BUT Brunner Investment Trust Plc

LEI: 529900S0Y9ZINCHB3O93                          

THE BRUNNER INVESTMENT TRUST PLC

HALF-YEARLY FINANCIAL REPORT

For the six months ended 31 May 2024

Financial Headlines

For the six months ended 31 May 2024

·      Net asset value total return (debt at fair value) per share increased by 12.8% (2023: +1.6%)

·      Net asset value total return (debt at par) per share increased by 13.0% (2023: +1.1%)

·    Benchmark index total return increased by 13.9% (2023: +0.3%)

·      Net asset value (debt at fair value) per share increased by 11.8% (2023: +0.7%)

·      Net asset value (debt at par) per share increased by 12.0% (2023: +0.2%)

·      Share price total return increased by 26.0% (2023: +2.3%)

·      Earnings per ordinary share increased by 8.9% to 17.1p (2023: 15.7p)

·      Dividends for the half year increased by 6.3% to 11.8p (2023: 11.1p)

·      Discount of net asset value (debt at fair value) to share price 5.5% and an average of 7.6% over the period (2023: 13.0%, average over the period 10.6%) 

¹First interim 5.90p, second interim 5.90p

² The benchmark applied is 70% FTSE World Ex UK Index and 30% FTSE All-Share Index.

³Total returns are calculated with net dividends reinvested

Interim Management Report

Half-yearly report

As I mentioned in my Chair's Statement in the Annual Report, 2024 was going to be the year that 64 countries plus the European Union were going to hold elections and that associated news was likely to be rampant. So far news has proved to be even more volatile than expected. The most surprising and significant outcome was the initial success of the far right in the first round of the unexpected French parliamentary election, who were then quickly surpassed by the Nouveau Front Populaire, an alliance of left-wing parties ranging from communists to centre left, in the second round. It is difficult to see how France can continue to play a leading and unifying force in driving Europe with such a fractured parliament and since Germany has its own political divergences in its parliament, who will? On the other side of the Atlantic there is a potential President with a criminal conviction and an incumbent where there are doubts about his physical competencies. At a time of wars with horrific civilian casualties, it is unclear which power block will be able to lead the world out of these.

Whilst politics can be extremely polarising and emotive, the extent to which any election result will influence the fortunes of an individual business does vary. Generally, election results do not have immediate and significant impact on a country's domestic economy.  When they do, the lesson of the brief Truss/Kwarteng era was that markets have shown they can, and will, constrain movements towards unsound economic policies.

Geopolitical tensions dominate headlines and ongoing conflicts show little sign of reaching conclusions. Defence spending is generally high and rising in the west, and national service and conscription has started to re-appear on some national political agendas as nations brace for the potential of any spread to a wider stage.

Performance

For the six months under review, global markets provided strong returns. Our composite benchmark (70% FTSE World Index Ex UK and 30% FTSE All-Share Index with net dividends reinvested), generated a return of 13.9%. Our fund returned 12.8% on a similar basis with debt at fair value.

At our year end, our discount was disappointingly wide at 15.4%, which seemed inappropriate considering the excellent investment performance and I am pleased to note that at the end of the period under review it had narrowed to 5.5% therefore producing a share price total return of 26.0%.

Top-down vs. bottom-up - a question of approach

Shareholders may well recognise these terms and may even feel they are overused. However, in the Portfolio Managers' Report, there is a detailed look at this and how it influences the manager's approach - in short it is much easier to predict the future behaviour and potential performance of an individual company that it is an entire economy or geographic region. For this reason, our managers concentrate staunchly on building the company's portfolio from the ground up, finding companies that meet Brunner's strict investment policy and crafting these into a carefully risk-controlled portfolio for the benefit of all our shareholders.

As we have noted before, aversion to too much risk (some risk is of course both necessary and helpful in investment terms) as well as a strong element of our investment philosophy and process being not overpaying, means that we may sometimes fail to participate fully in some of the astronomical rises that can occur, particularly in the technology sector, but we remain comfortable with the lower volatility that this approach generally yields over the longer term, viewing it as a more prudent approach we feel is well aligned with the values of the majority of our shareholders.

Of course, both the board and the investment manager closely monitor macroeconomic factors and geopolitics and consider and debate the potential impact on portfolio companies, but we would not necessarily expect any wholesale rework of the portfolio based on such factors. The company specific factors that influenced our performance over the period are examined in detail in the Investment Manager's Review.

Earnings

We are pleased to report continuing recovery in dividend payments amongst portfolio companies through the period. Earnings increased by 8.9% to 17.1p per ordinary share in the six months to 31 May 2024 (2023: 15.7p). Brunner continues to have strong revenue reserves, equivalent to 1.3 x last year's pay-out, which exist to support dividend payments in years (such as during the pandemic) when earnings were constrained. This is a primary advantage of investment trusts in general. The board intends to continue both prudently accumulating such reserves and utilising them as necessary to maintain a growing dividend. The board has no current plans to pay dividends out of capital and foresees no need to do so in the foreseeable future.

Dividends

In June, the board declared a first interim dividend of 5.90p per ordinary share which is payable on 25 July 2024. The board also stated in that declaration that it anticipates second and third interim dividends at a similar level and an unchanged final dividend for 2024 of 6.05p for the year ending 30 November 2024. Brunner's revenue reserves of 29.6p per share (as at 30 November 2023), comfortably cover a full year's dividend payment, allowing the board to forecast this year's dividend with confidence. This would represent a full year's dividend of 23.75p per ordinary share, an increase of 4.6% over the dividend for the year ended 30 November 2023. The board therefore declares a second interim dividend of 5.90p per ordinary share payable on 12 September 2024 to shareholders on the register at the close of business on 2 August 2024. The ex-dividend date is 1 August 2024. A Dividend Reinvestment Plan (DRIP) is available for this dividend and the last date for the DRIP election is 16 August 2024.

The board remains aware of current pressures in the cost of living and the concern this may be causing shareholders - this remains a key consideration when discussing and deciding on the appropriate dividend level.

At the end of the 2023 financial year, the trust proudly reached 52 years of consecutive dividend increases, keeping us in the leading pack of the Association of Investment Companies (AICs) "Dividend Heroes" list. We see 2024 as firmly continuing this tradition in the interests of our shareholders.

Discount and shareholder demand

Over the period we saw good demand for the trust's shares, on the back of our strong and steady long-term performance.

Sales (direct interaction with professional investors), marketing and PR (indirectly raising the profile of Brunner to both private and professional investors) efforts continue and we believe that the overall makeup of the company's share register is one of appropriate stability and diversity of investor type.

Your board remains very confident that the Brunner investment philosophy is well suited to the increasing numbers of investors we see joining the share register, either as private self-directed investors through the investment platforms or underlying clients of the wealth management firms.

Material events and transactions

In the six months ended 31 May 2024 there were no share buy backs, or share issuances, and no related party transactions, nor have there been any since the period end.

Principal Risks

Market conditions and emerging risks continue to stress test the business models of all companies. As a result, the board stays in close contact with the manager regarding any developments.

The principal risks facing the company are set out on in a table on pages 17 to 19 of the Annual Report for the year ended 30 November 2023, together with commentary on the board's approach to mitigating the risks, under the following headings: Investment and Portfolio Risks; Business and Strategic Risks; Operational Risks; and Emerging Risks. These continue to be the principal risks facing the company.

The board oversees a detailed review of the principal risks by the audit committee at least twice a year to ensure the risk assessment is current and relevant, adjusting mitigating factors and procedures as appropriate.

Going concern

The directors have considered the company's investment objective and capital structure both in general terms and in the context of the current macro-economic background. Having noted that the portfolio, which is constructed by the portfolio manager on a bottom-up basis, consists mainly of securities which are readily realisable, the directors have also continued to consider the risks and consequences of such external factors on the operational aspects of the company and have concluded that the company has the ability to continue in operation and meet its objectives in the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the financial statements.

Responsibility Statement

The directors confirm to the best of their knowledge that:

·      The condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with FRS 102 as set out in Notes 3 and 4, and the Accounting Standards Board's Statement 'Half-Yearly Financial Reports'; and

·      This report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7 R of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks for the remaining six months of the financial year; and

·      This report includes a fair review of the information concerning related parties' transactions as required by the Disclosure and Transparency Rule 4.2.8 R. Note 17 of the company's 2023 Annual Financial Report gives details of related party transactions and transactions with the AIFM. The basis for these has not changed during the six months under review.

The half-yearly financial report was approved by the board on 12 July 2024 and the above responsibility statement was signed on its behalf by the Chair.

Cost disclosure

Our own industry, investment trusts, has not been having the easiest start to 2024. Shareholders may be aware of the ongoing debate around cost disclosure for investment trusts. Whilst it is too nuanced a subject to debate properly in a paragraph in this report, we continue to monitor the situation and are supportive of various efforts to remove confusing disclosures, whilst ensuring investors have access to the pertinent data to be able to make informed investment decisions. What is of little doubt is that poorly executed disclosure regimes seem to have put a considerable dampener on the investment trust sector in general. As an important part of the UK investment landscape, we feel this needs to be addressed with urgency by the relevant regulatory authorities. We support the lobbying of the new Government by the Association of Investment Companies.

AGM

It was a pleasure to once again see so many shareholders at this year's Annual General Meeting. In terms of the business of the meeting, as announced after the meeting, all resolutions were passed on a poll.

Co-lead Portfolio Managers Julian Bishop and Christian Schneider presented an investment update to shareholders. If you did not have chance to see the managers present at the AGM, they appear in multiple webinars and interviews on behalf of Brunner and you can see and/or listen to some of those updates on Brunner's website. Julian and Christian have also written the Portfolio Managers' Review for this interim report and we would encourage shareholders to read this update.

Outlook

There have been positive indicators such as inflation starting to ease and the world economy continues to grow modestly but global political uncertainty is high and has the potential to cause economic upset. As noted by our investment managers in their report, the best service we can perform for shareholders is to concentrate less on the noise of the news and predictions and instead focus on the more contained stories of the companies they uncover as potential investments for the Brunner portfolio. After the mono-dimensional markets of the past few years it is interesting to see such different types of equity investments leading this year. On the one hand, markets are being led by companies which are creating scarcely believable technologies. On the other, traditional banks - a business model which dates back centuries- are having a very strong performance. This wider market breadth is reassuring and suits Brunner's balanced approach.

There continue to be some great growth stories amongst companies in all geographies. There are many more than the most cited Magnificent 7 technology companies and the managers highlight them in the market review section of their report.

Brunner continues to aim to provide investors with a well-diversified portfolio of global equities with the aim of steady long-term growth in capital, as well as a rising income.

Carolan Dobson

Chair

Investment Manager's Review

Market Review

Global equity markets were very strong in the six months to the end of May 2024. The FTSE World Index was up over 14% in Sterling, which strengthened slightly over the period. The UK FTSE All Share Index was up a similar amount. Together, Brunner's benchmark was up just under 14% over the period.

Returns varied considerably by sector. Leading the pack were Technology, Financials and Industrials - three areas which account for about two thirds of Brunner's portfolio. Lower quality, more indebted sectors like Telecoms and Real Estate lagged considerably. Brunner has negligible exposure here.

The Technology sector continues to garner the headlines. The US listed 'Magnificent 7' - Microsoft, Amazon, Nvidia, Tesla, Alphabet, Meta and Apple - now collectively account for about 1/3 of the entire S&P benchmark of the top 500 US companies, a level of concentration unprecedented in modern times. The Magnificent 7, of course, is an eye-catching journalistic term; in reality, all seven are very different and saw varying returns over the period. Nvidia, which produces graphics processing units (GPUs) used in artificial intelligence (AI) applications, was up an extraordinary 130%, propelling it close to a $3 trillion market capitalisation - an amount only ever equalled by Apple and Microsoft. Tesla, meanwhile, was down over 20% as the competitive realities of the brutal automotive industry were felt. In 2022 Tesla's margins were 17%. In their last quarter, they were just 5.5%.

The comparatively staid Financials sector was the second-best performing area of the market over the period. Traditional banks and insurers provided most of the return as interest rates remained high, credit losses remained low, and as they re-rated from low levels.

The strong performance of banks, particularly, is worth commenting upon. By and large, banks have been a poor investment for many years. Many had their equity wiped out during the financial crisis and have spent the subsequent years strengthening their balance sheets to levels commensurate with modern regulatory requirements, which demand they are sufficiently capitalised to withstand most conceivable future adverse events. This has been enormously costly, heavily limiting, until recently, material dividend payments.

In recent times those factors have reversed. Although most Western economies are not exactly flourishing, most avoided outright recession and bank loan losses have remained well controlled - testament to the far more sensible lending standards imposed since the 2007-8 financial crisis. Interest rates have risen considerably, allowing banks to charge more for loans and gain more income for money on deposit with central banks. Observant depositors will have noticed that equivalent increases have not been applied to their current accounts. In industry parlance, the 'net interest margin' has increased, with positive ramifications for profitability.

Industrial companies also enjoyed a strong first half. The fiscal stimulus associated with the US Inflation Reduction Act is substantial. After many years offshoring industrial capacity, countries and companies are also reshoring or nearshoring production to offset geopolitical supply-chain risks. The construction of semiconductor foundries in Arizona is a case in point; hitherto they have virtually all been in the Far East. AI is also very capital intensive. AI data centres are huge and very energy hungry. A single AI data centre can easily consume 50 megawatts of electricity, the same as a small town. Electrification was already a longstanding industrial theme associated with decarbonisation. Technology has added another element to this longstanding trend.

After the mono-dimensional markets of the past few years it is interesting to see such different types of equity investments leading this year. On the one hand, markets are being led by companies which are creating scarcely believable technologies. On the other, traditional banks - a business model which dates to the Medicis - are having a field day. This wider market breadth is reassuring and suits Brunner's balanced approach.

Portfolio Review

Over the six months to the end of May 2024, the net asset value (NAV) of the Brunner Investment Trust with debt at fair value was up 12.8% vs the benchmark which was up 13.9%. The Trust's share price was much stronger, up over 25%. This reflects a sharp narrowing of the discount to NAV at which the shares trade, from an unusually high level of 16% at the end of November to under 6% at the end of May. The share price of an investment trust is an outcome of supply and demand for the shares and the price relative to NAV (the 'discount' or, more rarely, 'premium') can therefore vary. NAV refers to the value of the trust's equity holdings less the fair value of the trust's modest debt load, with adjustments for income and expenses.

An analysis of our contribution to performance by sector show that we benefitted from our overweight positions in Industrials and Financials. As discussed above, both these sectors enjoyed a strong first half. We also benefitted from our underweight in Consumer Staples. After a couple of years of unusually strong growth driven by inflation related price increases, growth has decelerated sharply.

We discussed Nvidia earlier. At a $3 trillion market value it has become a large part of the global benchmark. Not owning it cost us 1.6% of relative performance over the 1H. However, not owning NVDA was largely offset by several investments in the related semiconductor and industrial area. Top of the list was Taiwan Semiconductor Manufacturing Company (TSMC) which has emerged from a multi decade competitive battle as the only 'foundry' able to make the most complex logic chips sold and used by companies such as Nvidia and Apple, who don't manufacture the chips they design themselves. TSMC have recently noted a reacceleration in growth, driven by orders from Nvidia et al and a cyclical recovery elsewhere, sending shares up over 50%.

TSMC itself relies on machines produced by ASML, the Dutch semiconductor capital equipment company specialising in the most advanced lithography tools where shares were up 39%, Both these companies have, effectively, 100% market share at the upper end of their markets and benefit from structural growth enjoyed by the semiconductor industry.

Two other positive contributors benefitted from the same theme. Amphenol make electrical connectors which are used across a wide variety of end markets, including data centres. Similarly, Schneider Electric make a wide range of components used in all manner of electrical systems. Like Amphenol, their current growth rates are being boosted by the construction of AI infrastructure.

Other positive contributors include two new holdings to the trust during the period - Bank of Ireland and GE Aerospace. The investment cases for each are discussed in more detail in the 'Purchases' section. Intercontinental Hotels also performed well. This is another relatively recent purchase, acquired in the first half of 2023. This asset light business owns few hotels, but generates reliable fee streams lending its brands, management capability, systems and loyalty program to hotel owners under long term contracts. We believe it is amongst the best businesses listed in the UK.

Negative detractors aside from Nvidia include UnitedHealth Group, the US health insurer, which has faced some margin pressure as patients have returned to hospital after COVID for elective surgeries, increasing claims rates and 'medical loss ratios'. Given this is an industry-wide issue, and as UnitedHealth's insurance policies are repriced annually, this is nothing more than a short-term concern.

IT consultant Accenture also fared poorly as revenue growth slowed after a strong period, and investor focus switched to perceived AI winners. Adobe saw its P/E multiple contract as some questioned the resilience of its software used by designers to new entrants powered by AI. We worked with Grassroots Research, a division of Allianz Global Investors which uses market research and investigative journalism, to uncover trends in the competitive environment. Tellingly, not even one of the graphic designers who use Adobe's 'Creative Suite' interviewed intended to cancel their subscription to what has become the de facto industry standard.

Within the financials sector, insurance broker AJ Gallagher, payment network Visa and private equity firm Partners Group all saw modest gains in absolute terms, but they were insufficient to keep up with the market.  In each case, there is nothing of importance to mention, but these examples do serve to highlight how difficult it has been for anything untouched by AI fever to keep up with the bull market. More damaging was our small investment in UK lender Close Brothers, which we discuss later in the 'Significant Transactions' section.

Significant Transactions

In recent years, annual turnover on the Brunner portfolio has ranged between 15% and 20%. This implies an average holding period of 5 to 7 years for our investments.

We often say that our ideal holding period is forever. However, there are three primary reasons why we may make changes:

1.   We were wrong;

2.   The investment becomes overvalued;

3.   We find something new we would rather own.

Purchases

Founded by Thomas Edison in 1892, General Electric is notorious in corporate history. As recently as 2005 it was the largest company in the world by market capitalisation. CEO Jack Welch and his successor Jeff Immelt were feted darlings of the business community before the conglomerate's undercapitalised finance business crumbled in the aftermath of the global financial crisis.

Since then, the business has been almost entirely dismantled, leaving GE as a standalone aircraft engine business trading as GE Aerospace.

A modern jet engine is amongst the most sophisticated devices ever made. The latest variants contain over a million parts and operate at the limits of physics and material science.  Additionally, there is the obvious importance of absolute safety and near total reliability.

Reflective of their exceptional competitive position and what we believe are near total barriers to entry, about 75% of all flights that take off worldwide are powered with a GE engine 'under wing'. GE make their money by servicing the engines under long term agreements with the owners. This provides a highly visible, very profitable recurring income stream for the 20 year plus life of the engine. Growth should come with regular price increases plus ongoing expansion in the global aircraft fleet.

As one of the largest banks in a country particularly hard hit by the global financial crisis and subsequent sovereign debt crisis, it is perhaps unsurprising that shares in Bank of Ireland fell 99% during this period. The bank was saved from full insolvency by a distressed equity raise that increased the number of shares outstanding by a factor of twenty, diluting existing shareholders an equivalent amount.

Crises often induce lasting change. In a banking context, Scandinavia provides a helpful historical precedent. In the early '90s, Sweden, Norway and Finland saw a similar boom and bust. The insolvency of the entire banking sector and the socialisation of those costs resulted in a wholesale change in regulatory attitudes to risk. The result has been that Scandinavian banks are now widely seen as setting the benchmark for financial strength and prudency.

We believe a similar process has taken place in Ireland. Debt levels across the entire economy are much reduced. Lending standards have greatly improved. The Bank of Ireland et al have recapitalised their balance sheets at great expense. This cost has forced the industry to consolidate, resulting in a more concentrated market where the survivors stand a greater chance of generating a decent return.

With the recapitalisation process now complete, dividend payments and share repurchases have now restarted in earnest. At the time of purchase, we estimated that the bank could return over 40% of our initial investment to shareholders over just a three-year period, assuming interest rate and credit conditions remain benign.

UK listed Inchcape is an unusual company. They market and distribute cars and parts on behalf of companies like Toyota, Subaru and Jaguar Land Rover in smaller markets such as Chile, Singapore and Australia. They are, by some distance, the leader in what is a highly fragmented market where we believe scale is becoming more important. It is a business with attractive financial characteristics, including good levels of profitability and free cash flow generation. They are well positioned to add new automotive brands and geographies to their stable via contract wins and small, bolt-on acquisitions.

Inchcape is a smaller company with a generous dividend which typifies the exceptional value currently on offer in parts of the UK market. As an aside, we note that two of our other smaller UK holdings - homebuilder Redrow and industrial Tyman - have recently been subject to takeover bids, suggesting corporate buyers also detect attractive opportunities. 

Roper is a US listed industrial technology company focused on mission critical, industry specific software for a wide range of verticals including education, utilities and insurance.

Most of its revenues are recurring in nature and customer retention is extremely high. We are impressed by management's relentless focus on creating a predictable, growing, high quality cash flow stream, with growth in the existing business augmented by sensibly judged acquisitions that add new end markets to its range.

Alphabet is the parent company of Google, a company we have long admired. It consistently enjoys over 90% share in sponsored search, their core business. They also make money arranging and placing adverts across their network of third-party websites. Additionally, Alphabet owns and operates YouTube and Google Cloud, where it has emerged as a credible competitor alongside Microsoft and Amazon in the provision of cloud computing services.

Alphabet has become a prodigious generator of free cash and recently paid its maiden dividend. We believe the company will continue to grow, albeit not at the pace seen in the past. The multiple is very reasonable, particularly in the context of its net cash balance sheet. Looking forward, a combination of cash returns, growth and a stable valuation should lead to a solid outcome for investors.

Towards the end of the first half, we took a position in American Financial Group (AFG). AFG is a family-run speciality property and casualty insurer based in Cincinnati, Ohio. 'Combined' loss ratios - which measure both incurred payouts on policies written and the expense of running the business - have been superior to most peers over long timeframes. They have also been within a sufficiently narrow corridor for us to be persuaded that their underwriting prowess and risk management abilities are first rate. Growth has been modest but consistent.

Over time, AFG has divested various businesses to focus solely on specialty property and casualty insurance. This is the part of the industry we like best. They generate dependable returns which are largely uncorrelated to macro-economic factors. Cash returns are high, helped by AFG having significant excess capital; the dividend yield in 2023 was 6.4% based on the share price at time of purchase.

Sales

We sold our shares in wealth manager St James's Place in December. This has been a disappointing holding. Although the company's model has clear financial appeal (recurring fees, sticky assets, low capital requirements and a solid record of growth) the company's opaque charging structure has come under increased scrutiny. Growth has also slowed dramatically. We are therefore happier with our holdings in Charles Schwab and Partners Group, both of whom are also 'asset gatherers'.

We sold our small position in the specialist UK lender, Close Brothers, which has also been a costly holding. The company was impacted by a Financial Conduct Authority (FCA) review into historic motor finance commission arrangements.  Whilst there is wide range of potential outcomes from this review, the worst-case scenario for Close could require a capital raise and significantly reduce the equity value.  The investment case had therefore become an uncomfortably binary situation, so we decided to sell. Soon afterwards, the company took a large provision and cut its dividend in recognition of the meaningful risk to its capital position.

ANZ is one of the largest banks in Australia and New Zealand. We sold our small, residual position to purchase Bank of Ireland, which we believe represents superior quality and value on several key metrics. As global investors we are well placed to take advantage of regional differences such as this as we see fit.

Rentokil's acquisition of Terminix in the US appeared strategically sound, bringing together the no 2 and 3 players in the pest control market. However, there is growing evidence that the acquired target has structural growth challenges which may prove difficult to correct. Share losses to their largest competitor have continued and were sufficiently concerning for us to sell our small position.

We sold Intuit, a high-quality US software company, where the valuation means we can no longer see a route to a good return in the next several years. The company has also become an increasingly profligate user of stock-based compensation for employees, which we believe represents an under-appreciated and persistent drag on the true free cash flow attributable to shareholders. Roper, by comparison, generates a far higher and cleaner free cash flow stream. Our valuation work always focuses on the cash that will ultimately come due to investors.

Market Outlook

In meetings with clients, we often say we are micro-economists, not macro-economists. Micro-economics refers to the economics of the firm and industry structure whilst macro-economics refers to factors like GDP, inflation and interest rates. Why are we more interested in the former than the latter?

Generally, it relates to predictability. Economies are hugely complex, adaptive systems which, like the weather, are inherently chaotic and random. Serious meteorologists don't even bother to forecast the weather more than a couple of weeks ahead, yet the financial industry is full of commentators who think nothing of making confident predictions of the economic environment months or even years ahead. They are often wrong but rarely uncertain. As a species who appreciate clarity about the future they provide us with something we desire but cannot have.

In our opinion, business is slightly different. While there is still randomness and shocks, we are sometimes able to identify and understand the dynamics that deliver lasting returns for certain companies or sectors. In some cases, competition is revolutionary (think of the impact of combustion engines on horse breeders) but often it is evolutionary. Things improve. Good ideas float. Bad ones sink.

Biologists distinguish between two types of evolution - contingent and convergent. Contingent evolution is random. The asteroid that hit Yucatan and wiped out the dinosaurs was a contingent event. If the offending asteroid's billion-year journey through space was on an infinitesimally different trajectory it would have missed the earth, the dinosaurs' reign would have continued uninterrupted, mammals would've remained a minor class and none of us would exist.

In contrast, convergent evolution refers to what was bound to happen. Throughout different branches of the evolutionary tree, eyes and wings have repeatedly and separately developed. Sleep, interestingly, too. Seeing, flying and restoration are all too useful not to have inevitably emerged through a long, natural process of trial and error.

Recessions, like asteroids, are random. Most people have wondered how different the world would've been if Wuhan's patient zero had stayed in bed that day. As they didn't, that single contingent event diverted the course of history.  By comparison, the way some industries develop is often convergent. As an example, we cannot foresee a world in which the semiconductor industry does not continue to grow; processing power and data transmission is simply too useful for it not to. This brings an element of long-term predictability that is very different from the random machinations of the short-term economic cycle.

Julian Bishop / Christian Schneider

Allianz Global Investors

[1] All data in GBP as of 31 May 2024 unless stated.

BRUNNER INVESTMENT TRUST PLC

PORTFOLIO BREAKDOWN AS AT 31 MAY 2024

ANALYSIS BY REGION AS AT 31 MAY 2024

ANALYSIS BY SECTOR AS AT 31 MAY 2024

SUMMARY OF UNAUDITED RESULTS

INCOME STATEMENT

for the six months ended 31 May 2024

BALANCE SHEET

as at 31 May 2024

SUMMARY OF UNAUDITED RESULTS

INCOME STATEMENT

for the six months ended 31 May 2023

BALANCE SHEET

as at 31 May 2023

STATEMENT OF CHANGES IN EQUITY

CASH FLOW STATEMENT

Notes to the Financial Statements

Note 1

The returns per ordinary share have been calculated using a weighted average number of shares in issue of 42,692,727 (31 May 2023: 42,692,727 shares).                                                                          

Note 2

The total column of this statement is the profit and loss account of the company.

All revenue and capital items derive from continuing operations. No operations were acquired or discontinued in the period.

Purchases for the half year ended 31 May 2024 were £67,254,000 (31 May 2023: £57,797,000) and sales for the half year ended 31 May 2024 were £66,484,000 (31 May 2023: £57,997,000).                                                                                                                                                                     

Included in the cost of investments are transaction costs on purchases which amounted to £162,000 (31 May 2023: £159,000) and transaction costs on sales which amounted to £15,000 (31 May 2023: £16,000).                                                                                                                                                        

Note 3

Investments are designated as held at fair value through profit or loss in accordance with FRS 102 sections 11 and 12.  Investments are initially recognised at fair value, which is determined to be their cost. Subsequently, investments are revalued at fair value which is the bid market price for listed investments.

FRS 102 sets out three fair value levels.

Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date

Level 2: Inputs other than quoted prices included within Level 1 that are observable (i.e., developed using market data) for the asset or liability, either directly or indirectly

Level 3: Inputs are unobservable (i.e., for which market data are unavailable) for the asset or liability

As at 31 May 2024, the financial assets at fair value through profit and loss of £616,883,000 (30 November 2023: £553,377,000) are categorised as follows:                                                                     

Note 4

In accordance with section 32 FRS102 ' Events After the end of the Reporting Period', dividends declared after the end of the reporting period shall not be recognised as a liability.

Dividends paid on ordinary shares in respect of earnings for each period are as follows:

Dividends declared after the period end are not recognised as a liability under section 32 FRS 102 'Events after the end of the reporting period'. Details of these dividends are set out below.

The final and interim dividends above are based on the number of shares in issue at the period end. However, the dividend payable will be based upon the number of shares in issue on the record date and will reflect any purchase or cancellation of shares by the company settled subsequent to the period end.

Note 5

The directors believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements, as the assets of the company consist mainly of securities which are readily realisable and accordingly, that the company has adequate financial resources to continue in operational existence for the foreseeable future.

Note 6

The half-yearly report has neither been audited nor reviewed by the company's auditors. The financial information for the year ended 30 November 2023 has been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain a statement under either section 498(2) or (3) of the Companies Act 2006.