Japanese investment trust to channel resources into, often neglected avenue
AVI Global Trust: Unlocking Undervalued Assets through Active Engagement
AVI Global Trust (LSE: AGT), a £1.3 billion investment trust, focuses on capital growth through a concentrated portfolio of undervalued companies, particularly those trading at a discount to their estimated underlying net asset value.
The trust's strategy is centred around three key areas: family-controlled holding companies, closed-end funds, and Japanese companies, with a global, bottom-up stock picking approach that uncovers complex, inefficient, and overlooked equity opportunities.
In family-controlled companies, AGT actively engages to encourage reforms or unlock value that the market has overlooked. The trust also invests in closed-end funds trading at discounts to their net asset values, aiming to benefit from potential narrowing of discount levels or improvement in the underlying assets.
AVI has a history of success investing in Japanese companies, particularly those with entrenched inefficiencies such as cross-shareholdings, excess cash, or poor governance. They seek to exploit opportunities created by regulatory reforms or management changes that address these inefficiencies, unlocking value for shareholders.
AGT's performance reflects these strategies, showing consistent capital growth aided by identifying discounted assets in complex situations that may be overlooked by traditional investors. The trust's portfolio is very different from a conventional global fund, yet it has comparable returns.
The trust's top holdings include News Corporation, Oakley Capital, and D'Ieteren, with the top 10 holdings making up 50% of the portfolio. AGT also has high exposure to Europe and Japan, low to North America, and minimal overlap with other global funds in terms of holdings.
AGT's approach involves buying durable businesses growing in value and maintaining a fully invested portfolio. The trust has shown its activism in companies like Hipgnosis, where they helped vote directors off the board and install new ones, leading to the sale of the company to private equity after a bidding war.
One of AGT's investments, Chrysalis, trades on a 36% discount, and its fortunes are believed to be improving. Another investment, Oakley Capital, trades on a 28% discount to a conservatively stated net asset value.
Borrowings are currently 7% of net assets, indicating that the team has attractive opportunities. The largest Japanese holding in AGT's portfolio is SoftBank, although it is not a small firm.
Joe Bauernfreund, manager of AVI Global Trust, believes that families can think longer-term than hired management and provide a strong culture. He states that markets are not efficient and many companies are overlooked by investors.
In Japan, smaller companies are anomalously cheap, and AGT invests alongside the £200 million AVI Japan Opportunity Trust, encouraging management to realize shareholder value.
In summary, AVI Global Trust's investment strategy in family-controlled companies, closed-end funds, and Japanese companies centres on finding undervalued assets with structural discounts, then unlocking value via active engagement and capitalizing on governance reforms. This focus on complex structures and corporate inefficiencies underpins their pursuit of long-term capital appreciation.
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