Performance, Commentary & Portfolio

Fund Manager’s Review

October was a very strong month for markets and the trust, Brunner’s Net Asset Value (NAV) total return for October was 5.01%, slightly ahead of the benchmark return of 4.67%. Many global markets hit new highs, whilst the weaker Pound boosted returns on overseas holdings when measured in Sterling. Technology related sectors were the driving force once again, with earnings reports from our mega-cap tech stocks Microsoft and Alphabet demonstrating solid, ongoing growth and, equally importantly for some of our other holdings, an ongoing willingness to spend on artificial intelligence (AI) infrastructure. Our direct plays on this theme – Taiwan Semiconductor, TSMC (who manufacture semiconductors on behalf of Nvidia, Broadcom etc), Amphenol (who make connectors used in data centres) and ASML (who make lithography tools used by TSMC etc) - all counted amongst our most significant contributors this month and have provided handsome rewards this year. Both TSMC and Amphenol reported organic growth in sales of over 40% in their third quarter as the AI data centre boom continues.

Alphabet, the parent company of Google and YouTube, also counted amongst our best performing stocks once again this month. They reported 16% growth year-on-year in their third quarter, incredible for a company now reporting sales of over $100bn per quarter. Much of their profit is now being ploughed back into AI capex (capital expenditure) and therefore should support the sales of our holdings in TSMC, etc. Technology peers - Meta, Microsoft, etc., are all doing the same. The AI boom is therefore being funded by companies that can, by and large, afford it. However, the sheer quantities being deployed - probably more than $600bn in 2026 - are understandably raising eyebrows, particularly as the CEOs of the companies spending the most readily admit the AI buildout is somewhat speculative in nature. As holders of Microsoft and Alphabet we wonder what the returns will be on these investments. As holders of TSMC and Amphenol, we worry that the current boom may not be sustained. A lot hinges on the ability of leading AI companies like Open AI (now 27% owned by Microsoft) and Anthropic to demonstrate very, very significant revenue growth in the years ahead. Whilst we are happy to have participated in this boom, we are also keen not to place all your eggs in one basket. We determinedly seek to have many uncorrelated risks in the Brunner portfolio; the definition of true diversification. We note that the top 10 holdings in the US index, the S&P500, now account for 40% of its value and that most of those holdings are tied to the AI boom in one form or another. Any cracks in the AI narrative could therefore be very harmful for the US market in aggregate. Whilst we have struggled to keep up with the market this year, this partially reflects an unwillingness to bet the farm on a single theme where the underlying economics are, as yet, unclear.

Other positives in the month included Thermo-Fisher Scientific, where it now appears the worst of the downturn in life science expenditure is behind us. Kia, the Korean carmaker which was added to the Brunner portfolio recently, also performed well as US tariffs on South Korean imports were reduced from 25% to 15%. In the capital goods space, Assa Abloy and Ametek saw improvements in organic growth that cheered investors, defying modest expectations given the weak industrial economy.

Detractors were a mixed bunch. Insurer AFG and insurance broker AJ Gallagher were both weak; modest declines in prices in certain parts of the insurance market are the likely explanation. Elsewhere, software names Paycom and Roper were weak, as was Autotrader. There is no common theme here, although all are asset light, intellectual property rich companies. It seems likely some market participants are speculating that barriers to entry for companies like these may come down in an era of ubiquitous and cheap computer coding capability enabled by AI. This is something that we have reflected upon ourselves. In our determination these businesses are far, far more than just the code they have developed, but at the margin the prospect of increasing competition is rarely positive. If we do determine that the competitive landscape has deteriorated meaningfully we will take action. We are always willing to concede that an industry can evolve in ways we did not anticipate and if we do conclude that conditions for any business we own have been permanently impaired, we would rather move sooner than later. Whilst the sustainability of the capex boom in AI is open to question, we think it would be extraordinarily naïve not to think AI will profoundly change the world of business, providing both opportunities and threats. You should therefore expect us to make appropriate changes to the portfolio. We made a few small changes during the month. We top-sliced our positions in TSMC and ASML after a very strong run, as discussed. We also took a little out of Bank of Ireland - another very strong performer this year. We added to HK based life and health insurer AIA, which we think offers exceptional value at present; it combines high cash returns, good growth and a reasonable multiple. We also added to Monotaro, the Japanese online industrial distributor, credit ratings agency S&P Global and Thermo Fisher, the life science company. The latter is now showing nascent signs of a recovery after a protracted downturn in the wake of COVID.

Julian Bishop & Christian Schneider
13 November 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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