AVI Global 26 September 2023
Disclaimer
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by AVI Global. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
AVI Global Trust (AGT) offers investors a highly differentiated exposure to global equities. As discussed in Portfolio, AGT’s longstanding manager Joe Bauernfreund and his team operate a distinctly value-focussed, bottom-up investment strategy centred around identifying high-quality companies trading at significantly depressed values to their estimated NAVs. The team look for investment opportunities in the three distinct categories of closed-ended investment funds, family-backed holding companies, and Japanese-asset-backed special situations.
Macroeconomic uncertainties and elevated levels of risk aversion have seen discounts across investment trusts widen significantly, leading Joe to increase AGT’s exposure to listed private equity and venture capital investment companies to 23% over the last two years. As discussed in Discount, AGT’s own discount of 10.9% is currently at wider levels than its five-year average discount – combined with the wide discount for the underlying investments meaning AGT is trading on its widest ‘double discount’ since the Global Financial Crisis in 2008.
In certain situations, mainly with closed-ended funds and Japanese smaller companies, the team look to add value by taking a highly active approach. Within Japan, Joe and the team see the improved macroeconomic environment and focus on corporate governance as an opportunity, and their regional expertise allows them to take a consultant-like engagement approach with the aim of making significant improvements to business operations.
As discussed in Performance, the strategy has been successful, significantly outperforming the MSCI ACWI ex US benchmark and the AIC global sector average over all time periods.
In our view, with AGT’s ‘double discount’ being close to historically wide levels, now could be one of the best opportunities to invest in the trust for a long-term investor looking to gain exposure to a truly benchmark-agnostic, global equity investment strategy. As interest rates look to be peaking in the US and the UK, and the premise of a softer landing becomes a more probable outcome, this bodes well for the potential NAV appreciation of the underlying holdings, particularly the increased allocation to private equity, and for the wider-than-average Discount of AGT itself.
We think AGT’s Performance has been impressive across both the short and long term with Joe’s highly active, benchmark-agnostic approach to portfolio management proving to add value over what has been a volatile period. Should markets remain volatile, we believe the significant allocation to Japan, where macroeconomic conditions and regulatory reforms look more supportive of growth, combined with the team’s expertise, could provide a hedge against the uncertain macro environment in the US and UK. In addition, the increased focus on identifying attractively valued idiosyncratic, event-driven opportunities should continue to provide further opportunities to generate alpha regardless of the market environment – although Gearing may exaggerate returns along the way.
Bull
- Double discount close to its widest level since the great financial crisis in 2008
- Strong short- and long-term performance track record versus benchmark and global peers
- Benchmark-agnostic investment strategy offering exposure to otherwise hard-to-access opportunities
Bear
- High KID RIY
- Gearing can magnify losses in weak markets, but can enhance gains in strong markets
- Discounted portfolio can increase exposure to market downturns
Fund History
