AVI Global 12 December 2022

AVI Global Trust (AGT) provides investors with a highly-differentiated global equity investment solution. Portfolio construction is centred around three company exposures: holding companies (47% of the portfolio), closed-ended investment funds (32%) and asset-backed securities made up of, predominately, Japanese special situations (21%).

Manager Joe Bauernfreund and his team continue to see opportunities in Japan, particularly in Japanese small caps, whose historically-poor corporate governance and capital allocation opens opportunities to influence through effective engagement. As risk aversion has grown this year, discounts on holding companies and closed-ended funds have widened. They have also been seeing opportunities across the listed private equity and venture capital space, where they have taken a basket-like approach, with the allocation to these companies now making up 8.4% of NAV. AGT’s own Discount is currently 8.4%. However, the wide discounts exhibited by the trust’s underlying investments in this troubled economic environment mean the ‘double discount’ of 45% is at its widest level stretching back to the financial crisis and significantly wider than its 16-year average of 33%.

Joe and his team aim to identify opportunities to exploit a discount differential between share prices and the fundamental value of companies. In certain instances, this can be helped by the team’s engagement activities with company management teams to improve the fundamental quality of the business operations and enhance shareholders’ returns through the narrowing of the discount.

As discussed in Performance, AGT has generated competitive returns versus the peer group and the formal benchmark, the MSCI ACWI ex USA Index, over the last five years. Furthermore, the manager’s index-agnostic investment approach and tactically-cautious use of Gearing has reduced the relative drawdown this year to date.

In our view, AGT offers investors a truly differentiated investment solution compared to other global equity trusts. The focus on valuations and wide discounts offers diversification from the growthier strategies within the AIC Global sector and emphasises the importance of active engagement within the team’s investment process. The continued investment in the team to bolster AGT’s analytical resources is only likely to improve their influence further, especially regarding the allocation to Japan.

Joe’s unconstrained approach leads to a genuinely index-agnostic and diversified portfolio that may suit investors seeking a less-correlated source of returns. This is reflected through a high-conviction approach to alternative investment strategies that are not commonly found in global equity portfolios. The recent growth in the allocation to private equity and venture capital is particularly intriguing given their wide discounts. We are conscious that the year end may highlight a pull-back in valuations, however, given these investments’ excessively wide discounts to NAV, with an average discount c. 50%, we believe that there is a significant buffer, if this were to occur. In fact, the wide double discount on AGT’s whole portfolio looks intriguing at levels rarely seen since the aftermath of the 2008 financial crisis and may hint at strong long-term returns to come, even if the immediate outlook for markets is cloudy.