Second on "Best Report and Accounts – Generalist".
"Highly commended: AVI Global Trust
The judges noted how AVI Global Trust has differentiated itself in a crowded sector with an attractive and highly readable report."
The Merchants Trust won, I do not own, so do not read their ARs; but it is true that the reports produced by AVI (AGT and AJOT) try hard to tell the stories of the biggest holdings. |
AVI Global Trust (AGT)’s NAV declined -2.9% in April as the portfolio weighted average discount widened 210bps
to 30.5% |
April update |
The Kepler article mixes up AJOT and AGT.
Interesting read on everything "value". |
In the global sector, the best option is likely to be AJOT’s sister trust AVI Global (AGT). AGT aims to capitalise on inherently discounted investment structures, be they family-backed holding companies, closed-ended funds or Japanese asset-backed special situations (which closely aligns with the opportunities exploited by AJOT). This means that AJOT offers value investors the ability to access a wider range of investments than the more conventional value strategies can. Interestingly, this means the underlying exposure often involves companies in typical growth sectors, but which are accessed at a discount. One example of these is LVMH, the highly valued luxury goods maker, which is AJOT’s largest underlying position. |
 Citywire-
AVI Global (AGT) fund manager Joe Bauernfreund is cautiously looking for opportunities to deploy up to £150m of cash and borrowing as volatile stock markets weaken the share prices of the investment companies and holding companies he likes to buy.
Bauernfreuend (pictured below), who as chief executive of Asset Value Investors (AVI) has run the £950m investment trust for six-and-a-half years, removed the small amount of gearing, or borrowing, the closed-end fund had at the start of the year. Although the company is paying interest on £30m and €50m of long-term loans, keeping the cash in reserve has helped the trust avoid the steep falls of global growth rivals like Scottish Mortgage (SMT) and Martin Currie Global (MCP).
While they have slumped 34% and 25% respectively, AGT has fallen 12.5%, a decline that reflects the widening of investment company discounts as investors worry about inflation, rising US interest rates and the impact of the Ukraine war.
‘We have been patient thus far in terms of getting that money reinvested,’ Bauernfreund told Citywire Investment Trust Insider. ‘As things stand we are almost 100% invested, which I think is appropriate for our mandate.
‘I am not in favour of making big market-timing bets. We have made a few small incremental additions to some existing holdings in the past few weeks, and we are starting to see some of the weakness in equity markets spread to parts of our universe that had previously looked over-valued.
‘So I expect we will find good opportunities to invest that cash in the coming months but, at present, we are in no rush,’ he said.
Year to date the underlying net asset value (NAV) of AGT’s investments in 36 closed-end funds and holding companies is down 8%, according to Morningstar data from Numis Securities. That’s behind the 6.2% decline in the MSCI All Countries World index, a benchmark that it has underperformed over five years with NAV including dividends up 52.7% against a 60% advance in the MSCI.
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Bauernfreund is confident the portfolio of undervalued investments can re-rate once markets stabilise. While he waits, there has also been a lull in his team’s investor activism. The fund manager declined to comment on this week’s strong results from Third Point Investors (TPOU), in which it is nearly 6% invested, having secured – with other rebel shareholders – representation on its board after a bruising corporate governance battle with the Daniel Loeb managed hedge fund last year.
However, he was clear he wanted to see further action on Third Point’s discount that has widened to 14% from the 11% it narrowed to after its victory in February.
‘We share the frustration of many shareholders that despite the very strong performance, the quality of the underlying portfolio and the success it’s had over the last few years in particular, that it continues to trade at a discount that we think is far too wide,’ said Bauernfreund, who took advantage of an opportunity this month to exchange some of AGT’s holding in Third Point to its underlying ‘master’ fund at close to NAV.
Bauernfreund is more patient with Third Point’s rival Pershing Square Holdings (PSH), its top position at 9% of assets at the end of March. Although AVI clashed with Pershing Square three years ago over a long-term loan it thought could frustrate efforts to narrow the fund’s wide discount, relations have improved. For the time being Bauernfreund is willing to settle for the turnaround in performance fund manager Bill Ackman has achieved through the pandemic, with shareholder returns up 107% since 2019, despite the stock trailing NAV by a massive 31%.
‘The NAV growth and the share price performance more than makes up for the fact that [Pershing] trades on a wide discount. We hope the board continues to look at ways to narrow the discount and we hope [it] does start to narrow,’ Bauernfreund said.
The key difference between the holdings is their long-term performance. Since investing in both in 2017, Pershing Square shares have returned around 136% versus Third Point’s 74% and the MSCI World’s 63%.
AVI is also forgiving of Ackman’s recent decision to end a three-month investment in Netflix, at a loss of over $400m, after the US streaming giant disclosed a slump in subscriber numbers due to inflation. Asked for his view, Bauernfreund referred to a comment from his head of research Tom Treanor who last week said: ‘Doubling down in these situations is actually the easy option. Yet often the most dangerous. Selling out was a brave decision and we applaud it regardless of Netflix’s subsequent share price from here – it appears Pershing has learnt from past mistakes and has demonstrated commendable discipline.’ |
Yes, all credit to Ackman to owning up to a mistake so quickly. To be honest he's making more money from his macro calls at the moment and so maybe another asymmetric derivative will come good sometime soon! |
Well, I shall give it to Ackman, he has eaten humble pie, admitted being wrong and taken a decision, in this case cut the losses. This is "active" to me.
I am also exposed, also indirectly, to Netflix via Baillie Gifford USA. Different song there: They are not dumping. |
You never know, NFLX was a 2% hit to PSH but if Bill has taken out one of his big hedges it will be good |
Pershing Square is unlikely to be the best pupil in our next factsheet. |
Sister company - |
True, the magic of cookies... I had forgotten about the registration at Citywire. It is free mind you. |
Here is a link where you don't need to sign in. |
This is indeed a positive result after some bare knuckle fight.
That reminds me, we have not heard about Symphony in a while: The one where the board and investment manager are in cahoots and their other "complex" voting structure. |
hTTps://citywire.com/investment-trust-insider/news/change-afoot-as-third-point-board-strikes-deal-with-rebels/a2380253?re=94445&ea=252901&utm_source= |
Or, we could use the news to top up. Around 180p would be nice. |
Reports that AVI and Third Point have settled their public squabble, some board changes and presumably a plan to close their discount on the agenda, so lets call it a win for AVI. We could use some good news. |
Proxy for part of our portfolio - |
@BiggestBill
Thanks for the link.
When the "uppercase in http" trick does not work, ADVFN still lets us put the www.
www.trustnet.com/news/13288847/the-second-best-global-trust-in-2021-why-is-its-discount-double-its-sectors
[Edit]
I had used a link to an article that has nothing to do with AGT earlier. |
Here is another excerpt.
However, it could be one of the sector’s beneficiaries if the value rally can continue, Johnson said.
“It’s highly idiosyncratic return profile (driven by a combination of active engagement and discount opportunities) could mean that it may still be able to generate strong returns in the current bear market, though investors should be aware that it is not an ‘absolute return’ fund per se.” This could be appealing if market drawdowns continue to spike, such as the one at the start of the year.
Priyesh Parmar, associate director of investment companies research at Numis investment bank, was also bullish about the trust, stating that he would be “happy holding AVI Global”.
“The 8% discount on the listed fund offers some value and the fund does engage in buybacks which helps to limit the downside.”
James Carthew, head of investment companies at QuotedData, seconded this sentiment, adding: “In a world where speculative growth stocks are out of favour, AVI Global’s portfolio of decent businesses that the manager believes are valued at a sizeable discount to their true worth is holding up well.”
Carthew picked the trust as his favourite portfolio for last year and remained optimistic about its return prospects in 2022.
There were other reasons to be bullish on the trust, such as the current growth sell-off, which has hit US equities especially hard.
American companies make up the biggest regional weighting in the AVI Global trust (28%), but it is not as heavily biased towards the region as others. Europe is its second largest position at 26% with Japan at 24%.
This relative underweight – the US makes up 69.3$ of the MSCI World index for example – is something that adds to the trust’s appeal, according to Anthony Leatham, head of investment trust research at Peel Hunt, given the headwinds facing the market at the moment.
The trust’s Japan allocation does leave some pause for thought though, Leatham said, and investors will have to take a view on that market when deciding to invest.
Japanese equities have been a marmite sector for investors since the late 1990s crash which still lingers in the minds of some investors’. Others have been kept away by its affiliation with poor corporate governance.
Japanese companies are still transitioning to being pro-shareholder, a decade on from when then-prime minister Shinzo Abe’s ‘AbenomicsR17; scheme was first introduced, but Bauernfreund regards this as a great opportunity, by using active engagement to unlock potential shareholder value, a practice he regularly partakes in, Leatham added.
Based on all these components and current discount, overall Leatham gave the trust a ‘hold’ rating. |
There is a decent write up at Trustnet. I cannot post the link for some reason. Here is an excerpt.
A low allocation to the US, “rare” investment style and strong defensive track record, are some of the reasons analysts think the AVI Global trust is worth snapping up at a discount.
Joe Bauernfreund’s £1bn AVI Global Trust is a distinctive member of the IT Global sector, due to its different approach towards value investing.
Pigeonholing the trust as value, however, underestimates what the manager aims to achieve, the experts said. Rather than focusing on cheap valuations or out-of-favour names, he looks for high-quality but under researched companies trading at a discount.
David Johnson, an analyst Kepler Trust Intelligence, said he runs “one of the rarest approaches to global equity investing available in the open- and closed-ended universes”.
The end portfolio is full of attractive valuations without being explicitly value, he said, “creating a highly idiosyncratic portfolio that can avoid some of the risks associated with the value style”.
However, this process comes with benefits and drawbacks in terms of performance. Near term this approach has come into its own and protected investors’ returns better than some of the stalwarts of the sector as the market and economic environment has become more challenging thanks to central banks moving away from looser, more liquid monetary policies into a period of tightening.
In the past year AVI Global made 16.3%, the IT Global sector’s third best returns. This compares favourably with the likes of renowned investment trust Scottish Mortgage, for example, which lost 19.6%, the second worst performance during that time. |
Better being told late than never! :) |
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