Brunner outperforms under challenging global conditions and new management  

Brunner, the investment trust managed by Allianz Global Investors has reported its final results for the year ended 30 November 2020 as follows: 

Highlights of the year:

• Net Asset Value (NAV) per ordinary share rose by 6.2%, ahead of benchmark index.
• Top contributors came from companies in digital transformation, healthcare and the energy transition sectors.
• Trust announces 49 years of successive dividend increases.

Performance

The trust’s equity portfolio outperformed the benchmark over the year. The NAV total return was 6.2%, ahead of the composite benchmark index (70% FTSE World Ex-UK and 30% FTSE All-Share Index) which rose by 5.3% on the total return basis over the period.

The portfolio delivered a consistent relative outperformance throughout the year, despite the highly volatile market conditions.

49 years of successive dividend increases

The total dividend for 2020 at 20.06p shows a small increase over 2019. After paying the 2020 dividends (including the proposed final dividend) revenue reserves will remain very strong at 24.5p.The company will therefore retain its status as a ‘dividend hero’, as defined by the Association of Investment companies (AIC), with one of the longest track records in that group.

Portfolio contributions

The portfolio’s strongest contributors came from some of the largest long-standing positions that are benefiting from digitalisation, in particular Microsoft and Taiwan Semiconductor. Microsoft saw demand for most of its products rise over the course of 2020 as both consumers and corporates spent more time and resources engaging with the digital world. Meanwhile, TSMC, the Taiwanese semiconductor company, released successive results which beat expectations.

Agilent Technologies, a supplier of bioanalytics and measurement instruments, was another particularly strong contributor. COVID-19 has increased demand for the company’s products. The Trust is attracted to the longer-term investment case, however, which is predicated on the already strong demand from medical, consumer and scientific industries.

The trust’s utility holdings Enel and Iberdrola were strong contributors to performance during the year. Although renewables still only account for a minority of their assets, both companies are driving and harnessing the momentum around a global transition to cleaner energy. Iberdrola in particular has been a pioneer in renewables for many years. It has committed to invest €75 billion over the next five years to double its renewable energy capacity.

Matthew Tillet, Portfolio Manager, shares his outlook for 2021:

“At the start of 2021, the prevailing consensus view is one of reflation as the global economy moves into a cyclical recovery period. This is driving a broadly optimistic view toward risky assets such as equities. From a macro-economic perspective, we believe this consensus view is broadly correct.

Whether a strong economic recovery translates into another year of stock market gains is, however, more questionable. Even before the pandemic, stock markets had become increasingly uncoupled from the broader macro economy. Consistently loose monetary policy in the form of very low interest rates and periodic bouts of quantitative easing has driven up equity valuations around the world, which are now at some of the highest levels ever recorded.

At the same time, the stock market itself has become increasingly dominated (in market cap terms) by a small number of large technology firms that are benefiting from secular as opposed to cyclical growth drivers. 2020 has only accelerated these trends.

In this vein, a strong “V-shaped” recovery is actually a major risk to global stock markets. Higher inflation and consequent upward pressure on interest rates could undermine one of the key factors underpinning high stock market valuations, particularly amongst the large high growth companies. Much will depend on how policy makers react to such a scenario. In the short term, the bias is likely to be dovish, so as not to risk undermining the recovery. But if the recovery proves sustained eventually interest rates will need to rise from current levels.

Overall, our expectation is that stock markets will continue to be volatile. The wild swings that we have seen during 2020, not just in absolute terms but between sectors, between “growth” versus “value” and between “defensives” versus “cyclicals” – are likely to continue into 2021.

The good news is that the trust’s portfolio, and the investment philosophy underpinning it, is well placed to navigate any such stock market gyrations. The portfolio is diversified, it does not exhibit extreme sector or style exposures and rarely does it express any short term macroeconomic viewpoint. It consists of high quality companies, most with rock solid balance sheets and predictable revenue and cash generation. Most are defensive in nature, but many will also benefit from a cyclical upswing.”

PORTFOLIO BREAKDOWN as at 30 November 2020

TOP 20 HOLDINGS as at 30 November 2020