Brunner goes increasingly global in quest for income - annual report summary

Our annual report summary series delivers a condensed analysis of a selected investment trust's annual report, including details of the trust's aim, investment style, portfolio focuses, gearing policy, charges and performance.

The Brunner Investment Trust (LSE: BUT) is managed by Allianz Global Investors. It offers a ‘one stop shop’ for investors by targeting long-term capital and dividend growth from a portfolio of global and UK equities. Its annual report for the year to 30 November 2016 shows shareholders’ assets of £318 million.

Lucy MacDonald, AGI’s chief investment officer for global equities, has managed Brunner’s overseas portfolio since 2005. She became Brunner’s sole manager in June 2016, when its UK holdings were combined with its overseas holdings to form a single global portfolio.

To avoid dependence for the dividend on a small number of UK companies, overseas exposure has steadily increased. As a result, the benchmark weighting to the FTSE World ex UK index has recently been raised from 50 per cent to 70 per cent, and the proportion to the FTSE All-Share index cut to 30 per cent.

Since MacDonald took sole charge, Brunner’s portfolio has been concentrated down from 88 to 77 holdings, and she expects this to fall to around 60 of her best global equity ideas. At end-November 2016, the US accounted for 35 per cent of the portfolio, Europe 21 per cent, Japan and the Pacific Basin 10.5 per cent and the UK 35 per cent. Matthew Tillett now advises MacDonald on the latter.

Brunner is burdened with expensive gearing, including a £18.2 million stepped rate debenture with an effective interest rate of 11.27 per cent. Its repayment in January 2018 should boost Brunner’s revenue.

NAV per share total returns last year were 20.2 per cent with debt at fair value, exceeding the 18 per cent return on Brunner’s benchmark at the time. Share price total returns were 12.4 per cent. The total dividend was raised for the 45th consecutive year, this time by 3.3 per cent. It is paid quarterly and was fully covered by earnings. Ongoing charges were 0.8 per cent.

With the extended Brunner family holding around a fifth of the ordinary shares, the board is reluctant to buy back shares for fear of reducing liquidity.


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