Performance, Commentary & Portfolio

Fund Manager’s Review

Global markets continued their ‘melt up’ (sharp and rapid rise in price driven by investor sentiment and fear of missing out, rather than just strong economic fundamentals) in May, driven by an almost singular focus on the artificial intelligence infrastructure boom. The MSCI World Index rose 5.5% in sterling terms, masking what remains an uncomfortably narrow market leadership. Information technology surged a breathtaking 18.9% in May, and is now up over 30% in the last 3 months. However, every other sector underperformed in May, with Energy (-5.1%), Utilities (-4.1%) and Consumer Staples (-1.3%) actually falling during the month. The momentum we are seeing in certain areas of the market is virtually unprecedented in recent history. We believe it would be imprudent to dedicate capital in the portfolio to stocks simply because they have gone parabolic. 

In the wider world, the geopolitical backdrop remains delicate. While a fragile ceasefire in the Middle East held through May, there was little progress in broad reopening the Strait of Hormuz to commercial shipping. Although the cost of oil has retreated from its peak in April, it remains elevated compared to pre-conflict levels. This continues to cast a shadow over global supply chains, and analysts are beginning to cut their economic growth forecasts as a result. 

The medium-term inflationary consequences of this oil shock are not yet clear. Central banks have been holding rates steady in recent months, but markets are beginning to consider the possibility the next move in rates could be up rather than down. Back in January the market was pricing in a c.0.5% reduction in US interest rates during 2026; now the market expects the next move to be higher rates. 

Closer to home, poor local election results for Sir Keir Starmer’s Labour party put pressure on his leadership position, with several cabinet resignations and threats of an imminent leadership contest. Uncertainty about the future leadership and policies of the Labour party led to significant volatility in UK bond markets, with 30 year bond yields briefly reaching 5.8% before falling back towards 5.5% at month end.

Brunner’s Net Asset Value (NAV) total return for May was 0.06%, versus 4.93% for the benchmark. The relevance of a benchmark in which 10 out of 11 sectors underperformed, and only Technology outperformed, is a question for the reader to consider. Whilst we have significant investments in AI and semiconductors, we are underweight what is now an uncomfortably large part of the benchmark. AI remains a young technology, and while we expect it to have a significant impact, it is unclear who will capture the benefits. We are unsure whether many of the companies currently in vogue have sustainable competitive advantages, or whether they will generate enough cash flow for shareholders to justify current valuations. We note that the main beneficiaries of the internet boom in the late 1990s were not Cisco, Nortel, Worldcom, or Nokia (all of whom were among the most valuable companies in the world at the time), but companies like Facebook (founded in 2004 – four years after the bubble burst), Google (a public company only from 2004), and TikTok (released in 2016). Absolute, as opposed to relative, risk remains our focus and we aim to be well protected should current financial conditions prove unsustainable. 

The biggest contributors to performance in the month were Corpay, IG Group, and BP. Corpay and IG Group performed strongly after good quarterly results, with both companies raising their full-year outlooks. BP, which the trust does not own but which is a significant benchmark weight, fell as the oil price declined and as the Chair unexpectedly stepped down after less than one year in the role. 

Detractors from performance included many of the technology stocks involved in the ‘melt-up’, as well as SSE, Brambles and Tesco. SSE, in common with many other UK utilities, declined on uncertainty about the future UK regulatory and political environment and volatile UK bond yields. Tesco suffered similar headwinds, including reports the government explored price caps on key groceries. Brambles declined after warning that it had insufficient pallets to service customers, after two subcontractors ceased operations. We expect this situation to be temporary. 

As expectations of AI spending have risen, some market participants are focused on finding the ‘bottlenecks’ where desperate customers agree to pay ever higher prices. One such perceived bottleneck is DRAM memory (Dynamic Random Access Memory, the primary volatile memory used in most computers and servers). This market, largely controlled by three players, has historically been low quality and cyclical. (The companies lost money on every sale as recently as 2023). Now the apparently insatiable demand for memory for AI has pushed memory prices to stratospheric levels, resulting in unprecedented profit margins. The three DRAM companies – Micron, SK Hynix and Samsung – rose between 40% and 90% in the month, and in aggregate cost us nearly 1 percent of performance. While they bask in the sunshine today, we expect memory to remain cyclical in the medium term: high prices are encouraging an increase in industry capacity, which typically undermines high prices.

During the month we trimmed positions in SSE and TotalEnergies, and exited Roper Technologies. The capital was used to increase our position in TSMC and to purchase a new position in Progressive. Progressive is a company we have long admired. It is the second largest auto insurer in the US, with a very strong track record of growth and profitability. Its low-cost model and data-rich underwriting have enabled it to double its market share over the past decade. Largely out of favour with investors seeking the next AI bottleneck, we saw the opportunity to acquire this high-quality and defensive business at a compelling price.

Julian Bishop & James Ashworth
12 June 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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