The ‘all weather’ approach of Brunner (BUT ) is working well after the global growth investment trust last week reported its fifth consecutive year of outperformance and extended its back-to-back dividend increases to 52 years.

Under Allianz Global Investors fund managers Christian Schneider and Julian Bishop, who took on the £572m portfolio after the departure of Matthew Tillett in 2022, Brunner delivered a total underlying investment return of 8.7% in the year to 30 November.

That beat the 5.5% advance of its composite benchmark made up of 70% FTSE World ex-UK and 30% FTSE All Share, the fifth year it has done so, and lifted Brunner’s total return on net assets to 166% over 10 years, against 142% from the benchmark.

A jump in special dividends from companies saw revenue per share rise 16.3% to 26.4p, enabling Brunner to lift its dividends by 5.6% to 22.7p, with the payouts covered 1.16 times by earnings and 1.3 times by reserves.

Chair Carolan Dobson praised the latest annual performance which she said had been achieved despite Brunner being ‘relatively small holders’ of the ‘Magnificent Seven’ US tech stocks - Alphabet, Apple, Amazon, Microsoft, Meta, Nvidia, and Tesla - which drove the bulk of the US and global equity returns last year.

She said the five-year return to 30 November, which saw net asset value (NAV) grow 86.2% versus the benchmark’s 70.9% for its benchmark justified Brunner’s ‘all-weather’ claim that its collection of high quality growth stocks could do well in a variety of market and macroeconomic conditions.

The biggest contributors to performance in the year were Microsoft, which was the biggest holding in the portfolio at 6.3% at the end of 2023, Greek-listed retailer Jumbo, pharmaceutical giant Novo Nordisk and insurer Munich Re.

Microsoft shares soared 46% over the period as tech shares rode high on the excitement around artificial intelligence (AI) development.

Schneider and Bishop said the impact of AI would be ‘enormous’ but judging the winners was difficult. They remained happy with their participation in this ‘nascent theme’ comprising of OpenAI-owning Microsoft, software provider Adobe, IT consultant Accenture and Taiwan’s leading computer chip-maker TSMC.

They noted that Microsoft was developing a ChatGPT ‘copilot’ for users of its Office products. ‘A small incremental fee charge for each of its 300m-plus subscribers could be incredibly lucrative,’ they said.

Their worst stock over the year was US stock broker Charles Schwab, which makes most of its money from the cash private investors hold on its platform but was hit as customers switched their money into money market funds as interest rates rose. Despite this the duo ‘added to the stock on weakness’ and said its long-term competitive position remained ‘outstanding’.

They also added new holdings in ASML, the Dutch maker of semiconductor equipment, laboratory equipment maker Thermo Fisher Scientific, and infrastructure group Aena, which owns Spanish airports.

The pair sold UK buy-to-let lender Paragon Banking Group (PAG) and replaced it with Close Brothers (CBG), a move they may regret following its dividend cut and share price slump last week.

In the US, Agilent Technologies was dropped in favour of medical diagnostics provider Thermo Fisher, while Yum China, which operates KFC and Pizza Hunt in China, was removed due to the managers’ concerns at the country’s less transparent accounting and legal standards in the country and deteriorating economic outlook.

Schneider and Bishop were confident about the outlook for their holdings despite the uncertainty over the global economy and interest rates. ‘In the vast majority of instances, our investments continue to generate cash which is sensibly reinvested in value-creative activities or returned to us as dividend and buybacks,’ they said. ‘We expect profits to grow at most of our holdings in most years.’

Dobson said she was disappointed Brunner shares continue to trade below NAV despite their good performance and promised the board would continue its ‘strenuous’ efforts to promote and market the trust.

Nevertheless, a recent narrowing in the discount to 10%, against a one-year average of 12% and a low last October of 17%, has ensured shareholder returns are ahead of asset growth over all time periods. 

Christopher Brown, analyst at Brunner’s broker JPMorgan Cazenove, said the trust’s performance was strong, ranking it second in its sector over five years. He said the discount partlly reflected the 23% stake held by the Brunner family which reduced liquidity in the stock, but also the fact its large 25% weighting to the UK was not what most investors wanted.

‘While we like the UK from a value perspective, we believe that a 25% allocation (versus a 30% weight in the compositie benchmark) to this market is too high in the context of a global fund, where a neutral rating would be 4%.

‘We think investors who want a high UK exposure would generally prefer a combination of a UK equity focused trust and a global trust with a more global allocation closer to that of a typical global index,’ said Brown.