The Brunner Investment Trust PLC
Welcome to the latest update from the Trust's portfolio managers
May 2023
Why invest in Brunner?
- AIC Dividend Hero: 51 years of dividend growth*
- One of the highest yields in its sector*
- A global, actively managed equity portfolio
Monthly Fact Sheet
Welcome to our latest monthly factsheet, featuring data and commentary as at 31.05.2023
Fund Manager's Review
May was a varied month for global markets. Shares in many regions and sectors declined a little as from China suggested that the Asian post COVID economic recovery may be slower and less potent than anticipated, certainly in comparison to the rapid rebound previously seen in Europe and the US. The sheer length and severity of the lockdowns and lower levels of government support for lost earnings provide some explanation. As a result, the domestic Chinese market was weak as were global sectors such as basic resources and energy, which rely heavily on Chinese demand. European stocks, too, finished the month a few percentage points lower.
Concurrent and in stark contrast with this general malaise were some huge upward moves in parts of the US technology sector. The catalyst for this was a set of exceptional results from semiconductor company Nvidia, which has a large market share in the Graphic Processing Unit (GPU) chips used to run the large language models which power artificial intelligence applications.
Hype around artificial intelligence had been building since OpenAIs ChatGPT (for text) and DALL-E (images) models were released to the public, showcasing some extraordinary progress in the capabilities of this nascent technology. Nvidias guidance for a huge increase in revenues, way beyond what anyone had forecast, led to a 24% increase in their share price on the day. Given Nvidia was already a valuable company, this equated to an additional $180bn in market capitalisation, the largest single day increase in corporate value in stock market history. For context, $180bn is more than the market cap of Unilever, Tesco and Vodafone PLCs combined.
This excitement was not limited to shares in Nvidia. Shares in Microsoft (Brunners largest holding), which partially owns OpenAI and hosts many AI applications in its Azure cloud computing unit, also fared strongly on hope that AI can improve the competitiveness of its Bing search engine and act as a useful co-pilot for users of its Office product suite.
Taiwan Semiconductor Manufacturing Company (TSMC) - another large Brunner holding also rallied. TSMC is a semiconductor foundry (a company that produces semiconductor chips) and has near 100% share in manufacturing the most sophisticated GPUs on behalf of Nvidia et al.
Beyond that, many other mega-market-capitalisation tech stocks roared higher. Shares in companies such as Amazon, Apple, Alphabet all rose materially. After a very tough 2022 these enormous companies have led the market higher in 2023. The result has been an exceptionally narrow market, with just a handful of companies driving the entire year to date performance of US stock market index, the S&P500, for example.
Overall, the Brunner portfolio lagged its benchmark during the month. Similarly, the NAV Total Return for the month at -4.2% was behind the -0.8% from the benchmark. Most of this can be attributed to our slight underweight in the technology sector and, in particular, our omission of Nvidia, Amazon etc. Whilst most market participants agree on the potential of these companies, our process and philosophy has led us to other technology investments which, in our view, better balance quality, growth and value.
In a recent meeting with Microsoft, we discussed the potential for AI. Even though Microsoft are early leaders with unique insights into the technology landscape, it was abundantly clear that they have little idea how the AI wave will play out. Such is the case with all major technology transitions. That makes most AI specific investments necessarily speculative. Whilst we want to be open minded, we will continue with our balanced approach that prioritises value and free cash flows alongside quality and growth. Holdings such as Microsoft and TSMC give us confidence that our chips (excuse the pun) are well placed, no matter how the technology evolves.
There were no trades during the month
For the latest portfolio breakdown, performance, dividend information, please visit www.brunner.co.uk.
*Past performance does not predict future returns.
Fact Sheet
as at 31 May 2023
Annual Report
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