Julian Bishop, manager of Brunner (BUT ), is not convinced London-listed companies are trading cheaper than their European peers and believes attempts to ‘legislate for demand’ with a British ISA for UK shares will not work.

In recent months there have been growing calls for government intervention to aid, what is seem by some parties, as the ailing London stock market.

However, Bishop, who has 24% of the £598m trust in the country’s companies, said he has not seen convincing evidence that UK companies are trading on a discount to global peers.

‘On a like-for-like basis I don’t see much difference with the rest of Europe,’ he said. ‘There isn’t any evidence that Shell trades cheaper than Total just because it’s London-listed.’

Bishop said he ‘disputes the argument that the UK market is out favour because of some sort of prejudice among global investors.’ For him it is a result of the composition of the FTSE and it’s many ‘old economy’ companies such as banks, insurers and energy.

The manager, who works at Allianz Global Investors alongside Christian Schneider on the global growth investment company, acknowledged that UK stocks trade more cheaply than those listed in the US, but said it was a ‘transatlantic gap’ and there was not a ‘significant disparity’ with those in Europe.

The Budget yesterday saw the chancellor unveil proposals for a British ISA that would give well-off taxpayers an additional £5,000 allowance to invest in UK companies. While there are many advocates within the investment company sector, Bishop isn’t among them.

‘I personally don’t think you can legislate for demand,’ he said.

Brunner big in UK

Brunner has a high allocation to the UK for a global trust as a result of its unusual benchmark, which is 70% global, 30% UK. The trust, which has been around since 1927, previously had a 50%/50% split but this was refined in March 2017.

The company has performed well in recent years and recently reported that it had outperformed global and UK markets for the fifth consecutive year despite the varying different market environments, proving its merits as an ‘all weather’ company.

However, it trades on a 9% discount which JPMorgan Cazenove analyst Christopher Brown suggested was in part because of its high UK allocation, highlighting that a neutral rating for a global fund would be 4%. Brown said most investors would ‘generally prefer’ to have two separate trusts, one specialist UK and one global.

Defending the position Bishop said, ‘there is a significant cohort of domestic investors who want some exposure to the domestic markets plus exposure to global markets, and the idea is that where there’s one-stop shop’.

He added the two markets are ‘very different’ and counterbalance each other nicely. The US, which dominates the global market and is the highest country allocation in the fund at 42%, is made up of quality growth companies that are trading on high multiples, while the UK has more mature companies that have substantial cash flow and the ability to deliver dividends.

St James’s Place a mistake

While Bishop is highly optimistic about some companies within the UK, he notes that one of the trust’s mistakes in 2023 was owning wealth manager St James Place (STJ). Its shares have plunged nearly two thirds in the past year in response to regulatory pressure from the Financial Conduct Authority (FCA).

The manager had begun selling out in the latter half of last year and fully exited by December so the company did not suffer from the recent fall after it set aside £426m for advice fee refunds.

Bishop said there was previously ‘a lot to recommend the business model’ as wealth managers tend to be ‘asset light’, the financial cost of growing is minimal, business is sticky and is fee-based leading to lots of renewed revenue.

However, now ‘the FCA is being very muscular, and we see this across a lot of different consumer-facing finance companies,’ he said. ‘The regulators are making life very difficult for companies that play there.’

‘We have around 60 holdings and every year there is something you wish you didn’t own. St James Place is it this year and you move one and you hope you learn from it.’

Elite stock picks

While Brunner has a relatively low turnover at 15% a year, the portfolio might start to shift more towards value and away from high quality in the coming year.

‘Quality growth has had a really strong few months,’ the manager commented, adding the companies are ‘not as good value as they were’.  

Bishop put some of his top holdings in this quality growth bucket: Visa '>Visa (4%), Microsoft '>Microsoft (6.7%), Taiwan Semiconductor '>Taiwan Semiconductor (2.6%) and ASML '>ASML (2.5%) are all top AAA-rated Citywire Elite Companies held by other leading fund managers. 

There are also Thermo Fisher (2.7%), which is Citywire A-rated, and Intercontinental Hotels (2.6%), which is unrated. 

Bishop has made two new purchases recently: General Electric, which is also Citywire AAA-rated, and Bank of Ireland, which is AA-rated.

Of the former he said from next month it will be a standalone jet engine business, breaking free from a conglomerate structure which will give it space to succeed as already three out of every four flights that take off are powered by the company’s engines.

Bishop said he would classify General Electric as a quality growth play, but Bank of Ireland is a ‘deep value’ one.

‘Ireland is a country that had a severe crisis, and we have a preference for banks that have emerged strong from crisis conditions where the regulator is absolutely on it,’ he said. The manager highlighted that along with a stronger Irish economy, Bank of Ireland is benefiting from consolidation as there just two ‘and a bit’ banks that operate in the country.