 Switch EditionUK?Opinion09 Sep, 2024James Carthew: AVI Global can extend its excellent track recordDiscounts across global markets present opportunities for the UK-based bargain hunter, which recently cashed in on Starwood's Balanced Commercial Property bid.ByJames CarthewThe investment companies sector continues to shrink. So far in September, we have seen bids for Tritax EuroBox (EBOX) and Balanced Commercial Property Trust (BCPT), JPMorgan Global Core Real Assets failing its continuation vote, and Aurora (ARR) absorbing Artemis Alpha (ATS). All of this is in reaction to the persistent discounts across the sector.Yet, despite the attractive uplifts investors can achieve when these exit opportunities materialise (21% for BCPT and 27% for EBOX), very few UK-based investors seem to be hunting for these potential bargains. Instead, most discount-driven investors in the sector seem to be American.One UK-based investor that has been profiting from these value opportunities is AVI Global Trust (AGT). It cashed in more than 15 million shares in BCPT following the announcement of that bid, crystallising a decent profit on its position.The trust invests in assets its manager Asset Value Investors (AVI) believes are valued at a discount to their intrinsic value; it invests in a mix of holding companies, closed-end funds, and asset-backed special situations (AVI Global's Japanese investments fall into this category). Where it can, it will work often behind the scenes, but sometimes quite publicly to unlock that value for the benefit of all shareholders.Over the past few years, AVI Global has found no shortage of potential investment opportunities. Macroeconomics (rising interest rates, China's slump, inflation and the like) caused discounts to widen, not just in the investment companies' sector.That could have been problematic for the trust, as widening discounts on its portfolio could have driven down its net asset value (NAV). However, fund manager Joe Bauernfreund has done a great job unlocking value and recycling capital to new positions. Over five years, the portfolio's underlying returns of 64% are ahead of the MSCI All Countries World index's 57%, according to Deutsche Numis data, and commendably it has achieved this without any exposure to the Magnificent Seven US technology stocks.Recent successesThe manager has sought to position the portfolio to benefit from individual discount-narrowing events but without too much generic market risk, so it should not be too much affected by gyrations in the price of Nvidia, for example. It also managed to get out of Pershing Square Holdings before the Universal Music profit warning crashed its share price in July.AVI's name has been cropping up a fair bit recently. It was heavily involved in blocking the sale of some of Hipgnosis Songs' (SONG) catalogues at a knockdown price and profited from the subsequent takeover of the company (at the time it was the largest position in AGT's portfolio). AGT was also a substantial shareholder in Pantheon International (PIN) when it adopted its new capital allocation policy.BCPT was one of several positions AVI Global built up in cheap property stocks. Another is PRS Reit (PRSR). AVI is not one of the requisitionists looking to make changes to the PRS board but has given an irrevocable undertaking to support their proposals. AVI is unhappy with the board's proposed extension of the management contract to 2029, which effectively creates a poison pill. It is also concerned about the board's spending on external advisers.I am a bystander but support the requisitionists' stance. You only want to fire a manager when you are unhappy with their service, or a windup/takeover means their services are no longer required. Outside the initial period after the initial public offering, and in most cases, not even then, there is no reason why a manager needs to have more than 12 months' notice in their contract, and six months is now more normal.The largest position in AVI Global's portfolio is News Corp. AVI believes the sum of the parts including online real estate portal REA Group, HarperCollins and Dow Jones is a lot more than the current share price suggests. Crucially, it also thinks the latent value can be unlocked. There are plenty of other similarly interesting situations in the portfolio.Ongoing campaignsElsewhere, back in our sector, AVI Global has big positions in four investment companies in its top 10. It holds Oakley Capital Investments, reasoning, as I do, that its performance track record merits a discount closer to HgCapital Trust's (HGT) sub-3% level than Oakley's current level of 27%. Oakley just freed up £50m from its portfolio as its stake in Ocean Technologies Group was sold for 2.7 times what it paid for it in 2019. Oakley appears to have no shortage of new investments with similar potential to reinvest the proceeds into.Partners Group Private Equity, formerly Princess Private Equity, has been much less successful than Oakley, but AVI Global would also like to see its 23% discount narrow from here.Chrysalis (CHRY) has seen some modest narrowing of its discount (now about 45%), but its fortunes could be transformed if it sold one of its more mature investments Klarna is the one that seems to be in the frame.Cordiant Digital Infrastructure (CORD) suffered by being bracketed with the abysmal Digital 9 Infrastructure (DGI9). Cordiant is trading on a 35% discount. Its latest quarterly trading update was quite encouraging, recording improving underlying revenue and profits to support its well-covered dividend. Cordiant is buying back stock but needs to do more to win back support.It is also worth mentioning AVI Global's Japanese exposure about 23% of the trust at the end of August. The market volatility that accompanied the Bank of Japan's rate increase and subsequent yen rally at the end of July, which I wrote about, took just over 1% off the trust's NAV. However, true to form, the manager took advantage of the selloff to add to positions at attractive prices, laying the ground for further NAV appreciation in time.James Carthew is head of research at QuotedData.?Any opinions expressed by Citywire, its staff orRelated Portfolio ManagersJoe Bauernfreund?? |
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