Performance, Commentary & Portfolio

Fund Manager’s Review

Markets rebounded in May after April’s sharp sell off. Some of the ‘Liberation Day’ tariffs were postponed and some markedly reduced. These actions provided reassurance that Trump’s trade policy may settle at a less extreme endpoint than initially feared.

Brunner’s performance was more or less in line with this rebound. The Net Asset Value (NAV) total return for May was 4.26% versus 4.69% from the benchmark index. Contributors were a mixed bunch. Not holding Apple, a large index weight, was the largest positive contributor, although this benefit was offset by not holding Nvidia which performed well in the period. Amongst our active positions, Microsoft was the biggest positive. Reported results here continue to impress, with Office 365 and cloud computing service Azure reporting particularly strong calendar first quarter results. Overall sales growth at constant currency was 15% whilst earnings per share were up 19%; a remarkable feat given the company’s size. Net profit now exceeds $100bn on an annualised basis, almost enough to buy the whole of Tesco three times over.

We also saw strong performance from the Bank of Ireland, where fear over the impact of tariffs on Irish exports to the US abated. Microchip was also up strongly. This company makes over 80,000 different relatively simple semiconductors used by over 100,000 customers across a huge variety of applications. They had seen a brutal downcycle as customers worked down inventory they had accumulated in the aftermath of COVID. There is now clear evidence that orders are recovering after those stocks have been utilised.

GE Aerospace also continues to perform extraordinarily well. As a reminder, following the break-up of the GE conglomerate this is now a pure-play jet engine business. We think it is one of the world’s great businesses with strong growth, recurring revenues, high profitability and near total barriers to entry. However, we are also mindful of the valuation, which has increased fairly dramatically.

The biggest detractor from performance was UnitedHealth. This huge company is America’s largest health insurer. In recent years it has become more complex and more exposed to the provision of government services; neither of which are things we like. The company recently issued its second profit warning in quick succession, blaming pressure in its Medicaid business (government sponsored healthcare for senior citizens). We decided to fully exit our position as a result, having reduced our holding towards the end of 2024.

The whole healthcare space has been under pressure over the past several months. Quite understandably, the Trump administration is looking to reduce the chasm in healthcare costs between the US and its European counterparts. Most pharma companies, for example, enjoy disproportionate profitability in the US due to higher drugs prices in that market. If successful, efforts to reduce US drug prices to European levels would markedly reduce the industry profit pool. This is one reason why Thermo Fisher Scientific, which provides goods and services to pharma companies, also underperformed in the period.

Other negative contributors include AutoTrader and Cooper (contact lenses and infertility treatments) which both reported results slightly shy of expectations, although still decent in absolute terms.

Our only sale in the period was United Health, as mentioned above. We scattered the proceeds across several high conviction pre-existing holdings.

Julian Bishop & Christian Schneider
31 May 2025

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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