UK Edition
The benefits of a simple investment strategy are seemingly lost on many of today’s stock market investors. Indeed, the idea of buying a diverse range of high-quality companies and holding them for the long run may appear to be rather dull or outdated to many.
Instead, investors are apparently more likely to prefer overvalued story stocks linked to temporarily popular trends, meme stocks that can benefit from a spike in investor sentiment, or some other strategy du jour that sounds good in theory but is found wanting over the long run.
Worse still, they may engage in behavior that somehow seeks to predict the future when no human being has yet been able to master that particular skill.
Fortunately for this column, the Brunner investment trust has been managed in a sensible and logical manner since it was first tipped as a “buy” in April 2017. Since then, it has generated a 61pc capital gain that is 55 percentage points greater than the FTSE 100’s return over the same period.
Clearly, some investors will be turned off by the trust’s straightforward, no-frills, bottom-up approach. Rather than aiming to accurately forecast events that are inherently unpredictable, such as how the economy will perform in future, and then buy stocks that the trust’s managers believe could be positively impacted by it, the company simply buys high-quality stocks with solid financial fundamentals.
Over the long run, they are likely to be the stock market’s major winners as they successfully navigate whatever economic circumstances are thrown their way.
Currently, the trust’s largest holdings include well-known names such as Microsoft, Visa and Taiwan Semiconductor in a portfolio that provides significant geographic diversification. Around 42pc of holdings are listed in North America, 25pc are in Europe excluding UK, a further 25pc are UK-listed equities and the remainder are Asia-Pacific companies.
This provides broad exposure to the world economy’s growth potential. And while economic forecasts are notoriously unreliable, history is a far more dependable guide.
Although the current global slowdown could persist over the short run, ultimately the world economy’s growth rate is set to revert to its long-term mean as inflation is tamed and interest rate rises abate. This is extremely likely to have a positive impact on corporate performance and investor sentiment; just as it has done over previous decades.
Growth in the trust’s net asset value (NAV) is slightly above that of its benchmark, which is a 70/30 split between the FTSE World ex-UK index and the FTSE All-Share index, over the past three and five years. It is also a top-quartile performer relative to its Investment Trust Global peer group over both periods.
In addition, the Brunner investment trust has raised dividends per share for 51 consecutive years. Annual inflation has averaged 4.8pc during that period, while the company has raised dividends per share at an annualised rate of 7.8pc. Therefore, it has provided an overwhelmingly positive real-terms rise in income for its shareholders.
Given that generating dividend growth is a key part of the trust’s overall aim, it would be wholly unsurprising for shareholder payouts to rise at a rate that surpasses inflation over the coming years. This helps to compensate investors for what is a relatively meagre 2pc dividend yield, although the trust’s US focus, where yields are typically more modest than in the UK, helps explain its low income return.
With a solid long-term track record and inflation-beating dividend growth, it is somewhat surprising that the trust trades at a 12pc discount to NAV. After all, logic says that investor demand should be relatively high given its attractive past performance.
Since the company has traded below NAV throughout the past five years, with the exception of a brief period during the pandemic, and has an average discount of 11pc since 2018, it seems investors continually struggle to view it in a positive light. This may be because it has a simple strategy that does not captivate today’s short-termist investors who are seemingly more interested in “excitement” than profits.
For Questor, though, the trust continues to have long-term investment appeal. It is a straightforward, yet highly effective, means of accessing a wide range of high-quality, global stocks that are set to deliver further capital gains and dividend growth as the world economy prospers.
Questor says: buy
Ticker: BUT
Share rice at close: £10.55
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