Brunner Investment Trust: Sentiment Improving, Valuations Average

Modestly geared global equity exposure
The Brunner Investment Trust, (BUT) is a global growth investment trust, managed by Allianz Global Investors (AGI). It aims to provide a cost-effective one-stop shop for investors seeking diversified global equity exposure and a good yield. The trust has a substantial allocation to the UK, which supports a yield (2.9%) above its peer group average (2.0%). The recent interim results suggest that BUT is on track to provide 42 years of uninterrupted dividend growth. As at 31 March 2013, and after payment of the interim dividend, BUT retained about two years of revenue reserves.

Investment strategy: UK and global quoted equities
BUT maintains both a UK and overseas portfolio with the equity assets split c 50/50. The portfolios are then managed bottom-up incorporating extensive fundamental research, with an initial investment horizon of a minimum three years. About 6% of the total portfolio, as at 30 September 2013, was held in UK government bonds to partially offset the gearing effect of BUT’s debentures, providing BUT with gearing of 6.1% net or 20.0% gross. The UK portfolio is further split c 80% between large-cap, dividend-paying defensive stocks and c 20% domestically oriented special situation stocks. Around 9.9% of the UK portfolio is currently invested outside of the FTSE 350.

Outlook: Sentiment improving, valuations average
Despite recent market volatility, global equities have provided a very positive performance over the past year. The FTSE World Index has returned 20.1%, in sterling adjusted total return terms, while the MSCI World and FTSE All-Share have returned 21.5% and 18.9% respectively. There are signs that the economic backdrop is improving and, while considerable uncertainty remains, the managers expect global economic growth to remain positive, but with considerable variations across countries and regions. The manager remains focused on companies that are generating strong cash flows. The historic market P/E of the Datastream World Market Index, at 16.1x, is in line with long-run averages (see page 3).

Valuation: Discount in line with long-term averages
The cum-fair discount (currently 14.8%) has averaged 14.0%, 12.6% and 12.6% over one, three and five years respectively, and has traded in a range of between 10.2% and 18.0% during the last 12 months. BUT has the third-highest yield in its peer group (see page 8 for peer group comparison).

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