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205. Bull, Bear & Beyond – Vantage: Finding value in areas overlooked by other investors
8 Plays10 days ago
In this new Vantage interview, Edison's Neil Shah speaks with Joe Bauernfreund who manages AVI Global Trust (AGT). Bauernfreund provides an introduction to the fund and highlights the three types of investment within the portfolio: holding companies, closed-end funds and asset-backed special situations. He discusses the importance of active engagement with management teams before moving on to talk about opportunities in Japan and South Korea due to corporate culture changes. Bauernfreund also discusses the trust’s long- and short-term performance and some specific features, which provide a differentiated exposure to global equities.
AGT is a global equity fund that aims to generate capital growth from a portfolio of companies that are trading at a discount to their estimated net asset values.
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About ‘Bull, Bear & Beyond’
Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets and 60-second pieces are a compressed summary of content designed to convey our message in a single, easily shareable hit.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction and Fund Overview
00:00:06
Speaker
Welcome to Vantage. We're focusing on a global trust um and one where we've got a sort of value angle. ah Welcome for the very first time ah to Vantage. Joe, you're the ah CEO and CIO ah of AVI i Global Trust. um For viewers less familiar with AVI Global Trust, um maybe you could just give us a ah quick overview of you know what it offers and investors and how it differentiates itself from its peers.
Investment Strategy and Categories
00:00:35
Speaker
Well, first of all, thank you very much for having me. It's good to be here. AVI Global Trust is a um global equity fund. It's a about £1.2-£1.3 billion pounds of total assets.
00:00:50
Speaker
And as the name suggests, it invests in equities globally. However, it is quite differentiated from most of its peers. Philosophically, we like to look for investments in places where other investors aren't looking.
00:01:04
Speaker
In short, we're looking for inefficiencies, anomalies, mispricings, companies trading at discounts to what we believe their their net asset value to be. And when you look at our portfolio, you'll see names that are probably less familiar ah to many of your your viewers and certainly very differentiated from portfolios of other global equity funds.
00:01:25
Speaker
Okay. um When we look at the the sort of trust, maybe you could sort of explain a little bit about the sort of types of investments. So typically got sort of three types of investments and then illustrate those with sort of examples in the portfolio. So holding companies, closed end funds and asset bank special situations, I think sort of show up regularly. now Explain why those and you know give us examples of
Focus on Family-Controlled Holding Companies
00:01:54
Speaker
those. Yeah. Well, as I said, you know we're we're looking in in parts of the market that are perhaps neglected and overlooked, less well researched and less understood.
00:02:03
Speaker
And family-controlled holding companies is one area that we've really ah focused on for the last 40 years. um They exist in Europe or in Asia, typically, other parts of the world as well. They're listed companies where typically you'll find families are the largest dominant shareholders. Yeah.
00:02:22
Speaker
And beneath that layer, you find these companies tend to own quite interesting, often very good, high-quality assets. Sometimes they're listed. Sometimes they're they're unlisted.
00:02:34
Speaker
An example that features in the portfolio today is a Belgian family-holding company called Deteron. Not that familiar amongst many many investors, but it's its key asset, the largest asset, making up over three-quarters of the value, is a business called Belron.
00:02:50
Speaker
ah which is a private company. And Belrond is perhaps well known to your your viewers because one of its brands here in the UK is the auto glass repair ok business, which is a really fantastic business. ah But Dieter and really highlights what what it is we're looking for.
00:03:05
Speaker
Belrond is a fantastic business. ah It's not very well covered by by research analysts. It's less well understood by by investors. And it trades at a um you know discount of around 35 40% of the value.
00:03:19
Speaker
And ah for us, it's really about getting exposure to high growth businesses, but on valuations that are are very heavily discounted.
Private Equity and Japanese Firms
00:03:31
Speaker
and that's a feature that extends across all the areas of our activities. So you mentioned we also look at closed end funds and asset-backed special situations. Within closed-end funds, um most of our activity over the last few years has been focused on listed private equity, ah generally funds that own unlisted assets. So we've got stakes in funds such as Harbourvest, Partners Group, um also Chrysalis, where we see quite a lot of activity in the underlying portfolio.
00:04:06
Speaker
trading on very wide discounts. And typically when when we invest in in closed-end funds, we like to be, if not the largest shareholder, a dominant shareholder, yeah ah so that we can have a voice at the table, seat at the table, and and talk to management about what we think ought to be addressed.
00:04:23
Speaker
And the final area that you highlighted is asset-backed special situations. ah Most recently, they those have come up in in Japan, where we've been pretty active over the last six or seven years and typically focus there on good quality operating businesses that have substantial cash balances and other liquid assets on their balance sheet.
00:04:46
Speaker
And some in some cases, as much as 100% of their market cap really in cash, that's the asset backing, yeah which means that we can buy into those kind of businesses on on very low valuations.
00:04:59
Speaker
I'm going to come back to Japan, but as you're looking, so you're scouring the market, you're looking at these opportunities, run us through the investment process.
Investment Processes and Market Dynamics
00:05:09
Speaker
um And in particular, so once ah if you're screening or you know you look at things and they show up, what's the process in terms of engaging with the management team? How active are you?
00:05:20
Speaker
And then you started talking about Japan. There's some interesting sort of changes in Japan from a sort of corporate culture perspective, which hopefully you can sort of expand on. And and also, if you can, just touch on you know what's going on in South Korea and the opportunities that are available there. Yeah.
00:05:39
Speaker
So the investment process is built around the idea that we can buy a pound of assets that we believe is going to grow in value over the next few years, but we can buy that pound at something like 60 pence today.
00:05:56
Speaker
ah We're not the only investors to do that. But very often when you find a pound of value on sale for 60 pence, the market is being quite efficient and and there's good reason for it. And we're trying to find the anomalies.
00:06:09
Speaker
um But if you're buying something for 60 pence in the pound, the the question is, how do you monetize that 40 pence gap? yeah What happens? ah And as a wise person once said, you know hope is not ah not a strategy.
00:06:22
Speaker
and And we firmly believe that doing something, being proactive in order to monetize that gap is is key to unlocking value and and a key part of our strategy. Now, when you're investing in family-controlled holding companies, you can't be an activist shareholder because there's a shareholder that's larger than you and more dominant and is in control.
00:06:42
Speaker
So in that sense, we're looking for um aligning ourselves with other shareholders who are doing good things, who are being proactive and are going to expose us to events, perhaps, that unlock value. For example, in Deteron, we believe that at some point in in the not too distant future, Belron is likely to be um either sold or a partial stake or a partial IPO, some kind of corporate event that will reveal to the market its underlying value. Yeah.
00:07:10
Speaker
And in the case of closed-end funds or even in in Japan, we're much more proactive. we're We're more often than not a dominant shareholder. And when we have ideas as to why the discount exists and what management should be doing,
00:07:26
Speaker
about addressing that, then we make our points known, ah typically and certainly initially, privately, respectfully and constructively. But as time goes on, ah if we're not making headway, then then we will go public and and launch public campaigns.
00:07:42
Speaker
But a key part of our approach is being proactive. And when we see a roadway to unlocking value, we want to push management down that road.
00:07:54
Speaker
Okay. And um I asked you about the sort of changes that you're seeing in so Japanese corporate culture and and also perhaps the transitional changes you're seeing South Korea. Do you want to talk a little bit more about that? So Japan um has been a value market or a market that's has been of interest to value investors for a couple of decades. yeah ah you know The idea about being able to buy into these massively over-capitalized businesses and very low valuations has been around.
00:08:23
Speaker
ah But for many years, it was a kind of a value trap. It it started to change about 10 years ago under the late Prime Minister Abe when he introduced Abenomics, the Three Arrows. yeah And the third arrow really dealt with some structural reasons for why Japan was underperforming and undervalued. And those go to the heart of the corporate governance code and the stewardship code that were introduced to try and compel companies to do more for shareholders and try and encourage shareholders to act more like owners. yeah
00:08:53
Speaker
And at the heart of those measures and and guidelines was the idea that Shareholders should be more actively engaged with companies and companies in turn should listen more to shareholders and focus on driving those returns.
00:09:08
Speaker
So, um as I say, we've been very involved. ah We've had public campaigns, we've had private campaigns, we're we're actively engaging. And there are a growing number of more of activist shareholders, shall we say, in in Japan. It remains a fantastic opportunity. We've got almost 25% of Global invested in Japan.
00:09:31
Speaker
ah And we're seeing real change in culture. ah Previously, companies didn't want to focus on shareholders. They were more bothered about making sure the company employed as many people as possible and provided a pension to as many retirees as possible. And they didn't think shareholders deserved a return on their capital. All of that is changing, and companies really are pursuing variety of different measures, all designed to boost shareholder returns and improve corporate governance.
Performance and Regional Contributions
00:10:02
Speaker
So you, you built this sort of entering into, you know, what you think are sort of it attractively valued businesses. Um, how's the performance been? And we can split this cause it's been a relatively volatile year. So what's the longterm performance of, of the trust, uh, like, and then have you fared over the last 12 months?
00:10:24
Speaker
Well, over the last 10 plus years, ah the trust has delivered returns somewhere in between 11%, 12% annualized returns. okay it's It's more or less in line with the MSCI World Index over that time and um comfortably ahead of the MSCI World ex-US index. yeah So we we tend to have relatively little invested in the US. Yeah.
00:10:48
Speaker
Over the last 12 months, it's delivered a return of around 9%. That's behind both the MSCI World and the MSCI World XUS Index.
00:10:59
Speaker
Okay. And that but what were the if you're looking at sort of the performance over the last 12 months, what are the positives? What's contributed well? And what are what are the sort of the the the drags? what's yeah whats hindered performance? Well, the the biggest contributors have come from Asia. yeah They come from some of the Korean names, some of the Japanese names, and a holding company listed in Singapore singapore called Jardine Matheson, oh yeah which has done very well.
00:11:28
Speaker
ah And ah the laggards or the the detractors have come from other parts of the world. um We've had a poor investment in Germany called Gerrishheimer, which has been quite a painful painful loss. and And more latterly, some of the investment trusts, Chrysalis, for example, has been weak over the last last few months on concerns around the whole software.
00:11:51
Speaker
ah industry. Yeah, okay. um Are there particular features, so if an investor's looking at, are there specific features of trust that you want to highlight?
Diversification and Dividend Policy
00:12:00
Speaker
um The dividend, discount management, any anything else that you think that an investor should be aware of?
00:12:08
Speaker
Well, the the key feature, I think, ah about the trust that is relevant is that it is different. yeah And that when investors build a portfolio, oftentimes you'll see in investors' portfolios different names.
00:12:22
Speaker
But when you look at the um look under the bonnet, you'll find a lot of the same same companies. So you're not really diversifying. With ABI Global, it's a genuine diversifier. It's doing something different.
00:12:33
Speaker
It's owning different companies in different geographies. And um it's definitely not a closet tracker. We've 17% invested in Korea, 23%, 24% in Japan. That's 40% in two countries that make up 7% 8% in total of the world index.
00:12:47
Speaker
ah that's forty percent in two countries that make up seven or eight percent in total of the world index So I think that's really the primary ah distinguishing feature.
00:12:59
Speaker
You mentioned our discount. We're trading on a discount of around 7% today. yeah ah we regularly buy back shares. That's under the control of the board, but committed to you know committed to using the buyback to reduce the volatility and the discount.
00:13:15
Speaker
Okay. And dividend? Do you... Yeah, so we've we've ah we paid dividends, of course. yeah um we've maintained that We've maintained or increased our dividend for many years.
00:13:26
Speaker
On occasion, we've had to dip into reserves in order to to do that, but the board is committed to a progressive dividend policy.
Conclusion and Future Updates
00:13:33
Speaker
che Joe, I've sat ah in this chair, interviewed many, many people. Very few have sort of come up with ah the portfolio that of of stocks that you talk about. So I do buy into it. It's different. um It's great having you on the show. I hope you return. sort of Let's hope that you sort of come back in six months or 12 months time with ah with a good story to tell. Thank for being on Vantage. Thank you for having me.