Brunner: Diversification beyond the AI theme

Brunner (BUT) aims to provide investors with an all-weather Portfolio, that is, one capable of delivering consistent returns across different market environments. For that purpose, the management team, consisting of Julian Bishop, James Ashworth, Christian Schneider, and Simon Gergel, aims to build a well-diversified portfolio, balancing the quality, growth, and value factors.

Since the beginning of the year, the team has continued to trim their positions in semiconductor names such as ASML and Taiwan Semiconductor Manufacturing (TSMC), which have rallied over the past 12 months, benefiting from the build-out of AI infrastructure. However, these stocks are now trading on elevated valuations, while the team believes they could be particularly sensitive to a potential slowdown in AI capex spending. In fact, the managers have grown cautious on the AI theme more broadly, and while the portfolio maintains some exposure to it, it is underweight relative to the trust’s benchmark.

That said, they have been cognisant of the threat this technology poses to many businesses. As a result, in mid 2025 the managers exited positions in a number of companies whose business models could be endangered by AI, or where they saw significant valuation risk. As the market sell-off driven by ws of AI disruption continued, in early 2026 they took advantage of the situation to selectively build new positions in companies where they believe these fears are excessive or unjustified, such as RELX and Booking Holdings. In addition, the team has continued to build exposure to companies embedded in the physical world for which the risk of AI disruption is low, including ConocoPhillips, a US company specialising in hydrocarbon exploration and production.

So far in the trust’s current financial year, BUT has paid its first two interim Dividends of 6.75p each, representing an 8% year-on-year increase. Combined with the two previous dividend instalments, this results in a 12-month yield of c. 1.7%.

In our view, BUT offers attractive diversification in terms of geographies and sectors as well as sources of return, with the managers ensuring they are uncorrelated with each other. Given the concentration of market returns in AI-related stocks since late 2022, BUT’s emphasis on diversification has weighed on relative Performance, but we believe it could prove a valuable feature at this juncture. This is because global equity indices have become increasingly concentrated in a few names, many of which are tied to the AI theme, and are therefore very dependent on the performance of this cohort of stocks. In addition, these stocks command high valuations, which may leave little room for error, as investors may severely punish any disappointment.

We also find it interesting that the managers have built up their exposure to companies embedded in the physical world whose business models appear less endangered by AI. To us, this demonstrates thoughtful consideration of risk, notably aiming to protect the portfolio from the disruptive potential of AI. As such, we believe BUT could prove attractive to investors seeking a cautious approach to global equities.

Another attractive feature of the trust, in our view, is its 54-year track record of annual dividend increases, with robust reserves that should enable BUT to keep growing the dividend in the years to come. We believe the dividend is an important component of BUT’s investment proposition, as it offers a source of return when share prices struggle to appreciate. Finally, BUT currently trades at a c. 11% Discount, offering re-rating potential.