Refined value, resilient performance

Momentum Multi-Asset Value Trust (MAVT) is a multi-asset trust which aims to deliver inflation plus returns over a typical investment cycle. MAVT pursues a unique take on value investing which it terms ‘refined value’ – looking beyond equities, to which traditional value strategies are restricted, and encompassing a far wider range of assets. This results in a widely diversified and highly differentiated portfolio including equities, fixed interest and alternatives, as well as third party funds managed with a value slant.

Long-term value investors will be aware of the famous JM Keynes quote, that “markets can remain irrational for longer than you can remain solvent”, and there have been points in the last ten years for fans of the style when these words may have felt particularly poignant.

Value investing focuses on identifying companies which, in the view of the investor, are presently undervalued by the broader market and are trading on prices which do not reflect the true quality of their businesses.  

Growth investing largely ignores the price of a share today and focuses instead on the future price which the investor believes the share is capable of achieving, based upon the growth potential of the company.

For the last decade the latter style has outperformed the former as growth stocks were buoyed by a once-in-a-generation wave of technological innovation. This was bolstered by a collapse in the US 10-year treasury yield as the growth boom reached its peak in Q1 2020. Lower yields make the value of future earnings for growth stocks more attractive.

However another more recent famous investor; billionaire Peter Thiel – the first outside investor in Facebook and co-founder of Paypal – said: “The most contrarian thing of all is not to oppose the crowd but to think for yourself.”

For the team at MAVT this contrarian instinct has been a guiding principle of their approach throughout these difficult times for value investors, and in the last year – as the decade long growth bull market has stuttered and value has at last begun to find its feet – the approach is paying off.

Value stocks rallied sharply on news of the vaccine breakthrough in Q4 last year, and continued to perform strongly in the first half of this year as investors began to bet on a post-COVID recovery. Growth has recovered some ground, but value investors remain excited about the outlook for value stocks. The trust has delivered solid returns this year which help put its five-year NAV total return at 47.7%, close to the peer group average for the AIC Flexible Investment sector’s 54.4% over the same period.

Portfolio manager Gary Moglione said the team’s contrarian approach was a crucial asset during the COVID crisis: “Our philosophy is to focus on valuations, and we were finding some of the best bargains we’ve ever seen in our careers – even compared to what we saw during the 2008 crash. We were buyers of UK equities, buyers of investment trusts, and that has helped us during the recovery since and we continue to benefit from those new holdings.”

MAVT has topped up its holdings in a number of investment trusts during this period. The team prefers specialist vehicles which use the advantages inherent to the closed-end structure and these highly specialised trusts – including HOME Real Estate Investment Trust, Digital 9 Infrastructure and Gore Street Capital Energy Storage Fund – reflect that.

MAVT itself has also used the structural advantages of the investment trust structure to good effect during the period.

Gary says: “During one of the harshest income shocks the market has seen in the last century a lot of companies cut their dividends, but we were able to use our reserves to ensure our dividend wasn’t cut. Those reserves remain significant, which puts us in good stead to ensure that the dividend remains ahead of inflation even if underlying revenues don’t keep up.”

Gary and the team are cooler on the prospects for the UK than they were at the start of the year, after a strong rally for UK equities, though they still see selective opportunities here. Instead, they are looking for ideas in emerging markets, Asia-Pacific and Japan - believing these represent better opportunities.

In addition to the diversification benefits which exposure to other trusts provides, Gary says the trust’s exposure to other investment trusts could also be a key driver of future returns. “We have a slight bias toward specialist assets. There are a lot of trusts still on significant discounts, so you’ve got the potential for these to close as well as the NAV growth which comes with a recovery, so we’re happy to get involved there and in the meantime you are seeing yields of 6-8% so you are being paid to wait.”

The strength of MAVT’s recent performance has had a positive impact on long-term returns. The trust has delivered NAV total returns of 22.5% over the twelve months to date, and 47.7% over five years – putting it roughly in line with the peer group average for the (very broadly diverse) AIC Flexible Investment sector, which has delivered 54.4% over the same period.

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