AVI Global 14 October 2021

AVI Global Trust (AGT) offers investors a portfolio of companies which trade at a discount to their own NAV, while offering opportunities to add value via active ownership. The team, led by manager Joe Bauernfreund, believe their holdings will generate superior returns either through a narrowing of their discount, often achieved by unlocking unrealised shareholder value through active engagement. However, first Joe aims to find companies which own high-quality underlying assets which should be able to offer attractive returns in themselves.

AGT’s portfolio can be broken down into three categories: closed-ended investment funds, family-backed holding companies, and asset backed special situations. We note that asset backed special situations primarily refers to Japanese equities, whose historically poor corporate governance and capital allocation opens up opportunities for effective engagement.

While AGT’s portfolio of discounted holdings does lend itself to being a ‘value’ style strategy, we highlight that the underlying portfolio contains a wide variety of different companies, including a number of more highly-valued names which sit firmly in the growth style, with Morningstar having assigned AGT a ‘core’ style as a result. We describe AGT’s process and holdings in more detail in the Portfolio section.

AGT has demonstrated a competitive return profile, beating the MSCI ACWI over the last five years. Yet, as we highlight in the Performance section, returns have been especially strong over the last 12 months, when it has been the best performing strategy within the AIC Global sector. This is in part the result of AGT’s quick rebound from the initial COVID-19 crash, as well as the team’s active positioning in economically sensitive companies. Despite AGT’s recent performance, it still trades on a 8.3% discount, wider than its peer-group average, although it has recently shown signs of narrowing. AGT estimates its current ‘double discount’ is 36% of NAV, reflecting the combination of AGT’s discount with that of its underlying holdings.

We think AGT offers investors a highly differentiated approach to global equities, with the focus on discount opportunities and active engagement something hard to find elsewhere. Such a process may be attractive to those looking for either a differentiated source of alpha, or those who are looking to diversify their more expensive growth positions. AGT’s highly idiosyncratic holdings can also offer stock-level diversification, as the underlying portfolio lacks many of the mega cap companies which dominate global equity markets.

We think AGT also presents a compelling near-term investment case, as many of its holdings demonstrate strong performance during market rebounds, whereby they tend to capitalise on economic recoveries due to the combination of discount reversal and NAV growth. As a result, if investors were to believe that the post-pandemic recovery still has longer to run then there may be an ongoing catalyst for AGT to sustain its top decile 12-month performance. The latter may also be the mechanism through which AGT’s discount is further narrowed, something we have already begun to see this year.

We also note that AGT’s active approach to investing not only leads to it having additional, long-term drivers underpinning many of its holdings’ performance (given the length of time it takes for engagement campaigns to be effective), but it also makes AGT an attractive choice for ESG conscious investors. AGT’s active engagement is the most onerous and arguably important ask of an ESG investor, and important in ensuring the wider market adheres to ESG principles.