus +5.5% for the composite benchmark (70% FTSE World Ex. UK / 30% FTSE All-Share). This marks the 5th consecutive year of outperformance of the benchmark by the trust. As we are only relatively small holders of the noted stocks that led markets forward, the board is particularly happy to report this consistent progress to shareholders.
The four largest contributors to performance were Microsoft, Jumbo SA (a Greek listed retailer), Novo Nordisk and Munich Re, demonstrating the variety of companies and sectors the manager selects to meet the company’s performance and risk objectives.
Brunner should be viewed as an ‘all weather global equity portfolio’. Over time we aim to demonstrate the substance of this claim, providing solid outperformance through a variety of market and macroeconomic conditions.
The portfolio is constructed with a focus on high quality companies that are expected to perform well over the long term. The managers do not look to build a portfolio that will perform on a particular economic condition or trigger – rather they remain aware of these external factors and review how they might impact the individual companies within the portfolio. You can read more about the portfolio managers’ analysis of what happened to the portfolio during the period on pages 23 to 58 of the annual report. The portfolio managers also observe that stock market returns bear little resemblance to economic factors or drivers over time. “Over time” is of course the important factor there as markets can be over-sensitive to news flow and economic data. “Over time” perfectly describes a key tenet of our investment philosophy though – thinking about performance over longer time periods, not trying to time or profit from short-term market movements.
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. Active stewardship is a key task of any responsible asset owner.
Understanding the manager’s approach to ESG and how it has been integrated 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 both the manager’s internal analysis and external measures and benchmarks.
We give a full and clear account of ESG considerations within the annual report (see page 21). We also have a page on our website that describes the manager’s ESG processes 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 and combined ESG risk measurements 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 measurement, the latest just at the end of 2023 coming from the FCA. We see this as a further step forward towards more universal 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 previous levels and there has been a contribution from special dividends. This meant the portfolio’s generation of income and earnings grew once more through 2023, with earnings per share for the year rising by 16.3%, from 22.7p to 26.4p. This has put Brunner in the strong position once again to be able to cover our increased dividend payment to shareholders and still put a sizeable amount into revenue reserves for a future ‘rainy day’.
Dividend
The proposed final dividend of 6.05p, if approved by shareholders, will be paid on 4 April 2024 to shareholders on the register on 1 March 2024. In line with board’s dividend policy, which is outlined on page 14 of the annual report, the total dividend for 2023, including the proposed final dividend, will be 22.7p. This represents an increase of 5.6% over the 2022 dividend of 21.5p and means Brunner has now reached 52 years of consecutive dividend increases, cementing its place near the top of the AIC’s “Dividend Heroes” list.
Revenue reserves will remain strong at 29.6p after the payment of the proposed final dividend.
Board Succession
As noted in the previous report, Elizabeth Field joined the board at the start of the financial year on 1 December 2022. In addition, Andrew Hutton was appointed as Senior Independent Director at the Annual General Meeting in 2023, succeeding Peter Maynard who stepped down.
Portfolio Management Team
At the Annual General Meeting at the end of March 2023, Julian Bishop became Co-lead Portfolio Manager alongside Christian Schneider. Christian who was Deputy CIO for AllianzGI’s Global Growth franchise has since been promoted to the CIO role, leading that team. Simon Gergel, AllianzGI’s CIO UK Equities, continues his involvement with the portfolio, having worked closely on the management of Brunner for many years.
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 and Discount
Promoting Brunner to as wide an audience as possible remains a priority and the board supports the manager’s 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.
As noted in previous reporting, in 2022 we agreed that we should refer to Brunner as “An all-weather global equity portfolio”. We would like to think that Brunner has been “doing what it says on the tin”. It is something of an obvious ‘line’ given the prevailing economic and fiscal conditions. Anyone can claim to be ‘all-weather’: we believe we have been living and breathing it for a long time; the consistent results achieved are the proof.
Despite the strong performance noted, Brunner traded at a larger than average discount through most of the period. Some of this is sector-wide – investment trusts in general have had a difficult year as investors shied away in the prevailing macro environment. The AIC’s statistics for 2023 show the impact on average discounts. Although not within the reporting period, as I write at the beginning of 2024 it has been pleasing to see the investment trust sector rally from 2023 lows.
We have seen the discount of Brunner relative to its peers begin to narrow which we believe is a reflection of the portfolio’s out-performance and the effectiveness of our marketing campaign. As a board, we are disappointed that a trust that has delivered 5 consecutive years of outperformance over one of the most volatile periods in stock market history, trades at a discount and continue our strenuous efforts in marketing, sales and investor relations to gain greater investor knowledge. We have been heartened by the steady increase in ownership from private investors achieved.
Outlook
2024 will likely be another significant year in terms of ‘headline’ events with 64 countries plus the European Union holding elections. Associated ‘news’ is likely to be rampant. Along with two major conflicts, the geopolitical landscape remains dangerous.
Markets have been acutely concerned with inflation and second-guessing central bank’s rate rhetoric. Inflation appears to be more under control but events in the Middle East have the potential to disrupt that.
Not all economies are built equally, and we have already seen divergence in economic performance. As you will read in the Investment Manager’s Review on pages 24 to 39 of the annual report, the portfolio managers are largely agnostic to where a stock happens to be listed. A large proportion of world class businesses derive their revenues from a diverse range of locations around the globe, often unconnected with where their stock is listed. The managers also argue in their report that the ‘macro’ factors, which undoubtedly move markets (possibly dramatically) in the short term, ultimately have limited impact on the long-term outcomes for individual businesses and thus for stock market returns over the long term.
As ever this scenario provides a good hunting ground for stock pickers who can look past the immediate noise and focus on the long-term opportunities available from individual businesses, crafting a balanced portfolio of such opportunities.
Annual General Meeting
At our 2023 Annual General Meeting in March, it was a pleasure to introduce our now co-lead manager Julian Bishop to the audience. The event was well attended by shareholders, with an interesting range of questions and discussion. We look forward to welcoming shareholders once 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 Monday 25 March 2024. Attending shareholders will receive a presentation from the portfolio managers before the formal business takes place. 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 113 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
13 February 2024