AVI Global 06 April 2023

AVI Global Trust (LON:AGT) offers investors a truly benchmark-agnostic exposure to global equity markets. As discussed in Portfolio, AGT’s long-standing manager, Joe Bauernfreund, looks for differentials between the underlying asset value of an investment and its share price. This has resulted in three distinctive company exposures: holding companies, closed-ended investment funds, and asset-backed securities, with the latter predominantly made up of Japanese smaller companies.

The first half of 2022 saw an influx of cash through the sales of some lower conviction holdings. However, in early 2023, the pull-back in valuations led Joe to reinvest across more idiosyncratic, event-driven strategies, such as companies seeing strategic reviews at the corporate level or portfolio sales. The team believes these companies provide a less correlated source of returns and potential source of alpha. These investment opportunities have given them the confidence to take a more aggressive stance on Gearing over the last few months, increasing it to 7%.

The team has also identified more opportunities in US holding companies but maintain AGT’s significant underweight to the region and high-growth sectors relative to global benchmarks and the global sector peer group. Japan remains a key focus for the team where their regional expertise presents opportunities for them to actively engage where they can influence corporate governance or shareholder-friendly actions.

As discussed in Performance, AGT has generated competitive returns compared to the MSCI ACWI ex. USA Index and is the top performing trust within the global sector over the past three years. AGT’s Discount is currently 9.4%, however, the continued wide discounts exhibited by its underlying investments means the ‘double discount’ of c. 45% is at its widest level since the Eurozone crisis – significantly wider than the 33% average.

In our view, AGT’s strict bottom-up and valuation-sensitive approach has the potential to offer a more consistent long-term return profile if higher inflation and interest rates persist, particularly compared to some growthier strategies within the peer group. Furthermore, we believe the managers’ focus on identifying idiosyncratic and event driven strategies may provide a less correlated source of returns for investors should the individual investment theses and catalysts materialise as the managers expect. This is in addition to AGT’s significant allocation to Japan where positive regulatory reforms around corporate governance combined with the managers’ experience and focus on active engagement have proven to be accretive to NAV in the past.

We believe AGT’s double discount, which is at its widest level since the eurozone crisis, may offer a particularly strong long-term performance outcome. Furthermore, Joe’s more aggressive stance on gearing may enhance returns, however, we are conscious that short-term market uncertainties may exaggerate the trust’s volatility. We believe the increased level of diversification across the portfolio through the private equity and venture capital basket and the team’s renewed interest in the US may further improve the consistency of the trust across the market cycle.