Performance, Commentary & Portfolio

Fund Manager’s Review

Global stocks resumed their ascent in August thanks to a strong corporate earnings season and a resilient economy. This came despite renewed tension in the Middle East and hawkish commentary from the new Chair of the Federal Reserve, Kevin Warsh, at the Jackson Hole Symposium. Nvidia’s stellar results confirmed that the AI investment super-cycle continues, albeit with ongoing doubts in its sustainability. Warsh’s comments and higher oil prices pushed up sectors that appreciate higher rates such as financials, whilst pushing down indebted sectors such as real estate and utilities. Brunner’s Net Asset Value (NAV) total return for August was 1.29%, versus 1.63% for the benchmark.

Attention within the tech sector pivoted towards software and services stocks that had previously been decimated by concern over the impact of AI on their businesses. We had also noted the extreme value on offer in the sector and recently acquired positions in Accenture and Intuit, both of which rebounded strongly in the month. Another strong contributor to performance was UK listed aerospace company Melrose, now a top ten holding. Here we expect free cash flow in the coming years to ramp from low levels today thanks in part to growing fees from its revenue sharing partnerships with all the world’s major jet engine manufacturers. This is a highly visible, multi-decade stream of pure profit which we think deserves to be valued highly.

Detractors included Tesco, where shares shed a few percent. Tesco has had a few good years, partially thanks to share gains from competitors such as Asda, Morrison and Coop. These are now slowing somewhat, moderating one source of growth in what is a mature end market. Asian insurer AIA was also weak due to concerns that new tax legislation may limit their ability to sell to Chinese mainlanders visiting Hong Kong. Other detractors included stocks that we don’t own such as Nvidia and Tesla, both of which rallied.

We had an active month. We took three new positions in three very different companies. Firstly, we bought a 1% stake in Seagate, which makes hard disk drives (HDDs) used for digital storage. Whilst historically a commodity market, the industry has consolidated to just three key players, only two of which offer the latest heat assisted magnetic recording (HAMR) technology, which boosts capacity. Past demand for HDDs had been weakened by the shift in PCs and laptops to solid state drives, but growth is now resuming thanks to their use in data centres where they are by far the cheapest way of storing data. We believe the combination of renewed growth and improved industry structure may prove transformational to profitability

The second new holding is Convatec, a UK listed medical device company with strength in ostomy bags, continence care and advanced wound care.

The company’s renewed innovation pipeline provides a defensive growth profile available at an appealing valuation, in our opinion.

The third new holding is the Japanese bank Mitsubishi UFJ. Whilst rising bond yields have been getting attention in the UK and US, the move in Japan is the most striking. Japanese ten-year bonds, for example, now yield almost 3% compared to zero just five years ago. Japanese banks are very deposit rich and can now invest those deposits at much higher rates, leading to very significant boosts to earnings in a manner already seen at the European banks. Mitsubishi UFJ also benefits from its large stake in Morgan Stanley, the American wealth manager and investment bank.

We also added to a few names where we saw value such as BMW, Melrose and IG Group. These purchases were funded by the complete sale of Swiss pharma company Roche, reductions to Tesco, Cbiz (following its takeover), Accenture, Booking, Admiral and Itochu all of which had performed very well since purchase and some of which remain controversial in the context of AI.

Looking to the future, the portfolio remains well diversified. Stylistically, we are skewed to quality and value at present. We find some areas of the market bewilderingly expensive and remain concerned that AI investment may be more cyclical than is widely perceived. This topic and others are discussed on Allianz Global Investors’ new Youtube channel for investment trusts which can be found at the link below. We hope you find these videos useful and informative.

https://www.youtube.com/@AllianzGIInvTrusts

Julian Bishop & James Ashworth
10 September 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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