Performance, Commentary & Portfolio

Fund Manager’s Review

Humans are story-telling animals, and narratives – plausible and convincing arguments, for want of a better definition - have always influenced markets. Throw in other human traits such as fear and greed, and add momentum-driven algorithms at quant funds, and the recipe for dramatic market movements is complete.

Artificial intelligence (AI) provides the perfect narrative. A profound technological breakthrough, massively hyped, with uncertain ramifications for a wide gamut of businesses. In February, the key narrative which dominated the market related to the threat of AI disruption on incumbent, asset-light, intellectual property rich businesses. These threats had been bubbling away for some time but reached a zenith during the month. There is little evidence for this happening yet to any great extent, but equities are long-duration assets providing owners with a share of profits in perpetuity. Any increase in perceived riskiness mathematically has a large impact on present values. Last year we sold a number of stakes in companies such as Adobe, Accenture and RELX on fears that their relatively rich valuations were under threat precisely because of this concern.

In some instances we think the fears are legitimate. It seems clear AI is an excellent coding tool likely to profoundly change the world of software, for example. In other instances we believe the threat to the ‘moats’ surrounding some intellectual property rich companies are much exaggerated. We therefore used the substantial de-rating to some stocks as a buying opportunity during the month. We bought back RELX at a far lower level and took positions in US data service business Equifax and online travel agent Booking Holdings. All three now offer generous free cash flow yields. We dispute the notion that their businesses will be negatively impacted by AI in any substantial sense. Strong balance sheets provide some protection should we be wrong

Market movements during the month were dramatic. Whilst the tech-heavy Nasdaq index was down, driven by the dramatic sell-off in software, in Sterling the FTSE All World was up about 3.5%. The UK market was up an exceptional 6%. The other side of the AI disruption trade was a move into asset-heavy industries at low risk of obsolescence such as utilities and energy; both sectors were up over 10% in the month. The UK market is skewed to these cash generative, old-economy sectors, which are enjoying a sudden and long over-due moment in the sun. We have regularly argued we like our unique 70/30 Global/UK benchmark precisely because of this stylistic diversification it provides.

Brunner’s Net Asset Value (NAV) total return for February was 4.33%, slightly behind the benchmark return of 4.69%. The biggest contributor to performance during the month was Korean automaker Kia. When we acquired our position last year we highlighted the company was worth just 1/80th of Tesla, despite it actually making more profit. Recent excitement about their capabilities in humanoid robots has provided a catalyst for the very cheap shares, which has been augmented by considerable momentum in the Korean market in general. With speculative elements now clearly influencing matters, we cut our position during the month back to its original size.

Other positive contributors included utility SSE, energy company Total, supermarket company Tesco and Taiwan Semiconductor. Not holding Nvidia was also a major contributor. We have argued for some time that Taiwan Semi is a more comfortable AI investment than Nvidia. As a reminder, Taiwan Semi manufacture virtually everything Nvidia sell, but also that of all their competitors. If the market for AI chips fragments Nvidia will lose but Taiwan Semi, as a winner agnostic enabler, should continue to prosper.

On the negative side of the ledger were intellectual property rich companies for the reasons explained above. Companies such as S&P Global (credit ratings, financial data services) and Autotrader appeared in the top 10 detractors. After an exceptional 2025, financials were also weak. Bank of Ireland, Wells Fargo, Partners Group all struggled. Another narrative is at work here. If AI destroys white-collar jobs and the value of businesses, avoiding financial leverage is probably a wise decision.

We were active during the month. As explained, we used the broad sell-off to acquire stakes in RELX, Booking and Equifax; all names where we think the risk from AI is dramatically exaggerated. We also took a position in German automaker BMW. This is a deep value investment. The company is valued at €50bn of which more than €45bn is net cash. Effectively we are buying BMW, Mini and Rolls Royce cars for close to zero once the cash position is taken into consideration. Whilst the auto space is tough and faces some well-known threats, we think all three brands continue to have material value and are expected to generate substantial free cash for the foreseeable future.

To fund these new positions we sold Paycom, acknowledging that the world of software is likely to become more competitive due to AI. We also sold our position in Swiss private equity firm Partners Group, acknowledging that the combination of leverage and rapid change is likely to cause problems within the PE model. Elsewhere we cut some winners, most notably SSE, the European banks and some of the semiconductor related names that have enjoyed the massive boom in AI spending, something we believe may prove difficult to sustain.

Julian Bishop & Christian Schneider
13 March 2026

This is no recommendation or solicitation to buy or sell any particular security. Any security mentioned above will not necessarily be comprised in the portfolio by the time this document is disclosed or at any other subsequent date.

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