Avoiding the froth in global markets

By Chris Salih on 20 January 2026 in Global, Investment Trusts

A guide to Brunner Investment Trust

Markets seem to be defying the pessimists at the moment. Last year, global equities rose 13% despite* significant challenges, including intense US-China tech competition, rising geopolitical tensions, aggressive US trade protectionism with new tariffs and economic anxieties like potential stagflation.

Yet markets seemed to brush off the uncertainty to climb a wall of worry – courtesy of strong earnings and a broadening rally, with the US no longer the only game in town. However, concerns remain with many analysts suggesting some sectors – particularly technology – show signs of being “frothy,” with asset prices appearing inflated beyond their fundamentals due to hype, speculation, and fear of missing out. Lofty valuations do not guarantee a crash – but do signal the margins are tighter, making them vulnerable to any sort of negative news.

Given the dominance of AI, technology is the torch bearer for this uncertainty. Figures show that Goldman Sachs Non-Profitable Tech Index more than doubled between April and December 2025, indicating there is plenty of froth in markets**. These tech players now dominate the S&P 500, with the market cap of the top 10 now accounting for almost 40% of the index**.

“We are determined to provide a diversified portfolio. The market has made a huge bet on AI and we think that is pretty dangerous and we are determined to have a series of uncorrelated risks and different cash flow streams and business exposures. This means that if or when some of the froth does come out of markets we will be very well protected.”

That’s the view of Julian Bishop, co-manager of the Brunner Investment Trust (BUT), an all-weather portfolio which aims to provide growth in capital value and dividends over the long term by investing in global and UK securities. The 40-60 stock portfolio looks to strike a balance between quality, growth and value factors. This exposure to numerous factors separates the portfolio from many of its peers.

The trust has a composite benchmark of 70% FTSE All World ex-UK and 30% FTSE All-Share. Brunner Investment Trust has typically held a lower exposure to US equities than many of its global peers. This reduced exposure to the world’s largest economy offers a higher active share but also highlights the strength of the process given the strong performance of the portfolio amid the headwind of US exceptionalism.

The portfolio has produced an excellent return of 89.3% over the past five years (24.6% share price return for the IT Global sector)***, although there have been some recent headwinds which we will discuss in both the manager’s view and performance sections of the report. BUT is also an AIC Dividend hero, having increased its headline figure for the past 53 years.

Investment Process

Brunner Investment Trust draws on the full resource of AllianzGI’s global platform, looking across all industries and geographies to select the most attractive investment ideas for the trust’s portfolio. The aim is to offer a portfolio that is diversified across a wide range of idiosyncratic opportunities and risks.

The quality factor is about the team understanding the intrinsic attributes of a business model, and the ability of a company to earn high returns on invested capital over a sustained period. Such companies typically have clear competitive advantages, such as network effects, irreplaceable intellectual property, strong brands, or high customer switching costs.

Long-term growth potential is about them understanding the long-term trends shaping both individual industries and the economy and society more broadly (like digitalisation). Value is simply evaluating how much they are willing to pay for a company with those quality and long-term growth characteristics. Particular emphasis is placed on differentiating between structural and cyclical growth. Whilst they will invest in cyclical companies, a much greater value is placed on the structural element.

Brunner Investment Trust typically sorts companies into three specific categories: rapid growth; stable growth and income; and cash cows. Roughly 60-80% of companies will sit in the stable growth category – these are businesses which are strong and profitable with a mix of growth and cash returns. 0-20% will be held in the “rapid growth” business category – these are established and profitable businesses with growth as the primary driver of returns.

A further 0-20% will be in the maturity bucket (cash cows) – these are strong, profitable businesses with cash returns as the primary source of returns. They also have low industry growth but stable industry structures.

Value is simply evaluating how much they are willing to pay for a company with those quality and long-term growth characteristics. Particular emphasis is placed on differentiating between structural and cyclical growth. Whilst they will invest in cyclical companies, a much greater value is placed on the structural element.

Julian co-manages the fund with James Ashworth – with support from Simon Gergel and Christian Schneider.

Why now for this portfolio

• This all-weather portfolio has proven resilient in a number of challenging markets in the past few years
• Skew towards quality could produce strong returns given the lowly valuations for this part of the market
• Discount of 8% offers potential upside
• BUT is an alternative to other global trusts given its increased exposure to the likes of the UK and Europe. It is also diverse from a sector perspective.
• BUT has a 53-year track record of dividend growth

Manager’s view

2025 was something of an anus horribilis for quality stocks. The Financial Times said quality suffered, “one of the worst ever relative declines in developed markets, and the worst ever in emerging markets” in 2025. The MSCI World Quality index is around 5% behind the wider MSCI World index for the calendar year**. While it holds some of the technology giants, performance has been held back by higher weightings in the healthcare and consumer staples sectors, which have both been weak.

MSCI research suggests that quality indices’ relative performance has been strongest when both growth and yields have declined. It tends to do better when the environment is choppier, and investors turn to more predictable options for revenue growth and income.

Julian says we have seen consistent underperformance from the quality factor since June 2024 relative to the MSCI World. This has been a headwind for the portfolio but the all-weather nature of BUT has offered a degree of protection. “Pure quality is down 25-30%, but we are down around 10% since that point”.

He says the last time quality underperformed to this degree was in 1999 in the run-up to the dotcom bubble and subsequent crash, adding that they take solace from the fact that there was a huge rebound factor when the excesses came out of the market.

Confusion reigns over the impact of AI in terms of which companies will be resilient and which will struggle

The dominance of AI has been cited as a headwind for BUT in the past couple of years. However, the team would argue it has been exposure to the quality factor that has been the bigger challenge. When looking at BUT’s top 10 names we can see a host of names exposed to the AI theme (Microsoft, Alphabet, TSMC and ASML). Julian even points to UK electrical utility company SSE as an example of an indirect play getting caught in AI, with new data centres being measured in gigawatts**.

Brunner Investment Trust has a full weighting to its own benchmark (24.7%) in technology, however it does lag its global peers.

The team says AI’s impact remains a big unknown, given there have been very few examples of actual disruption. Julian says the market has indicated that anything that is intellectual property, intelligence, data & analytics or software-led is under threat. He adds it is naïve to think there will not be disruption, however some of the moves in the market are not rational.

He says: “Take Auto Trader Group as an example. We’ve seen a de-rating of about 25% from 24.5x to 17x. The reality is there has been no reduction to earnings expectations in the near term, but there is a fear/unknown about what AI does to the classifieds business model.

How can the current proposition of Auto Trader be bettered by AI? At the heart of these businesses we have a network effect of buyers and sellers and a database of current information. We struggle to see how having AI traipse 10,000 terrible websites from individual auto-dealers – which are probably out of date – will be a better consumer proposition.

Another example is Baltic Classified Group, which sits in the rapid growth category. The managers view it as almost a combination of Rightmove, Auto Trader and job recruitment boards. Julian says the Eastern European business has a dominant market position in most products (often 5-10 times bigger than their competitor products).

He says: “It has been tarred with the same brush as others with AI disruption risk. When the company announced profit guidance downgrades due to a specific tax situation in Lithuania, the market perception was that it was driven by AI when this was not the case. They have all the data for advertisers and consumers – and a real-time database is incredibly valuable and hard to generate. We don’t think something like ChatGPT will replicate that.”

By contrast, one that is under threat – and has subsequently been sold from the portfolio – is Adobe. The team expect a host of new entrants in the software space, with the cost of coding likely to come down markedly due to AI.

“The real issue with Adobe is the competition with Canva. The latter entered the market a few years ago with a mass market, low-end product – but over time it has increased capabilities and functionalities, without really competing with Adobe. Adobe is up-market (people spend years learning to use the software). Canva has come in with products which are almost as good, much cheaper and are capturing lots of low-end, professional users. We worry over the medium to long-term impact,” Julian adds.

Portfolio positioning

No NVIDIA or Broadcom

The team have not held any exposure to either NVIDIA or Broadcom – this is due to the cyclical nature of both stocks and increasing competition. Julian points to Alphabet being a stronger, longer-term holding than NVIDIA, citing AI assistant Gemini being just as good as ChatGPT, which NVIDIA plays a critical role in powering through its AI chips (GPUs) that enable its training and operation.

He says: “We think the economics go to Alphabet, which is potentially quite disruptive for NVIDIA. There is a growing understanding that Google, which has got the distribution through the likes of its iPhone and browser, becomes a default for AI-mode – so why go to ChatGPT? Google models are as good as ChatGPT, they have unlimited financing, and they have a lot of cost advantages.

“ChatGPT must buy NVIDIA, which is hugely profitable and has obscene margins. They then must get cloud hosting capacity from Microsoft – so they will need to pay a margin there. Google have their own silicon, which is more efficient, so they do not have to pay the NVIDIA tax (margin). They also have their own cloud, so they don’t have to pay a margin to Microsoft Azure. Based on cost, Gemini and Google have a clear advantage on ChatGPT in what is a very capital-intensive business.”

The managers are keen to highlight that not holding NVIDIA or Broadcom attributed to roughly 70 basis points of underperformance in 2025, something that was more than made up for by overweights in the likes of Taiwan Semiconductor (TSMC) in the portfolio**.

Brunner Investment Trust continues to hold semiconductor names like TSMC and ASML within its rapid growth bucket, but has trimmed them both following the strong rally post Liberation Day in April 2025. Julian says both businesses remain excellent investments, with the move being a reaction to the correlated risk in markets to AI – and the need to make sure the portfolio remains diversified.

The physical world

With the uncertainty around AI’s disruption of intellectual property, the team have targeted the physical world. Examples include a position in Tesco – citing its leading position in the UK grocery market (29% share). Julian says the company has around half of the profits in the industry due to the benefits of scale, while the company has also repaired its balance sheet in the past decade or so, with net debt to EBITDA ex leases falling from 5x in 2014 to 0.5x in 2025**.

Other examples include GE Aerospace, a global leader in what is becoming an increasingly consolidated jet engine business, and Federal Signal, which makes specialised industrial vehicles (street sweepers, sewer vacuums, hydro-excavators). Julian says the firm has good niches – which are profitable – and has an attractive growth record.

“They have small-end markets and a good research and development budget that allows them to out-innovate most of their competitors in bringing new features to those markets,” he adds.

From a geographical perspective, BUT is slightly underweight the UK versus its benchmark and overweight Europe. The team say the UK and Europe have seen a bit of a re-rating over the last 12 months; the latter has done better than the US in that time, although multiple expansion has come from low levels.

Julian says the team will look towards emerging markets to a greater degree in the future, particularly given the growing dividend culture in the region. A good example is AIA, the life and health insurance provider for Hong Kong, Thailand, Indonesia and China, which the team believe has a good combination of growth, value and quality characteristics.

Portfolio changes and performance attribution

Brunner Investment Trust has added six new holdings and sold out of nine in 2025. Among them are the likes of Tesco and Federal Signal as well as Japanese e-commerce platform MonotaRO, which specialise in maintenance, repair and operation supplies. With a market share of 3% and online penetration for their segment in the region of 20%, the managers believe there is a long runway for growth as they continue to win share based on value and breadth of the range.

A good indicator of the investment process at BUT is the addition of Kia Motors. The second largest auto manufacturer in South Korea after its parent Hyundai. Julian says Kia’s valuation became extraordinarily low – comparing its position to Tesla.

He says: “It’s a good indicator of the extreme valuations and frothiness in markets. Tesla has a market cap of $1.4trn, which is 87-times greater than the enterprise value of Kia Motors, yet Kia is the one who made money last year and will make money this year. The maths do not make sense.

“Some would point to Tesla’s advancement in humanoid robots, yet Kia and its parent company Hyundai Motors own Boston Dynamics, which has its own robots. Atlas is designed for automobile assembly and is in production, and is scheduled to be deployed at Hyundai’s metaplant in 2028. Unlike Tesla’s robots, they do not fall over either!”

Among the sales were Adobe, Relx and Accenture – all of which were tied to the uncertainty around AI on their respective business models. Nestle was another sale, with Julian saying that despite its consistent and quality characteristics, there was no growth to be found

Another sale was Unitedhealth, which used to be a significant holding for BUT, before the position was cut in December 2024. Julian says the business model has been changing to focus on government business. Further changes in 2025 saw the managers find better opportunities elsewhere as the company entered a turnaround phase.

Bank of Ireland was the single largest active contributor to performance in 2025, with Julian highlighting excellent growth, driven by multiple expansion. This was followed by GE Aerospace, with the AI/tech trio of TSMC, Alphabet and ASML completing the top five.

Unitedhealth was the worst active contributor, with Auto Trader and payments company Corpay rounding off the top three

Performance: strong long-term numbers

Brunner Investment Trust is designed as an all-weather vehicle and has demonstrated its ability to perform in challenging markets like Covid and in 2022 when interest rates began to rise.

As discussed, there have been more headwinds recently, with BUT returning 6% over the past 12 months (4.7% for the IT Global sector)***. However, long-term figures remain strong, with the share price total return up 89.3% in the past five years (vs. 24.6% for the IT Global Sector); while the NAV for the trust rose 73.8% (29.2% for the sector)***.

What else do investors need to know?

The board looks to enhance returns over the long term through gearing. While BUT is able to gear up to 20% of net assets at the time of borrowing, in reality gearing has usually been relatively modest in the portfolio. With rates rising in 2022 (and still relatively high despite some cuts in 2024 and 2025) and markets looking fully valued in a number of areas – gearing has been held at relatively low levels. It currently stands at 4.3%***.

Brunner Investment Trust currently operates at a discount of 8.2%, slightly down on the average (8.9%) over the past five years. Despite this we feel this level of discount is an attractive entry point for investors to consider and may reflect the recent performance challenges it has faced. BUT has issued shares in the past three years, having traded at a relatively narrow discount to many other trusts in that period.

Brunner Investment Trust’s dividend is paid quarterly, with three equal payments and then a larger financial dividend at the end of the year. The trust is an AIC dividend hero, with a 53-year track record of dividend growth. It is one of the highest-yielding trusts in the sector at 1.6%. BUT has already paid three interim payments of 6.25p ahead of its final payment for the end of the financial year 2025/26.

Brunner Investment Trust has strong revenue reserves of 33.0p per share.

Ongoing charges stand at 0.61%.

Outlook

Brunner Investment Trust is a strong consideration for any investor looking for a core holding within global equities. The quartet of managers look to deliver consistent returns across the market cycle by building a bottom-up portfolio with exposure balanced across quality, growth and value factors. Having taken over as managers in 2022, the team have already managed the portfolio across a number of challenges. The underweight to US equities versus many global indices also provides investors an alternative approach to global markets.

This is a strong consideration for any investor who wants a balanced exposure to a number of themes driving the global economy.

*Source: FE Analytics, total returns in pounds sterling, MSCI World, 31 December 2024 to 31 December 2025

**Source: Allianz Global Investors, December 2025

***Source: FE Analytics, total returns in pounds sterling, 20 January 2026