Performance, Commentary & Portfolio

Fund Manager’s Review

The sharp sell-off in April, attributed to Trump’s ‘liberation day’ tariffs, now seems like a distant memory. Perhaps because of increasing scepticism they will be fully enacted, consumer and business confidence has quickly rebounded and markets have followed. Remarkably, the S&P 500 hit a new high in local currency during June, although ongoing dollar weakness meant that returns in Sterling were dampened. The dollar is now down around 10% year to date vs a basket of currencies, its weakest performance since 1973.

We believe this weakness can be attributed to fiscal profligacy, although the US is by no means unique in this respect. However, President Trump’s ‘Big Beautiful Bill’ further enshrines large budget deficits, which means that the national debt to GDP ratio is almost certain to continue upwards and soon exceed the prior peak seen in the aftermath of WW2. With no credible plan to reduce the deficit, an ever-increasing interest burden and Trump’s ongoing attacks on the independence of the Federal Reserve, investors are right to be nervous about the integrity of the US dollar. In his book ‘How Countries Go Broke’ macro investor Ray Dalio uses numerous historical precedents to demonstrate the political, social and economic recipe that leads to countries devaluing their currency to meet ultimately unaffordable debt obligations. Somewhat alarmingly, America has many of the ingredients.

Even accounting for dollar weakness, US markets outperformed European markets in June. This was largely due to a powerful rebound in Artificial Intelligence (AI) related technology stocks. Against this backdrop, Brunner’s Net Asset Value (NAV) total return for June was 1.5% versus 2.1% from the benchmark index. Attribution analysis of performance drivers for Brunner during the month show the largest positive contributions from the AI related names we own (Taiwan Semiconductor, Microchip, Microsoft, Amphenol) partially offset by the drag from not owning Nvidia, the large index weight which touched new highs during the month. Other positive contributors in the month were a mixed bag. New holding Kia, the South Korean automaker, fared well, whilst not holding Tesla was also positive.

We note with interest that whilst Kia makes more actual money than Tesla, its enterprise value (i.e. the total value of the company, adjusting for cash and debt) is just $15bn vs $1 trillion for Tesla. In other words, Tesla is valued at more than 60x that of Kia but it makes less profit. That’s an awful lot of future ‘value’ attributed to Elon Musk’s abilities.

Negatives were also mixed. Visa had a bit of a wobble after a strong run. Ditto insurance broker AJ Gallagher, where pricing looks as though it is turning from a tailwind to a headwind; we have been taking profits for a while. Hotel company IHG, UK listed but a large US dollar earner, has also been a little weak. Whilst short term travel data from the US has been slightly disappointing, we have no concerns for the long-term outlook. Whilst high frequency datapoints such as these are pored over by elements of the market, neither IHG’s business model nor the maths of equity valuation mean their impact are meaningful to the long-term, fundamental investor.

We added to three existing holdings during the month. Firstly, we boosted our position in ASML, the Dutch semiconductor capital equipment company specialising in lithography machines. This is an exceptional engineering company with a near monopoly in a growing end market. Secondly, we added to our position in Tesco. Whilst this is a far more mature business, it generates plentiful free cash flow and has a strong market position. Finally, we added to our holding in Corpay, a leader in business payments and expense management where a combination of high returns, growth and modest multiple represented an attractive combination.

These purchases were funded via sales of our small positions in Diageo and SThree, where the investment cases haven’t evolved as expected and we weren’t minded to add more. We also reduced our position in insurance broker AJ Gallagher, as previously mentioned, and GE Aerospace. Whilst we think we can objectively describe GE Aerospace as one of the world’s great companies, that doesn’t mean it is worth an infinite amount of money. Multiple expansion has been dramatic, so we have reduced the holding within the portfolio, to reflect a less favourable equity outlook.

Julian Bishop & Christian Schneider
11 July 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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