Brunner’s (BUT ) decision to avoid mega-caps Tesla, Amazon, and Meta has ensured its interim lead fund manager Christian Schneider side-stepped ‘market torpedoes’ and continued the outperformance of his predecessor.

Schneider took charge of the £465m trust in July last year after the departure of Citywire AAA-rated manager Matthew Tillett from Allianz Global Investors, marking the second reshuffle in two years following the departure of Lucy Macdonald. He will be formally joined by his new co-manager Julian Bishop after the trust’s annual general meeting on 31 March. Bishop joined Allianz in October from Tesco where he helped run the supermarket’s pension scheme.

The team, which also includes Marcus Morris-Eyton, has ensured Tillett’s good work was not undone with recently published annual results showing net asset value (NAV) pushed 3% higher in the 12 months to 30 November, beating the 1.4% total return from the composite benchmark of 70% FTSE World ex-UK and 30% FTSE All Share.

Dividend hero

Offering a 2% yield, Brunner is not perhaps income investors’ first choice, although it has an impressive record of dividend increases. The board’s declaration of 6.05p final dividend lifted the total 2022 payout to 21.5p, up 6.7% on 2021’s 20.15p. This is the 51st consecutive year the distribution has risen, maintaining its place in the Association of Investment Companies’ (AIC) list of ‘Dividend Heroes’.

Brunner has maintained momentum since the financial year-end with a three-month investment return of over 7%. That leaves the investment company comfortably positioned in the top half of the AIC Global sector with a 49.3% return on net assets over thee years. 

However, a widening in the discount since Tillett’s departure has left the shares trading 11% below NAV, resulting in a slightly less impressive three-year shareholder return of 42.7%.

Nevertheless, Schneider (above) said Brunner ranked second in its 13-strong peer group over the financial year, which ‘speaks to not only just how challenging the market environment has been, but also the merits of our balanced approach’.

He said the trust had avoided the many ‘market torpedoes’ that dogged 2022, including not holding growth companies that deliver higher revenue growth without generating cashflow returns, which were disproportionately hit by rising interest rates.

‘Not holding the electric vehicle manufacture Tesla for example, has been one of the top 10 positive contributors to the portfolio performance,’ said Schneider.

Similarly, not owning e-commerce giant Amazon and Facebook parent Meta, also boosted returns as high-growth tech stocks sold off as the US Federal Reserve aggressively hiked interest rates.

The overweight position in healthcare stocks also benefited performance, with Schneider stating the sector as a ‘relative safe haven’. US health insurance provider Unitedhealth Group was the best performer as investors seeking ‘more defensive positions’ piled in.

‘However, the underlying business also continued to be strong,’ said Schneider.

‘Successive quarters of above-guidance revenue growth have enable the company to raise its full-year earnings per share guidance.’

Looking forward, he said: ‘Unitedhealth is as conservative as ever, guiding for 12% earnings per share growth – a range it has typically beaten.’

Pharmaceutical giants Abbvie and Novo Nordisk also contributed positively, although not all healthcare stocks made the grade, with Schneider selling Fresnius, a German company offering kidney dialysis services after a series of ‘operational mis-steps and declining profitability’ weakened confidence.

In the UK, home maintenance group Homeserve (HSV) was a boost to the portfolio when it was sold to Canadian private equity firm Brookfield for a 71% premium to its share price.

Adidas falls behind

Consumer-focused stocks weighed on the fund, however, as has a preference for financials ‘which generate returns through fees and recurring business, rather than net interest margins on deposits’ which were hit by rising interest rates.

The worst performer was sports brand Adidas as it battled ongoing supply issues in China and also a nationalist boycott of Western brands that do not source cotton from Xinjiang, where allegations of slave labour of the ethically-Muslim Uighurs abound and human rights abuses are rife.

‘The company has also lost market share in other areas and been accused of failing to innovate sufficiently quickly,’ said Schneider.

Schneider continued to bet on some consumer names, however, adding Haleon (HLN), which was spun out of GSK (GSK) last year, to the portfolio. He said the maker of Sensodyne, Centrum, and Panadol ‘boasts a low environmental footprint, as well as strong pricing power, both of which are considerable tailwinds in the current environment’.

While global shares have enjoyed a rally since the start of 2023, Schneider remains cautious and warned that ‘highly sentiment markets continue to misprice stocks on the basis of short-term data’ and he will instead be looking for ‘instances of structural weakness’.