Fiddich Review Centre
Alternative Investment

AVI Global Trust looks to be a bargain

Bull points

  • Puts cash to work in a down market
  • Benefits from dual layer of discounts
  • Unique approach
  • Broad diversification

Bear points

  • Big bet on private equity
  • Slim dividend yield

The alternative assets in which investment trusts increasingly specialise come with plenty of unknowns, which means buying into a heavily sold-off fund in this space can introduce some very idiosyncratic risks to a portfolio. As enticing as the discounts on offer do look, it might therefore be worth taking a more conservative approach to the bargain hunt, via a more generalist trust. 

Launched in 1889 as the Transvaal Mortgage Loan and Finance Company, AVI Global (AGT) is not a new entrant to the sector, nor does it directly invest in the alternative asset classes that have piqued investor interest in recent years. And with its discount to NAV at 9 per cent, its cheapness is no match for some of its investment trust peers. Nevertheless, a look at the trust’s underlying portfolio suggests this could serve as more cautious way to pick up bargains.

AGT has a value remit, meaning its investment team hunts for companies and investment trusts whose own share prices stand at a discount to the estimated underlying NAV. Its managers, led by chief executive and chief investment officer Joe Bauernfreund, also look to extract further value from investee companies by engaging with management and encouraging improvements.

A greater attraction, to our mind, is the trust’s diversified approach to bargain hunting: the fund had 39 positions at the end of September and Bauernfreund likes to spread money across three distinct investment categories. These are holding companies with a high-quality portfolio of businesses, often with a controlling family or major shareholder with a track record of delivering good returns; promising investment trusts trading on a discount to NAV where there are assurances this discount can be narrowed; and cash-rich Japanese operating companies. The team has a long heritage of investing in Japan, as demonstrated by the launch of sister fund AVI Japan Global Opportunity (AJOT) in 2018.

We’ve noted investment trusts’ growing tendency to buy into illiquid alternative assets with an appealing narrative, be it infrastructure, property, music royalties, private equity or esoteric forms of debt. AGT certainly dips into that, albeit indirectly. While its most prominent holding is Pershing Square (PSH) – the Bill Ackman vehicle that has largely served as a concentrated US equity fund – the team has put money to work backing an array of private equity (PE) trusts in recent months, with holdings ranging from Oakley Capital (OCI) to Pantheon International (PIN) and HarbourVest Global Private Equity (HVPE). Investors are therefore tapping into a sector that has sold off heavily without staking too much on any individual fund. 

This high conviction approach may unnerve some investors at a time of rising doubts around PE, but we like the fact that AGT’s team has decided to put money to work at a time when some fund managers favour a ‘wait and see’ attitude. Share price discounts on PE trusts have widened dramatically in 2022 – discounts on those mentioned above range from 37 to 47 per cent – reflecting concerns over leverage and the impairment risk to underlying NAVs. But while the trusts could suffer in the short term, there is an argument that the sector is in a much better position than 2008-09 crisis, when some trusts found themselves with too much debt and too many capital calls from underlying holdings. AGT’s team has pointed to the fact that several PE trusts have announced share buyback programmes in 2022, a stark contrast with the financial crash when many became forced sellers of their own holdings.

Looking beyond its recent activity, AVI Global more generally continues to stand out as a global fund. Its value approach differentiates it from the global growth funds that have ruled much of the last decade but struggled in 2022; while AVI Global has not gone unscathed, it has had a much better 2022 than some of its peers. The focus on investment trusts, holding companies and Japanese special situations is far from standard, too. AVI Global is unlikely to be beholden to the fortunes of classic cyclical sectors such as energy and financials, and any problems it has are likely to be more idiosyncratic. With that in mind, it is worth assessing its top 10 holdings, which made up more than half of the portfolio at the end of September.

Top 10 Holdings
Holding Proportion
Pershing Square Holdings 7.9%
EXOR 7.7%
Aker ASA 7.3%
Oakley Capital Investments 6.8%
KKR 5.7%
Brookfield Asset Management 5.4%
Christian Dior 5.3%
Schibsted ASA ‘B’ 5.1%
Third Point Investors 4.9%
FEMSA 4.5%
Total 60.6%
Source: Trust, as of November 2022.

The usual health warnings of course apply. And despite its unique approach, this trust’s shares are not immune to market volatility and the investment team may themselves have risked a value trap in PE. The flipside to this is that the ‘true’ discount to its underlying assets is even starker than its share price suggests.

AVI Global (AGT)
Price 186.2p Gearing 4.05%
AIC sector IT Global Gross assets £1.2bn
Fund type Investment Trust Share price discount to NAV 8.90%
Market cap £910mn Ongoing charge 0.89%
Launch date 6 Feb, 1889 Yield 1.80%
More details www.aviglobal.co.uk    
Source: Company, Trustnet, FactSet.

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