Brunner Investment Trust PLC (LON:BUT) has advised investors to stay focused on the long-term to get through the current coronavirus-inspired market volatility.
Formed in 1929, Brunner has seen its share of global crises and the advice remains to be wary of too close a focus on short-term performance
Lucy Macdonald from Allianz Global Investors is the trust’s manager and in an update said people should take a long-term view when navigating the current volatility.
“Periods like the present can be disconcerting. Keeping a more meaningful time horizon in mind can help distinguish between facts and noise.
“Experience tells us that even the most dramatic declines in global equity markets have been outweighed in the long-run.
“What’s more, long-term investment in a focused portfolio of excellent companies can deliver meaningful capital growth above those markets.”
Go for companies with lower levels of borrowings, stronger balance sheets and more resilient cash-flows than their peers as these are best placed to weather an extended period of suppressed economic activity.
Longer-term structural trends are also likely to speed up due to the virus crisis, believes Macdonald.
Enforced working from home is already boosting companies delivering on digitalisation while a need for economic self-sufficiency and reduced global travel can accelerate the move towards a high-tech, low carbon economy.
“Promises of both central bank and fiscal support around the world are now starting to remove questions about the survival of large, listed companies.
“As a result, valuations in some well-managed, consistently high-returning businesses with solid balance sheets are becoming more attractive.
“Yet until corporate earnings expectations – and therefore valuations – can appropriately reflect the disruption, some caution is warranted. “
The trust’s performance has been helped by its stakes in Microsoft, Iberdrola and the Cooper Companies and especially pharmaceutical giant Roche, one of the trust’s largest holdings.
The pharmaceutical giant is a quality long-term holding, says Macdonald, with a safe dividend.
Roche is also currently producing a COVID 19 test 10 times faster than current standard and recently has accelerated trials of its ACTEMRA drug for use in COVID 19 patients with severe pneumonia.
Macdonald adds the trust has used the volatility to top up its positions in ITV, National Grid and Redrow as all three are on low multiples that materially underestimate the long-term ability to generate sustainable cash-flows.
Kitchen specialist Howden Joinery, life assurer Prudential and property group Sirius have been sold.
Macdonald added that over the past year, Brunner had taken steps to increase the portfolio’s underlying income generation, which has included analysing the potential for each stock in the portfolio to cut or cancel its dividend.
“Under our current predictions, any income deficit should easily be coverable with the Trust’s long-accumulated revenue reserves,” she said.
Brunner is valued at £328mln at 674p, a 6.3% discount to NAV of 719p.