Speaker 0:
joining me here in the studio, we have Julian Bishop Co-lead, portfolio manager of the Brunner Investment Trust. Julian, thanks very much for being here as a blogger. Hello. Could you give us a bit of an intro into the trust? What's the approach? And and give us a bit about the history as well. Yeah,

Speaker 1:
OK, So the Brenner Investment Trust was founded in 1927 when the the Brunner family sold their chemicals business to what is now IC. I. And then they took the proceeds and and and founded the Brenner Investment Trust to manage the family's wealth.

Speaker 1:
Um, we've got a 60 stock portfolio, um, so reasonably well diversified by theme, geography and and and the sector. And we have a process that really prioritises quality. So some of our largest holdings are some of the world's world's best companies. You know, things like Microsoft. Louis Vuitton, Mary Hennessy, uh, Danish Pharmaceutical company called No, no. Um, so a real preference for quality, but also a determination not to overpay. So we're very disciplined on value.

Speaker 1:
So we have a balanced approach that has, um, resulted in a very good long term investment track record and, uh, yeah, we hope to see that. Continue

Speaker 0:
staying with themes there. What are some of the key themes running through the ports with a lot of holdings there. There's got to be some ones that stand out. Yeah,

Speaker 1:
yeah, absolutely. I I wouldn't describe ourselves as thematic investors, uh, per se, but we're looking for as much growth in every holding that we have, um, as possible. And we notice that quite often the the drivers of growth have some

Speaker 1:
similarities. So what I would point to is, uh, electrification. So, um, the the more you look at, the, uh need to decarbonise and and our economies need to get to net zero by 2050 the more you realise that we have to electrify

Speaker 1:
everything. So we need to wean the world off burning fossil fuels in situ and and replace that source of energy with electricity because most renewables are electrical. Um, today, if you look at i e a data, that's the international energy authority. Only about 18% of the world's energy consumption is actually electricity, and that number needs to increase dramatically. And there is still ongoing needs for extra energy as the world's population grows.

Speaker 1:
So electrification is, um, a theme that we see coming up in the portfolio time and time again. We have a couple of utilities. Um, so a couple of utilities who are investing in, uh, large scale solar and and wind,

Speaker 1:
Um, and that's good business. But it's not terrific business. You know, that generates a good return, but the barriers to entry in generating electricity aren't particularly high. But we have some industrials, some industrial names that make systems and components that are used in this electrification trend, which have very good economics. Uh, where we think there will be a tailwind for many, many years, years to come. And I I I think

Speaker 1:
generally, if you think about, um, the pathway to net zero above anything else, it's gonna involve enormous capital expenditures. It's, you know, hundreds of billions of dollars, if not trillions,

Speaker 1:
uh, a lot of which is going to have to take place in the developed world in the United States and Europe, uh, you know, potentially bringing to an end this process of deindustrialization that's been occurring for decades. So if you look at industrial production in the States, it's you know it's not growing for for many, many years. Um, possibly Now we start to see that reverse, as as these economies have to invest in the complete reengineering of the energy, uh, energy system.

Speaker 1:
So that's that's one theme. Um, a second one I would point to is,

Speaker 1:
um, you know, the emerging market consumer. So one of our largest holdings, which I mentioned is Louis Vuitton. Hennessy. Um, so, uh, Chinese consumers in particular have a great affinity for European luxury goods. And, um L v MH owns not only the Louis Vuitton brand, but also

Speaker 1:
and numerous other luxury brands and then at a lower level. You know, throughout the portfolio, we have some consumer staples companies. We have a international premium spirits which are very popular in countries like India. Um, companies like Nestle and Unilever have 30 40 or even 50% of their growth coming from, uh, emerging markets, you know, ranging from India to Africa. So as the population grows in those regions, um, as those

Speaker 1:
consumers become wealthier, they can afford to buy these sort of everyday consumer items, and that provides a really useful tail for growth.

Speaker 0:
And you sit within the global sector, and you offer quite a fairly good source of income for, uh, within your sector because compared with that, there's a lot of grower names within that.

Speaker 1:
Yeah, Yeah, so, um, worth just mentioning actually the benchmark. So the benchmark is quite unusual. So, uh, we have a benchmark that's 30% UK 70% global UK. So that's great. So that gives us exposure to all the all the value and dividends on offer in the UK market, plus all the quality and growth that exists in

Speaker 1:
in Europe and the United States and other markets. Um, the the the yield at the moment is about 2% which, um doesn't sound that high by UK standards, but by global standards, it is actually pretty pretty reasonable. It's also worth pointing out that the the 2% dividend yield, which um which has consistently increased, um, also isn't the only form of cash return at the

Speaker 1:
the trust gets. There's also a lot of buybacks in America, which augments the total cash returns to shareholders. Although that of course, uh shows up in the, um in the capital gain not in the not in the yield

Speaker 0:
sure. And you mentioned UK there. What's the current split between, say, the UK and the US in the portfolio?

Speaker 1:
Um, so at the moment, we have about 40% in the United States. That's our largest market. And about, uh, 25% in the United Kingdom. So those are the companies that are listed in the UK. So, as I mentioned, the benchmark is 30% UK

Speaker 1:
At the moment, we're 25 so we're a little bit underweight. Um, I I think, uh, you know, the UK market is, um it's quite it's quite interesting. A. It's not that much to do with the UK economy. It's worth pointing that out. You know, about 80% of the the revenues in the UK market actually come from from overseas. Um, and if you look at the structure of the UK market, it's a relatively old economy, so it's quite skewed to sectors like oil and gas, um,

Speaker 1:
banks, resources, and so on and so forth. And that's not our natural hunting ground. We tend to be slightly more focused on higher quality, uh, sectors. But what the UK market does have in spades is is is value I think is a very good value market. Lots of cash flows which can support a really good, um, set of dividends. Um, and in addition to that, there's really good standards of of corporate governance. Um,

Speaker 1:
and in addition to those sectors that I mentioned that dominate the UK market, there's also some very, very high quality, um, businesses. So I, you know, mentioned a few. We have a which is the international Premium Spirits company brands like Gin and Johnny Walker. Um, scotch, uh, intercontinental hotels, which is a hotel operator and franchiser. And they have brands in their, um, stable like Crown Plaza, Holiday Inn, Holiday Inn Express six senses, resorts and so on.

Speaker 1:
And then companies like, uh, Rent. So we have a, um a A holding in rent to kill the pest control company. It's not glamorous stuff, but it's a really good business. And those three, I think, are examples of businesses which are really, you know, terrific quality, high returns on invested capital, good growth, excellent competitive positions.

Speaker 1:
And they're more in keeping with the type of names that runner likes to likes to target.

Speaker 0:
Yeah, and quality in the UK market is there enough of it. And when you're looking across the whole spectrum of the UK, what is it that you're really trying to eke out of these companies?

Speaker 1:
I think Well, we're not. We're not really allocating by region or or by sector. So what we're looking for in the UK is what we're looking for in any company that, um that that that we invest in no matter where it's listed.

Speaker 1:
Um, our our approach really is to try and balance quality with with value and and and growth. But we put a strong emphasis on on quality and for quality. That means for us, you know, high returns on invested capital. It's a very profitable business, Um, plus sustainable competitive advantages. So you know, a a mo for want of a better word or or or or uM or or or or similar.

Speaker 1:
And the reason we like that is, if you look at most of the world's great equities, they have some sort of sustainable competitive advantage. You know, just just that's what's necessary. I think to, uh, create a very, very valuable business.

Speaker 1:
Um, and we find many instances of businesses that are listed in the UK that have those those characteristics. They don't dominate the index. Um, but they're certainly there. And I think, Yeah, I h g intercontinental hotels, D r would be three good examples of of those stocks.

Speaker 0:
And and looking at the US, it seems a while ago that it happened now, But the banking crisis did. Did it worry you when that happened? And and what's the state of affairs now in in the US there? Yeah.

Speaker 1:
So, I mean, essentially, what happened in, in, in, in, um,

Speaker 1:
in the US banking sector was, uh, interest rates went up a lot. Um, a lot of people who had their deposits in banks realised they could get a much better return

Speaker 1:
on their money by shifting into money market funds. And therefore, a lot of deposits were withdrawn from US banks and that left their their balance sheets vulnerable. Um, starting the crises that ended in in, um or First Republic and Silicon Valley Bank Going going under. Um, no exposure to US regional banks. I don't think they would fit our our process.

Speaker 1:
Um, so we were, you know, glad that that was the case. Um, since then, things do seem to have stabilised. You know, ultimately, they were old fashioned runs on, on on on the banks. You know, the the the people got wind that the balance sheets were under pressure. They withdraw their deposits, and no bank can survive that. That's just one of the inherent risks in in the banking sector. And the reason why we don't particularly like it to be frank. Um, but it does seem that since then,

Speaker 1:
uh, banking deposits in the US have started to grow a bit. You know, hopefully that crisis is now put to bed, and the world can move on. But we still do hear that. Um, you know, credit availability, for example, in the United States is under some pressure. We think that US banks will have to rebuild their balance sheets. They're gonna have to add equity. Uh, which means that they'll probably be in a position where they'll find it harder to lend. You know, which, coupled with interest rate rates being a bit higher, means that

Speaker 1:
you know, it is something of a credit crunch. You know, mild credit crunch happening in in in America at the moment. I think that's just a natural part of an economic cycle. It doesn't particularly worry us. I don't think we have equities that are particularly vulnerable to that. Uh, but it's definitely they're humming away in the background. Of course,

Speaker 0:
bank runs are so different now because it can happen Instantaneous.

Speaker 1:
Yeah, yeah, yeah. I mean, I I I think that's that's absolutely the case. And I think regulators are worried for that for that reason, you know, it used to be that you had to

Speaker 1:
queue outside the premises of the bank to get your money back, and these days you can do it instantly, digitally. And that was definitely part of of the problem here. Um, the bank runs at Silicon Valley Bank in particular, was so quick, just billions of dollars being taken from from people's accounts within a matter of hours. Um, that's something that really needs resolution. And I suspect the answer is something like, uh, universal bank insurance. So, you know, today, in most

Speaker 1:
markets, deposits are insured up to a certain level, and I think that regulators are thinking about whether they will remove that cap to prevent that from happening in the future.

Speaker 0:
Looking at the investors in the trust because this whole conference is about future trends. Where do you think this trust would sit in an investor's portfolio would be a core equity holding? Or do you think,

Speaker 1:
Yeah, absolutely. That's That's how we we we see it. We see it as a core equity holding that can form the backbone of any equity investors equity exposure. So

Speaker 1:
particularly for somebody in the UK who wants some exposures to the domestic market, plus global exposure, that's that's what we offer. Um, the funds well diversified 60 holdings. Um, well, diversified by, you know, themes, regions, uh, sectors, um,

Speaker 1:
managed in a balanced way that balances quality attributes, but also with with with a focus on on on value and discipline there. So we have a strong preference for quality, but a determination not to overpay. Uh, the net result has been, you know, very good, very consistent performance, Uh, versus benchmark and in absolute terms, um, and we think that it absolutely belongs at the heart of somebody's, um, equity exposure.

Speaker 1:
So just going back to the fact that it's, um, originally set up and and still owned considerably by a wealthy family, you know, I think that's how they see it. They see it as the core of their their wealth. Uh, they are there for the long run.

Speaker 1:
It has an intergenerational, um, element to it as well for people who want to pass on wealth to their Children and grandchildren. Um, and that's how we run the portfolio. We run it on a very long term basis, I think, with a very sensible, prudent approach that has allowed to allowed wealth to

Speaker 1:
accumulate, uh, in in a in a pretty consistent way. Yeah, it's

Speaker 0:
very unique for the family ownership of it. About 30%.

Speaker 1:
That's correct. Yeah, So the family own about 30%.

Speaker 0:
Sure. And do you know, uh, because again a lot of the conversation we've had on this conference in particular is about the rise of retail investors, especially in trust. Do you know the split between your retail and institutional investors?

Speaker 1:
So yeah, institutional now is is quite low. And I think that's typical for investment trusts in in in general. So institutions, I believe have sort of 10 to 15% of the shares outstanding. Um, that the family have 30 and the rest is predominantly retail, And that's a combination of, you know, discretionary wealth managers, uh, plus self directed platforms. So AJ. Bell Interactive Investor lands down et cetera. And that's that. That's really good. I mean, I think as a as a fund manager,

Speaker 1:
you know, you want to know your investors who they are, and, you know, because we're an investment trust, we have an A g M. We have an opportunity for shareholders, individual shareholders to come along, hear from us. The managers ask us questions, and I enjoy that direct relationship. I enjoy knowing that we're just, you know, managing the money of reasonably ordinary people who are just trying to save for a rainy day or for their retirement

Speaker 0:
and the platforms. I guess since the since they've come about, that's really boosted your your retail base. Surely,

Speaker 1:
yeah, absolutely. So we we find more and more that it's those self directed platforms where we see the most growth in the in the shareholder base.

Speaker 0:
And it seems strange to ask for an outlook in such a, uh, an old or close structure being so well established, it seems odd to ask about future trends and and kind of what's coming next. But do you think the closed end structure is really suited for your investment style and how this portfolio is set up?

Speaker 1:
Yeah. Yeah, absolutely. I I think the the closed down structure is is is terrific. I think you know, the closed end structure

Speaker 1:
prevents, um, you know, large scale withdrawals of funds. So that provides a real stability to the asset base. Which means you can invest, um, with with the long term in in mind. Um, but more than that, I think I I think the governance structure of investment trust is terrific. So, you know, you probably know that investment trust has a board. So, um, you know the board hold me to account alliance global investors to account. Uh, it's their job to represent shareholders interests, and I think that's that's really powerful.

Speaker 1:
Um, it just means that there's a degree of oversight that I think may be lacking with some other fund structures. Um, so, yeah, I I actually think investment trusts are,

Speaker 1:
uh, you know, a great sort of secret in in in the city, but a very, very sensible way to, uh to to to to manage money and and and a great structure within which to manage money

Speaker 0:
and staying with the long term outlook. Is there too much short termism at the moment, Too much speculation in the market?

Speaker 1:
Um, I would, I would argue, there's always too much short termism in the market. I mean, I I I think it's a really important sort of guard rail for us. It's a really important discipline to

Speaker 1:
to think long term, and, um, I, you know, it's it's it can sound trite to think long term, but I think it's a really important

Speaker 1:
discipline as an investor to focus on a long term horizon, because then you're really focusing on what matters, which is generation of cash flow, reinvestment, opportunities, compounding growth, the quality of the business. These are things that actually matter,

Speaker 1:
Um, as to whether an equity will do very well over the the the the long run. And I think the minute you have a sort of long term focus and our average holding period, by the way, is about six years. At present, the minute you have a long term focus, you get away from the noise in the market

Speaker 1:
and you try and dismiss the noise in the market and you try and focus on what's actually important, what's relevant to equity value. Um, rather than using the stock market as just a casino and and there's so much of that.

Speaker 1:
So we we're focused on company building in intrinsic value. Uh, there are so many people out there using, you know, stocks as gambling chips just, you know, buying a company because they think it's gonna have a good quarter or whatever. That's a complete distraction from what actually matters. Um, so, yeah, I would always argue there's too much short termism in the market, you know, I think 90% of what we read, you know, in in the financial press

Speaker 1:
from from banks from from the sell side, you know, from brokers is very focused on the short term. Um, and we always try and bring it back to the long term. And I think that's been a real a real reason for the runners investment success.

Speaker 0:
We haven't touched on E S g yet, but all also staying with long term is is almost an unintended consequence of E. S G. Is that it forces you to think about the long term. Yeah, Yeah, I think

Speaker 1:
that's fair. I think e s G at its best is is very long term. Right, Um,

Speaker 1:
if if if you're thinking, um, about the environment long term, you're thinking about the genuine sustainability in every sense of of, of, of your equity holdings. You you will consider E s g factors. You know, governance in particular, I think is is very, very important. And very, very under considered as as as well, so yeah, I think you know if if you focus on the long term, then e s g actually really does really does matter. And we don't make a sum and dance about E S g. You know, we don't we put don't put it front and centre,

Speaker 1:
um, of of what we do. Um, but it's something that we consider with every one of our holdings.

Speaker 0:
And how do you how do you apply it? Do you have a certain methodology or a kind of

Speaker 1:
We're generally focused on, um, on tail risks. So you know anything where we think that there is a tail risk from poor E S G. We will exclude from the portfolio.

Speaker 1:
Um, but again. Like I said, when we when we're doing our general analysis of any equity that we want to put into the portfolio, it will consider E s G factors because we're thinking about long term risks. We're thinking about long term opportunities, and obviously some of those relate to the environment, and they relate to the governance structure. Uh, I

Speaker 0:
just want to finish with this just about the the gearing. Is there any gearing mechanisms in the trust you currently geared or looking out for new opportunities? What's the state?

Speaker 1:
Yeah, so I mean another another. Um, another,

Speaker 1:
I think positive attribute of investment just is this ability to take on a little bit of gearing and Brenner at the moment is about 6% geared. So the overall value of the equities is like £530 million something like that. And then we have about 35 million in in debt, and that debt is used to buy equities. Um, at the core of that debt, 25 million of it is is fixed,

Speaker 1:
um, through the 2048 at a very attractive interest rate. So the the board and the previous managers did a very good job of fixing it in under 3%. So essentially, what that means is if the return on the equities exceeds 3% over the long run, Uh, the trust has a slightly sort of exaggerated performance profile.

Speaker 1:
Um, so, yeah, at the moment, we're modestly geared. Very, very prudent levels of gearing. I think so. So So it's quite slight, but I think it provides, you know, over the long term a pretty helpful boost to performance

Speaker 0:
and staying with performance. So what can investors kind of look out for when they invest in the trust? What's the long term performance drivers here?

Speaker 1:
Well, we've, um, outperformed for four financial years on the trust, which we're very proud of, because that's very rare. So a lot of companies that did very, very well in 2021 for example,

Speaker 1:
when you know, um, tech et cetera was doing very, very well, then had a very bad 2022 vice versa.

Speaker 1:
So that sort of recent consistency is really, really pleasing. And I think a testament to that balanced approach, Um, over 10 years to the end of our last financial year, which is November. The 31st,

Speaker 1:
um, the share price was up 220%

Speaker 1:
so, you know, a really good absolute figure. And that compared to a benchmark of 100 and 60%. So runner 2 20 the benchmark 1. 60/10 years. So yeah, very, very health. Healthy set of performance figures over over a 10 year time frame. And, you know, long may that continue. And I I I think the longer we can carry on sticking to our knitting doing what we do is, you know, investment approach that I think is rooted in common sense with a good understanding of stock market history. You know, I I strongly hope it will continue.

Speaker 0:
Julian. That's an excellent place to leave it. Thank you very

Speaker 1:
much. Thank you. Cheers.