Brunner Investment Trust (LSE:BUT) PLC’s recent strong performance demonstrates the advantages of a "balanced approach", a City broker said.
The current equity market no longer favours one style, with a myriad of different risks now making specific style bets riskier, but Brunner has managed to do well and has generated strong year-to-date performance.
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In fact, the group has outperformed both its benchmark and its peers, ranking as one of the best global equity strategies over the period.
This performance has been generated entirely through stock selection rather than sector allocation, indicating the managers’ success as bottom-up stock-pickers.
However, it has underperformed the peer group over the last five years, although analysts attributed it to the structural overweight to the UK in the benchmark rather than due to the managers’ active decisions.
That’s because Brunner contains a structurally high allocation to the UK, which has increased as a percentage of the portfolio in recent months due to the strong relative performance from their investments here.
The portfolio is not an expensive ‘quality growth’ strategy, nor is it a pure ‘value’ fund, but balances companies’ quality, growth, and valuation factors, leading to a concentrated portfolio of distinct companies.
These include global giants like Microsoft, alongside smaller companies like SThree, a small-cap UK recruitment firm.
“We think the future may continue to suit BUT’s approach as many of the current risk factors are still to be resolved, with the managers highlighting the risks of rising inflation and COVID-19’s impact on Asian markets. The sustainable earnings of BUT’s holdings, both historical and expected, should mean they are better able to survive any near-term hazards,” analysts at Kepler Trust Intelligence said.
“The team’s balanced approach to valuation risk could provide another tailwind for the strategy, with BUT lacking the stretched valuations of some of its peers. Rising inflation brings with it rising interest rate expectations which would be a major headwind to expensive, aggressively growth-focussed companies and low-quality business with poor pricing power. The managers’ strong valuation and quality sensitivity means BUT usually avoids these companies. As a result, we believe BUT’s current discount still provides a potentially attractive entry point, despite its recent narrowing.”