AVI Global Trust (AGT – previously British Empire Trust) seeks to generate capital growth for investors through investment in a reasonably concentrated portfolio of listed companies whose shares trade at a discount to the managers’ estimate of fair value.
AGT’s investment strategy under current lead manager Joe Bauernfreund, who took over in 2015, has moved to increase portfolio concentration and place a greater emphasis on identifying a catalyst for value realisation. AGT looks to exploit market inefficiencies whereby the managers can invest in high-growth and/or quality underlying companies at a discount by accessing them through a holding company structure.
As we discuss under the Portfolio section, holdings can be categorised as: 1) closed-ended funds, 2) family-backed holding companies, or 3) asset-backed special situations (which currently consist primarily of Japanese cash-rich operating companies). The exposure to Japan has been gradually increasing in recent years, as Asset Value Investors (AVI) believes there is a substantial investment opportunity in this area, so much so that the firm launched a separate investment vehicle to focus solely on it.
Presently, the look-through weighted double discount to NAV of the underlying holdings stands at c. 42% (as at 31/10/2020), as highlighted under the Performance and Discount sections. This is wide by historical standards, and we note that previous instances where the double discount has reached this level have tended to lead to subsequent periods of outperformance.
Gearing has been tactically utilised in recent months, and the team tell us the recent market volatility has continued to create new opportunities in high-quality assets.
Kepler View
In the wake of the COVID-19 pandemic and associated economic shutdown, global equity markets seemingly remain bifurcated between perceived ‘old’ and ‘new’ economy stocks. The former are presumed to be at the mercy of a potential global economic recovery in order to stave off insolvency, and the latter are assumed to win in any continuation of current circumstances. Elements of truth exist in both, but in such capricious circumstances considerations of which companies are which often seem transitory.
In our view AGT seems well placed to straddle both considerations. The underlying companies have exposure to many of the well-known and acknowledged secular growth stories. Yet the method AVI employs to access them (usually through holding companies) gives the managers the opportunity to find valuation opportunities where a temperamental market has significantly discounted look-through valuations.
This latter element in particular can be seen in the double discount which, despite tightening in recent months, remains at a level which has typically led to notable outperformance. AGT’s portfolio therefore looks to us nicely balanced between two forces. Operationally, it is exposed on a look-through basis to secular growth trends which would benefit from a continuation of current conditions. Yet a change to a more reflationary/recovery environment should, we believe, see AGT benefit from a narrowing of the double discount (as discussed under Performance). This balance probably prevents full upside capture in any one scenario, but should offer a structurally sound long-term proposition with demonstrable flexibility.
| Bull | beAR |
| Double discount remains wide by historic standards |
Illiquid nature of many closed-ended holdings makes discounts vulnerable to market reversals |
| Discounted access to high-growth opportunities |
Gearing can exacerbate downside (as well as amplify upside) |
| Exposure to an array of otherwise hard-to-access, high-quality opportunities | High level of KID RIY |
