The Brunner Investment Trust (LON:BUT) has recently announced a refinancing of its second (and last) tranche of high-cost debt (£28m). It placed a £25m note at a record low rate of 2.84% for 30-year debt, made possible due to declining UK government bond yields as a result of recent political concerns in Italy. The remaining £14.4m costs (including accrued interest) to repay the debt will be financed by existing assets and bank debt, and will meaningfully lower BUT’s overall weighted average interest costs from 7.7% to 2.9% pa. Manager Lucy Macdonald describes this as an exciting development, as it will allow the trust to have a more efficient balance sheet and provides greater flexibility to increase the dividend in real terms. Coupled with the lower cost of debt, a potentially higher yield could lead to a narrowing in the trust’s discount. BUT has a distinguished distribution track record, growing dividends for the last 46 consecutive years.
Investment strategy: Moving up the quality spectrum
Macdonald invests in a portfolio of high-quality global equities, seeking long-term growth in capital and income. Since becoming sole manager in June 2016, she has tightened up the investment process. Stocks are selected on a bottom-up basis, while taking account of the macroeconomic environment. The manager seeks companies with high returns, strong management teams and robust financial positions that are trading at a reasonable valuation. Gearing of up to 20% of NAV, at the time of drawdown, is permitted; at end-April 2018, net gearing was 7.5%.
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