AVI GLOBAL TRUST: £1.5bn investment house hunting for bargains

Investment house Asset Value Investors is doing well. Investments under management have surpassed £1.5 billion, the team is in expansion mode and will launch a new fund investing globally this month.

Joe Bauernfreund, CEO and Chief Investment Officer, is modest about the company’s success. “We just let the performance figures do the talking,” he says. “We have an investment team of 14, compared to the three we had when I took over in 2015.

‘We do all our own research and we are fishing in an investment pond where far too little research has been done. We like to know the companies in which we invest like no other shareholder.’

The group’s flagship fund is AVI Global Trust, a £1 billion fund listed on the UK stock market. Over the past year, it has delivered a 14 percent return to shareholders. Five years from now the record will be even more impressive, both relatively and absolutely. A return of 75 percent is comparable to an average of 31 percent for the global peer group.

Asset Value Investors’ investment approach is somewhat idiosyncratic. It seeks out investments that it believes are chronically undervalued – and then waits, often by working with the management of the companies involved, for them to realize their full potential. She does this in different ways.

For example, it often buys investment trusts whose share prices do not reflect the value of their underlying assets – in anticipation of closing the valuation gap, generating a return as the discount between the share price and asset value narrows.

It will also buy holding companies, often family-owned, whose companies they own are not fully reflected in their share prices. Finally, it will push companies to make changes that will result in an increase in their stock price – an investment method that has proven successful in Japan, where corporate governance has not always been a priority for management.

“Last year we worked against an unstable background,” says Bauernfreund. ‘Volatility on many levels – economic, financial and geopolitical. From an investment point of view, it offered us plenty of opportunities.’

Among the 28 holdings mentioned is a stake taken 15 months ago in the Japanese company Nihon Kohden, a manufacturer of bedside monitors for hospital patients.

“It’s a good company,” says Bauernfreund, “which, when we bought it, was undervalued compared to peers. One of the problems we had was that senior management was paid too much, which resulted in a lower profit margin than necessary.’

By working with Nihon’s management and proposing possible improvements to the way the company is run, the company has become much more shareholder-focused. Over the past year, the company’s share price has risen more than 30 percent. “The revaluation of the company’s share price has begun,” Bauernfreund said.

Other major holdings include French luxury fashion group Christian Dior, which in turn has a significant stake in LVMH. The trust bought the stake during the 2020 lockdown, when Christian Dior’s shares were under pressure. Strong sales figures for the fourth quarter of 2023, which LVMH reported late last month, sent Christian Dior’s share price soaring. “There is more upside ahead,” Bauernfreund says. The trust also has interests in several listed private equity investment funds.

The trust’s unusual modus operandi makes it an ideal candidate for portfolio diversification. Annual charges total 1.22 per cent and although dividends are not a priority, the company has returned 3.7p of income to shareholders in the last year. The shares are trading at around £2.26. The ID code is BLH3CY6 and the ticker AGT.