AVI Global 07 April 2022
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 (AGT) takes a clearly differentiated approach to investing in global equities. Joe Bauernfreund leads the management team, and he is supported by Tom Treanor as Head of Research and a team of nine investment analysts. They seek to identify high-quality businesses, but critically, they look to identify those that are trading at intrinsic discounts to their estimated NAVs. AGT’s portfolio can be broken down into three distinct categories: closed-ended investment funds, family-backed holding companies and asset-backed Japanese special situations. The team seek to enhance shareholder returns by actively engaging with their investments when possible to address governance issues, which can in turn lead to further discount narrowing. In the Portfolio section we discuss some examples of how this approach has borne fruit, including the team’s successful engagement activities with their hedge fund holdings and their exposure to the forthcoming IPO of what will be the world’s only pure-play hydroelectric company.
The team’s idiosyncratic approach to investment has led them to outperform both their peers and benchmark (the MSCI ACWI ex US Index) over the short and longer term. This Performance has been achieved despite their strategy, and discounted investment vehicles in general, having historically seen greater underperformance during the more painful market downturns due to discount widening.
AGT’s outperformance has not been reflected in its Discount, however, as its current 8.2% discount is wider than that of its peers, although in line with its own long-term average. As a result of AGT’s process, it also trades on a ‘double discount’ of c. 36%, reflecting a combination of both the trust and its underlying assets’ discounts.
AGT offers investors a unique investment approach to global equities, as well as being one of an increasingly small cohort of value-orientated trusts that are available to investors, making it potentially attractive for those looking to diversify away from growth or core equity allocations. In our opinion it is also likely that many investors will have few investments that share the same holdings as AGT given the team’s unique approach, which may mean that AGT may also be a strong source of stock-level diversification for investors.
Given the current market dynamics, we think AGT offers a possible ‘buy the dip’ opportunity. If companies which trade at deep discounts to their NAV do indeed have the propensity to overshoot during sharp market drawdowns (as we are seeing currently), then the current environment may offer an exciting entry point. It could be that a Ukraine peace deal or easing of supply-chain issues becomes the catalyst for a strong rebound. Similarly, AGT’s historically wide share price discount may also be attractive, as this could narrow too.
Bull
- Combines high-quality business models with deep-discount opportunities
- Offers a compelling source of both stylistic and stock-level diversification
- Has outperformed its peers and benchmark over the near term, despite market downturn
Bear
- Discounted portfolio can increase exposure to market downturns
- Gearing can enhance losses on the downside
- High KID RIY
Fund History
