Performance, Commentary & Portfolio

Fund Manager’s Review

Markets ‘melted up’ in April (sharp and rapid rise in price driven by investor sentiment and fear of missing out, rather than just strong economic fundamentals). The FTSE All World index was up around 7% in Sterling; an extraordinary move for a single month, partially explained by a rebound from March when markets were impacted by events in Iran. Again, the market was driven by technology stocks. The MSCI ACWI Information Technology sector index was up 16% with particularly extreme moves in semiconductor stocks related to the AI infrastructure boom. At the other end of the spectrum, Health Care was down 3% and Energy down 4% after March’s spike.

The momentum (the tendency for asset prices that have recently performed well to continue rising, and for those performing poorly to continue falling) that we are seeing in markets is unprecedented in modern history. The JP Morgan Pure Momentum Index goes long (buying an asset with the expectation that its price will rise) stocks that have recently gone up and shorts, or bets against, stocks that have recently gone down. Year on year that index is now up almost 60%, more than at any point we could find on record, including the dotcom bubble. Momentum strategies have historically been successful but sporadically and dramatically they collapse under their own weight. Markets note what has worked and repeat it. Ultimately the strategy is arbitraged away. The free cash flow yield on momentum stocks (ie cash profits relative to price) is now at an all time low relative to the broader market. This is a clear red flag.

Whilst we have plenty of money invested in AI and semiconductors, we are underweight what is now an uncomfortably high portion of the benchmark. Absolute, as opposed to relative, risk remains our focus and we aim to be well protected, should current financial conditions prove unsustainable.

Our best performing stocks in the month were our participants in the meltup. Microchip Technology was up 40% in the month. They make relatively small analogue chips used in a variety of industries, including AI data centres. Alphabet (parent of Google), the largest holding in the trust, was up 30% after their AI cloud hosting division reported exceptional growth. Taiwan Semi, which manufactures chips on behalf of everyone from Apple to Nvidia was up 14%. Schneider Electric, which makes electrical equipment that helps power data centres, was up 16%. All these moves are in companies believed to benefit from AI expenditure. Many trillions of dollars are being spent despite just tens of billions of sales (and negative profits, of course) at companies like OpenAI and Anthropic. This is not a sustainable situation. It is a necessity that AI revenues grow massively for this expenditure to be sustained. If they do not, then the downcycle could be brutal.

Detractors from performance include modest pullbacks in energy stocks after the leap in March (TotalEnergies, ConocoPhillips). Some travel/ aerospace related names (AENA, Booking and Melrose) were also weak as markets discounted potentially longer disruption related to the Iran War. Healthcare remains a weak sector. Equipment and services giant Thermo-Fisher reported another set of lacklustre numbers, for example. A cyclical recovery has long been mooted but keeps being pushed out. A reasonable multiple means we are happy to bide our time.

Activity was muted in the month. The only trade was a reduction to our position in ConocoPhilips after a sharp 30% move after the Iran war, which brings our energy exposure back to around 6%. Whilst we do not know how the situation in Iran will evolve, the incentives on both sides call for a rapid resolution. Energy stocks tend to generate plenty of cash in most circumstances and huge amounts when commodity prices are high. Moreover, they act as a useful hedge (a strategy to limit investment risks where investors hedge an investment by trading in another that is likely to move in the opposite direction) to most other equities (energy shocks are one of the more regular causes of recessions). We are therefore content to have an ongoing position in this sector.

Overall, Brunner had a strong month in absolute terms but lagged the index. Brunner’s Net Asset Value (NAV) total return for February was 3.72%, versus 5.88% return of the benchmark. We have written extensively about why we are uncomfortable matching the index’s weight in technology at the present time. Forecast capital expenditures on AI data centres (approaching $1 trillion per year) now exceed capital expenditures on oil and gas ($600bn); one of the most notoriously capitalintensive industries in existence. AI itself generates revenues measured in the mere tens of billions. Oil and gas capital expenditures support an industry that generates $4 trillion in revenues and huge profits. The scale of the boom in AI cannot be overstated and the requisite revenues and profits to sustain it are mind-boggling. Unlike the Mag 7 tech companies of old, which required very little capital to grow, AI is more akin in structure to heavy industry; not something conducive to value creation. We are happy to have some exposure to semi-conductors etc, but we do not believe this is the time to bet the farm.

Julian Bishop & James Ashworth
11 May 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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