British Empire Trust (BTEM) is a highly-active, benchmark agnostic portfolio of global equities that follows a value-orientated investment approach.
The trust differs from the large majority of global funds due to the types of companies that it focuses on, which can broadly be split into three buckets: family-controlled holding companies, closed-ended funds and asset-backed special situations – and all of those companies have the common feature of owning portfolios of businesses or assets, either listed or unlisted, that can be independently valued.
Joe Bauernfreund (pictured), who is chief executive and chief investment officer of AVI - having worked on the portfolio since 2002 - assumed sole responsibility in October 2015, though he has worked on the portfolio since 2002. With Joe has lead manager, British Empire has witnessed a significant reversal in fortunes. He has honed the trust’s long-standing value approach and, put simply, he aims to buy companies that are trading at discounts to NAV, where he and the team have identified a potential event or catalyst for that value to be realised and this has paid off for investors.
When we last covered the trust in January, it had witnessed a very positive 2016 (a year when value investing came back into favour after a prolonged period in the doldrums) and with NAV total returns of 36.62%, topped the AIC Global sector and beat the MSCI AC World index by a wide margin.
This year has so far proved to be ‘flatter’, but it is one of only three trusts in its peer group to have outperformed the MSCI AC World index in both 2016 and over the 2017 to 20 June. This recent outperformance, which has been driven by both stock selection as well as the team’s own activism with the companies they hold, has come despite the fact British Empire has faced a clear style headwind with value stocks having underperformed growth companies over the year-to-date.
Looking forward, Joe and the team are aware of valuation pressures given the average weighted discount across the portfolio has narrowed from 32% in October last year to 25% at the time of writing, but they believe this trend of discount narrowing can continue as the macro environment remains supportive and they continue to find opportunities within their investment universe (although as we note in our research, the shape of the portfolio is evolving).
Despite this outperformance, there has been little movement in the discount – which stands at 10% as of the 20 June 2017.
British Empire Trust plc is a client of Kepler Trust Intelligence. Research produced by Kepler Trust Intelligence covering British Empire Trust plc should be considered a marketing communication, and is not independent research.
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