With stock markets trading near all-time highs, it might seem like there are few bargains to be had. That is rarely the case. We believe the 136-year-old AVI Global Trust (AGT) is a great way to get exposure to undiscovered quality assets, trading at a ‘double discount’ to intrinsic value.
The trust trades at a 7.5% discount to its own NAV (net asset value) while the weighted average discount on the underlying portfolio is more than 40%, near the bottom end of its 10-year range.
This is even more intriguing when considering the trust’s NAV and share price are trading near all-time highs, reflecting several successes within the portfolio.
The trust has been busily recycling some of those successes into new opportunities which sit on big discounts to the managers’ estimate of intrinsic value.
Over the last five years the trust’s total return in NAV has been 98.8% or around 14.75% annualised, comfortably outperforming the MSCI ACWI (All Country World Index) of 80%.
This has been achieved with a big underweight to US assets which represent just 16% of the portfolio, compared with a 65% index weighting. For comparison the MSCI ACWI ex US has a five-year total return of 56.8%.
Since taking over the management of the trust in June 1985 the investment manager, AVI (Asset Value Investors) has delivered an annualised total return of 11.6% a year.
A DIFFERENTIATED APPROACH
For the uninitiated, AVI is focussed on delivering capital growth by investing in a concentrated portfolio of companies and assets which trade at a discount to the managers’ estimate of intrinsic value.
The manager seeks to identify quality assets held through unconventional structures such as holdings companies, closed-ended funds and asset-backed special situations.
Often the holding companies are vehicles for families to control their underlying assets. For example, French fashion house Christian Dior (CDI:EPA) is the family holding for France’s richest man Bernaud Arnault, and his 50% ownership of LVMH (MC:EPA).
Ultimately, AVI is looking to find undiscovered value among high quality assets to drive long-term capital growth. The manager has followed the same approach since 1985.
With so many global portfolios holding similar assets revolving around the large US technology firms, AVI Global offers shareholders a differentiated return profile and high active share (different from the benchmark) relative to global benchmarks.
COULD KOREA BE THE NEXT JAPAN?
AVI Global has long been an activist in Japan and as of the end of June the country accounted for 18% of the portfolio. The manager is aiming to repeat its Japanese success in Korea, driven by a greater focus on shareholder returns.
Despite being the 13th largest world economy, Korea’s stock markets remain largely irrelevant, accounting for around 1% of the MSCI ACWI. Poor corporate governance and restrictions on the convertibility of the Korean won have kept valuations low.
The AVI team estimate that 70% of KOSPI-listed stocks trade below book value with 40% trading at less than half book value. The persistent undervaluation can be traced to the powerful ‘family controlled’ chaebols which exercise control through intricate cross shareholdings.
The manager believes the election of new leader Lee Jae Myung in May was the trigger to unlock shareholder value and he appears to have made progress in improving corporate governance.
New legislation passed in July gave company boards more fiduciary responsibilities and required them to consider the interests of minority shareholders. This has led to more shareholder activism.
It remains early days in the transformation of Korea’s corporate landscape, but the AVI Global team believe it has legs and has initiated new positions equivalent to 3% of the portfolio across a select group of Korean companies trading at an average 51% to estimated intrinsic value.
The trust’s top holdings include private equity investment trust Chrysalis Investments Limited (CHRY), News Corp (NWS:NYSE) and French entertainment and media conglomerate Vivendi (VIV:EPA).
After spinning off its media assets including pay tv group Canal+ (CAN), the bulk of Vivendi’s value lies in its 10% stake in Universal Music (UMG:AMS).
AVI believes Vivendi now has little reason to exist and with company trading at half AVI’s estimate of intrinsic value, activist intervention may signal a wind up of the company or a ‘take private’ transaction at a premium.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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