A three-for-one value opportunity for compelling sectors
This trust invests in compelling sectors that all look attractively priced.
![Tokyo © Getty images](https://cdn.mos.cms.futurecdn.net/j6GYZzoxaoGomE8ifUnGaV-415-80.jpg)
The AVI Global Trust (LSE: AGT) offers investors access to three opportunities at once. The first is family-controlled holding companies. Shares of companies with high ownership by founding families outperform. A recent report by fund managers Pictet found that those with family ownership above 30% outperformed the global market by 46% between 2007 and 2019.
The direct link between ownership and management acts as a powerful incentive to focus on long-term value accretion rather than the short-term dash for glory favoured by all too many hired-hand chief executives.
A new bull market
Then there is Japan. Charles Gave, chairman of Gavekal, the investment research group, points out that “a new bull market in non-financial Japanese equities began sometime between 2012 and 2016, and it probably has a lot further to run. The profits of Japanese companies are in a structural uptrend, Japanese companies have positive cash flow and the amount of cash on their books is close to the market capitalisation of the entire Topix index.”
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Thirdly, note that despite an average discount to net asset value (NAV) of 6% among investment trusts, several still trade on wide discounts despite strong performance records, usually because they don’t fit neatly into conventional investment categories. Eventually, performance should trump the doubts and the discounts then disappear, boosting returns for those prepared to buy early.
AGT spreads its bets between all three areas: 38% of net assets is invested in family-controlled holding companies, 39% in closed-end funds and 33% in Japan, with the 10% overinvestment financed by borrowings. The connection between the three is value; the family-controlled companies trade at large discounts to the sum of their parts, the closed-end funds trade at discounts and the Japanese companies have significant surplus assets. So enthused is Joe Bauernfreund, manager of AGT, about the last that last year he launched a £120m investment trust, AVI Japan Opportunity (AJOT), focused on smaller companies.
In the Japanese small-cap portfolio, “50% of the market value is accounted for by surplus net cash, rising to 94% if listed securities are included”, says Bauernfreund. “This [leaves] the underlying businesses trading on less than three times earnings. These are high-quality businesses with growing earnings and a return on equity of 18%, double that of Japanese smaller companies in general.”
Finding undervalued assets
Both in Japan and generally, Bauernfreund’s strategy is “patient, constructive, behind-the-scenes engagement in companies with undervalued assets”. This does not preclude going public, as AGT did with Fujitec, circulating research detailing “operational and strategic inefficiencies as well as a cumbersome balance sheet and corporate governance issues”. Fujitec was one of the leading contributors to performance in June.
The closed-end holdings include Pershing Square, on a discount of over 30% despite returning 32% in the first half, and private-equity group Oakley Capital. It is on a 37% discount to conservatively valued assets despite plenty of net cash and a return of 4% in the first half.
In the family-controlled section of the portfolio are Investor, the holding company of the Wallenberg family; Christian Dior, controlled by LVMH’s boss Bernard Arnault; Exor, controlled by the Agnelli family; and Godrej Industries, the holding company for three listed Indian firms of which the consumer products one is “the jewel in the crown”. AGT trades at an 11% discount to NAV, which should narrow as the investee businesses perform and their discounts diminish. This makes AGT an excellent counterbalance to the growth-orientated trusts that dominate the performance tables.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
-
Regulator moves to protect access to cash amid branch closures and disappearing ATMs
News The Financial Conduct Authority has told banks to start assessing if local communities have adequate cash access from mid-September
By Marc Shoffman Published
-
VAT hike on private school fees could come earlier than previously expected
The government could start charging VAT on private school fees as soon as January 2025, according to the latest reports. What does it mean for parents?
By Katie Williams Published
-
UK mid-caps: an improving outlook
UK mid-caps have perked up and the rally may run further, but long-term investors should remain selective
By Cris Sholto Heaton Published
-
The tobacco industry is going smoke-free - how to profit from it
Tobacco companies have realised their traditional products are on the wane. But new opportunities have opened up – and should prove lucrative
By Rupert Hargreaves Published
-
Is it time to invest in creative industries?
Any industrial strategy should not overlook the creative industries, one of our top national assets
By David C. Stevenson Published
-
Is Mercia Asset Management set for success?
Mercia Asset Management helps the government fund smaller companies in Britain’s regions. Should you invest?
By Rupert Hargreaves Published
-
British stocks set for a boost
British stocks are due for a bounce as the UK looks more stable compared to many economies
By Alex Rankine Published
-
Ocado shares jump by a fifth
Ocado takes a turn for the better after attractive profit forecasts were announced
By Dr Matthew Partridge Published
-
The AI boom is on borrowed time
The hype around the AI boom could be on its way out – but why?
By Alex Rankine Published
-
Diploma: a blue-chip set for strong growth
Diploma, whose niche products include seals and fasteners, serves an array of growth markets. Should you invest?
By Dr Mike Tubbs Published