AGI’s Brunner Investment Trust favours UK over ‘expensive’ US

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Allianz Global Investors’ investment trust manager Jeremy Thomas believes parts of the US market are fully valued and is instead looking to the UK for better opportunities.

The manager of the Brunner Investment Trust currently has his largest exposure to the UK at around 44 per cent, while North America lags behind in second place at approximately 22 per cent.

Thomas says while he is optimistic towards the US economy, the trust is currently between 5.5-6 per cent underweight its natural exposure to the country as he believes parts of the market look over-priced.

He says: “Many managers will be overweight the US because they look at the benchmark first but we look at companies and build the portfolio from the bottom up.

“On the whole we are quite wary of the valuation of the US market. We would look at things like a cyclically adjusted p/e to see the margin structure of the market, and on this basis, the US is expensive.”

Discretionary consumer is a particular sector which looks fully valued, argues Thomas, as well as industrials which he says have already performed well.

But US healthcare and technology companies still hold interest for Thomas. He says: “When we invest in the US we go looking for companies that we cannot easily buy internationally.

“Many of the best healthcare and technology companies in the world are based in the US. We would buy them for stock specific reasons.”

By comparison the UK market looks “quite cheap”, as well as being a high yield market with “good stable cash-flow generating companies”, says Thomas.

Exposure to UK stocks has also been a driver in plans to increase the trust’s dividend in the near future. Thomas says: “We could look to increase the dividend by up to about 15 pence per share from the current 13.3 pence per share, in the not too distant future.

“Probably about 10 pence of this 15 pence per share dividend will come from the UK.”

Thomas highlights the UK’s high quality growth opportunities, such as Diageo and Unilever. He also points to smaller companies Mothercare and Tymans as stocks which have both contributed significant performance to the trust.