Performance, Commentary & Portfolio

Fund Manager’s Review

American markets posted another gain in August, a fourth consecutive increase, bringing year to date returns to almost 10% in dollars despite an 18% drawdown in Q1. A dovish speech at Jackson Hole by Jerome Powell, Chair of the Federal Reserve, which acknowledged a weakening jobs market, added fuel to the fire. US shorter term rates consequently moved lower, causing further US dollar weakness, meaning that returns for UK based investors were somewhat lower. Longer term interest rates in the US, UK and elsewhere remain stubbornly high, reflecting concerns about fiscal integrity across most Western economies.

Brunner’s Net Asset Value (NAV) total return for August was -0.73%, behind the benchmark return of 0.69%. Brunner underperformed in the month versus an increasingly concentrated stock market. We note with some trepidation that the largest ten positions in the American S&P 500 now account for 40% of its value, versus just 17% in 2015. This is significantly more concentrated than the Brunner portfolio, for example. The form of the world’s most significant market is now more akin to a high risk, concentrated technology fund than a broadly diversified, representative example of the country’s industry. It has undoubtedly been a difficult relative period for our approach. The MSCI World Quality Index is down about 9% over a 12-month period relative to the MSCI World itself whilst the MSCI World High Dividend index is down about 6% relative. Meanwhile, the Goldman Sachs Non-Profitable Tech Index keeps hitting fresh highs. For a cash-flow centric Trust with both a preference for quality and an income mandate, the stylistic headwinds have been material.

We made a few changes during the month. We sold our small positions in Accenture, Adobe, Align and RELX. As artificial intelligence (AI) is deployed more widely, the world of technology is poised to change meaningfully, making it a perilous period for some incumbents. In the example of Accenture, we fear that efficiencies in coding and business process outsourcing will make its services less relevant. Adobe is seeing incremental competition. We endeavour not to hold investments in businesses facing structural threats, as declines in business value can often more than offset the initially generous cash returns. In our determination, these two businesses may have slipped into this category.

The decision to sell RELX was largely related to valuation, whilst Align (best known for its Invisalign orthodontic product) was sold following another weak set of results. In retrospect, we overestimated the size of the market.

These sales were replaced with two new holdings. MonotaRO is a Japanese e-commerce platform for industrial MRO (maintenance, repair, operations) supplies. They offer an enormous range of parts, tools, safety equipment and other indirect materials etc to Japanese enterprises, many of which are held in stock for next day delivery. The end-market is still predominantly offline, leaving a long runway for growth as they continue to win share in a fragmented market. Their record is very impressive indeed.

We also took a position in Federal Signal, an American manufacturer of specialty industrial vehicles such as street sweepers, sewer vacuums and hydro-excavators used for ‘safe digging’ around buried utilities. These are highly engineered, non-commoditised segments where they are typically the market leader.

Julian Bishop & Christian Schneider
12 September2025

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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