A low allocation to the US, “rare” investment style and strong defensive track record, are some of the reasons analysts think the AVI Global trust is worth snapping up at a discount.
Joe Bauernfreund’s £1bn AVI Global Trust is a distinctive member of the IT Global sector, due to its different approach towards value investing.
Pigeonholing the trust as value, however, underestimates what the manager aims to achieve, the experts said. Rather than focusing on cheap valuations or out-of-favour names, he looks for high-quality but under researched companies trading at a discount.
David Johnson, an analyst Kepler Trust Intelligence, said he runs “one of the rarest approaches to global equity investing available in the open- and closed-ended universes”.
The end portfolio is full of attractive valuations without being explicitly value, he said, “creating a highly idiosyncratic portfolio that can avoid some of the risks associated with the value style”.
However, this process comes with benefits and drawbacks in terms of performance. Near term this approach has come into its own and protected investors’ returns better than some of the stalwarts of the sector as the market and economic environment has become more challenging thanks to central banks moving away from looser, more liquid monetary policies into a period of tightening.
In the past year AVI Global made 16.3%, the IT Global sector’s third best returns. This compares favourably with the likes of renowned investment trust Scottish Mortgage, for example, which lost 19.6%, the second worst performance during that time.
Performance of trust vs sector and benchmark over 10yrs
Source: FE Analytics
But this has not been the norm for the trust, which has bounced between first and fourth quartile over the years. Over 10 years it has lagged the sector, dipping into the third quartile (181.9%).
Performance of trust vs sector and benchmark over 1yr
Source: FE Analytics
However, it could be one of the sector’s beneficiaries if the value rally can continue, Johnson said.
“It’s highly idiosyncratic return profile (driven by a combination of active engagement and discount opportunities) could mean that it may still be able to generate strong returns in the current bear market, though investors should be aware that it is not an ‘absolute return’ fund per se.” This could be appealing if market drawdowns continue to spike, such as the one at the start of the year.
Priyesh Parmar, associate director of investment companies research at Numis investment bank, was also bullish about the trust, stating that he would be “happy holding AVI Global”.
“The 8% discount on the listed fund offers some value and the fund does engage in buybacks which helps to limit the downside.”
James Carthew, head of investment companies at QuotedData, seconded this sentiment, adding: “In a world where speculative growth stocks are out of favour, AVI Global’s portfolio of decent businesses that the manager believes are valued at a sizeable discount to their true worth is holding up well.”
Carthew picked the trust as his favourite portfolio for last year and remained optimistic about its return prospects in 2022.
There were other reasons to be bullish on the trust, such as the current growth sell-off, which has hit US equities especially hard.
American companies make up the biggest regional weighting in the AVI Global trust (28%), but it is not as heavily biased towards the region as others. Europe is its second largest position at 26% with Japan at 24%.
This relative underweight – the US makes up 69.3$ of the MSCI World index for example – is something that adds to the trust’s appeal, according to Anthony Leatham, head of investment trust research at Peel Hunt, given the headwinds facing the market at the moment.
The trust’s Japan allocation does leave some pause for thought though, Leatham said, and investors will have to take a view on that market when deciding to invest.
Japanese equities have been a marmite sector for investors since the late 1990s crash which still lingers in the minds of some investors’. Others have been kept away by its affiliation with poor corporate governance.
Japanese companies are still transitioning to being pro-shareholder, a decade on from when then-prime minister Shinzo Abe’s ‘Abenomics’ scheme was first introduced, but Bauernfreund regards this as a great opportunity, by using active engagement to unlock potential shareholder value, a practice he regularly partakes in, Leatham added.
Based on all these components and current discount, overall Leatham gave the trust a ‘hold’ rating.