Trust news round-up: Brunner, Castelnau, Life Sciences, Schroders Innovation

Brunner (BUT )

Performance

The £614m global equity portfolio run by Allianz Global Investors’ Christian Schneider and Julian Bishop reported a 1.5% fall in net asset value (NAV) over the six months to the end of May.

This compares to a 0.1% decline in its combined benchmark of 70% FTSE World ex UK and 30% FTSE All-Share. The shares dropped 3.9% over the same period.

In half-year results announced last Tuesday, Schneider and Bishop pointed to sector-specific challenges over the period, particularly in healthcare. For example, UnitedHealth was the largest detractor, pushing the managers to exit the position.

The duo said: ‘We can only apologise for continuing to own this as our doubts about the model started to mount.’

Wider policy concerns around healthcare under the Donald Trump administration impacted other healthcare positions, such as Thermo Fisher, Cooper, and Align.

Portfolio changes

Schneider and Bishop added Tesco (TSCO), car maker Kia, and e-commerce giant Amazon to the portfolio over the period. Commenting on the latter, the duo cited Amazon’s ‘determination to invest for the long term’ as an attraction.

‘We believe its potential profitability remains concealed,’ he said. ‘Adjusting for this, we think the shares are less expensive than is first apparent.’

Alongside UnitedHealth, they also sold food company Nestle and pharmaceutical group AbbVie, which were both were trading on high multiples.

Outlook

Trust chair Carolan Dobson said the global outlook remains ‘uncertain’ given there is elevated political risk as a result of tariffs, rising fiscal deficits and the potential for inflationary pressures.

‘However, we take comfort in the breadth of market leadership seen this year, with both traditional sectors and cutting-edge technology companies contributing to returns,’ she said.

‘The broader market participation is encouraging and aligns well with Brunner’s balanced investment approach.’

Over the past three years Brunner’s shares are up 47.9%, outpacing a 34.9% gain by the AIC’s global sector. It currently trades on a 4.7% discount.

Castelnau (CGL )

Review update

Phoenix Asset Management is planning to streamline its £265m portfolio of public and private assets following a review.

Chief executive Richard Brown said the team had identified several businesses they intend to own for the long-term. They include funeral services provider Dignity, which was taken private by the fund as part of a consortium in 2023.

Brown feels confident about the progress being made at Dignity and points to ‘exciting growth initiatives’, including legal services.

‘However, we acknowledge there may be better homes for certain of the other portfolio companies, and we have started exploring options which should result in a more simplified, cash generative group,’ said Brown, adding that he has received interest in some of the companies.

Manager Gary Channon is hoping to have made material progress streamlining the portfolio by the end of the year, allowing him to ‘go into 2026 with a clear view of the ongoing portfolio that is aligned with our evolved vision and plays to our strengths’.

Knock on effect

Changes to Castelnau should also be looked at in the context of Aurora UK Alpha (ARR ), the £283m trust that was created last year through the merger of Aurora and Artemis Alpha, which Channon also manages.

Castelnau is currently the third largest holding in ARR, accounting for 12.6% of the portfolio at the end of June. This means ARR is the second largest shareholder in Castelnau with a 15.3% stake, behind Phoenix Asset Management Partners, which owns 66.9%.

Over the past three years Castelnau’s shares are down 5.4%, which compares to a 3.1% gain by the AIC’s flexible sector. Castelnau currently trades on a 21% discount.

Life Science Reit (LABS )

Performance

The £144m real estate investment trust (Reit) of labs and life sciences property released a disappointing June NAV of 66.3p, which equates to a 10.9% decline over the six months to the end of June.

It put this down to widespread valuation declines across its portfolio as a result of slower than expected leasing activity.

However, the board believes there are some reasons to be optimistic, pointing to Cushman & Wakefield’s latest market report which suggested yields for ‘golden triangle’ life science properties – which encompasses London, Oxford and Cambridge – were stable over the first half of the year.

Covenant breach

At the end of the reporting period, LABS was in breach of the interest cover ratio covenant agreed on its banking facility. The ratio fell to 193%, just below the threshold of 200%. The trust has agreed a waiver with its lenders rather than putting further hedging in place, it said in an update on Monday.

Strategic update

Back in March of this year, the board launched a strategic review and kicked off a formal sale process. Since then, it said the Reit has received a ‘significant amount of interest’ and certain parties had been granted access to additional due diligence materials.

The board is also looking at whether a potential managed wind-down of the portfolio would be a better option.

What the analysts say

Deutsche Numis Andrew Rees said the timing of the NAV writedown will ‘prompt scrutiny from shareholders, given it follows a move to base fees on market cap, as well as NAV, in April’.

He noted the trust’s 46% discount may ‘appear tempting’ given the interest in the sale process, but said ‘the assets continue to face a challenging leasing backdrop’.

‘We can understand why shareholders – who have endured a difficult journey since LABS’ launch – may not be placing much confidence in management to deliver an attractive outcome from the strategic review,’ Rees said.

Over the past three years, LABS’ shares are down 45.9% which compares to a 20% loss by the average trust in the AIC’s UK commercial property sector.

Schroder Capital Global Innovation (INOV )

Tender offer

Investors rushed for the exit in the latest tender offer from the former Woodford Patient Capital Trust.

Schroder Capital Global Innovation’s £37m tender offer at NAV was oversubscribed by more than three times, as 67.1% of shareholders applied to sell the shares which were trading at a wide 35% discount.  

The trust had announced it would repurchase 173.2m shares at 21.1p each, equal to 21.4% of the issued shares.

Shareholders who tried to sell more than the basic allowance of 21.4% will have 2.9% of their excess applications approved.

Wind down

Investors agreed to wind down the company in February, and the tender will be the first in a series of returns to shareholders. The shares have lost close to 90% of their value since the heady days of 2015 when the trust was launched by then-star manager Neil Woodford.

The shadow cast by Woodford’s spectacular fall from grace and the closure of his eponymous fund management business made it difficult for Schroders to turn things around after they took over the trust in 2019.