Since 1985 our trust has invested in high-quality assets held through unconventional structures and trading at discounts to their net asset value (NAV). The portfolio comprises three main types of company: family-controlled holding companies; closed-end funds; and other asset-backed special situations, such as cash-rich Japanese operating companies.
We aim to benefit from both NAV growth and discount narrowing, driving attractive long-term returns in excess of global equity markets. We are bound by our core philosophy: quality assets at discounted valuations.
A widely diversified holding company
One stock we consider particularly attractive is EXOR (Milan: EXO), the holding company of the Agnelli family. EXOR is a diversified investment holding company, with stakes in Fiat Chrysler, Ferrari and capital goods specialist CNH Industrial, as well 100% ownership of global reinsurer PartnerRe. EXOR trades at a discount to NAV of about 40%.
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We expect this discount to narrow over time and the NAV itself to compound at an attractive rate, the combination of which should drive strong returns.
The upcoming merger of Fiat Chrysler with Peugeot-owner PSA will create the world’s fourth-largest car manufacturer, with attractive growth prospects, strong margins and, in Carlos Tavares, an industry-leading CEO likely to capture valuable synergies.
Similarly, we see upside at CNH where demand for agricultural equipment, as farmers replace old machines, should drive strong profit growth, while a splitting of the company should lead to multiple expansion. PartnerRe, moreover, will benefit as pricing continues to harden.
The lap of luxury
Another firm we like is Christian Dior (Paris: CDI), the French-listed holding company through which the Arnault family controls luxury-goods conglomerate LVMH. Historically Christian Dior has traded in lockstep with LVMH, at or around NAV. However, amid the volatility of 2020 a near-25% gap has opened up between the two.
We expect this to close over time, either naturally or through the family deciding to collapse the structure. In the meantime investors are exposed to expansion at LVMH, whose irreplicable brands enjoy strong growth prospects, attractive margins, and significant scale advantages that will see them emerge from Covid-19 in an even more dominant position.
Oakley Capital Investments (LSE: OCI) is a London-listed private-equity fund trading on a 23% discount to NAV. OCI has a unique approach to private-equity investing: it sources companies through a network of entrepreneurs who believe in the Oakley philosophy, and it focuses on complex situations (such as carve-outs) that help bypass the traditional auction process.
OCI has thus assembled an array of fast-growing companies at reasonable prices in the consumer, TMT (telecoms, media and technology) and education sectors. The discount reflects both weak previous corporate governance and dilutive share issuances. However, OCI has moved past these issues. As the market updates its view of OCI, we believe that the discount will narrow, providing an additional tailwind to returns on top of NAV growth.
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