Monthly Update

RNS Number : 5442E

AVI Global Trust PLC

11 March 2022

 

AVI GLOBAL TRUST PLC

Monthly Update

AVI Global Trust plc (the "Company") presents its Update, reporting performance figures for the month ended 28 February 2022.

This Monthly Newsletter is available on the Company's website at:

https://www.assetvalueinvestors.com/agt/content/uploads/2022/03/AGT-FEB-2022.pdf

Performance Total Return

This investment management report relates to performance figures to 28 February 2022.

	Month	Fiscal Yr* to date	Calendar Yr to date
AGT NAV1	-4.0%	-3.0%	-9.0%
MSCI ACWI Ex US2	-2.0%	-3.4%	-4.7%
MSCI ACWI1	-2.6%	-0.7%	-6.5%

1 Source: Morningstar. All NAV figures are cum-fair values.

2 From 1st October 2013 the lead benchmark was changed to the MSCI ACWI ex US (£) Index. The investment management fee was changed to 0.7% of net assets and the performance related fee eliminated.

* AVI Global Trust financial year commences on the 1stOctober.  All figures published before the fiscal results announcement are AVI estimates and subject to change.

Manager's Comment

AGT's NAV declined -4.0% in February. The greatest contributors were Third Point Investors, DTS and FEMSA, whilst KKR, IAC and Godrej Industries were the most significant detractors.

Russia's invasion of Ukraine is first and foremost a humanitarian tragedy, and we hope for a safe and peaceful resolution - albeit recognising that seems increasingly unlikely.

AGT's focus on strong corporate governance has led us to steer clear of Russia, with no direct exposure to Russian listed assets. Our underlying companies however operate in an inter-linked global economy, and there may be spill over effects from the abrupt de-linking that we are witnessing.

From a market perspective the current situation is challenging. Markets were already grappling with higher inflation and monetary tightening, and now the unfolding geo-political situation has spiked commodity prices, dampened the outlook for global growth, and elevated tail risks.

The portfolio has behaved in line with how we would expect during times of market stress. Discounts have widened - at the end of February the portfolio weighted average discount stood at 29.3% compared to 25.6% at the start of the year. This double whammy of NAV declines and discount widening is a headwind to performance.

Having effectively eliminated our gearing late last year we have capital to deploy and are free to take advantage of mispriced opportunities - both in new and existing names. We are approaching this cautiously and waiting for the fat pitch. In the meantime, we sit close to 100% invested being "actively inactive".

Aker:

The recent rally in oil prices has been a positive for Aker, the Norwegian holding company. At the time of writing the share price and NAV are up +13% and +16% in a little more than two weeks, led by Aker BP, the Norwegian E&P company which accounts for 63% of NAV, which has returned +25%.

We added to the position last Autumn with a view that a pure play, low-cost low-emission producer, controlled by a thoughtful long-term orientated shareholder, would prosper in a world starved of oil capex and production growth. Clearly, this latest leg up in the oil price was not something we could have (or would want to have) predicted, but it does serve to highlight how dependent the world still is on fossil fuels. Whilst we believe the energy transition is a one-way street over the coming decades, it seems clear that oil will play an important and elongated role in this. Aker BP appear likely to benefit from this given their long-dated production growth schedule.

The current crisis has also exposed the importance of energy sovereignty and flaws in Europe's energy policies. In turn this will likely lead to significant increased investment in renewables. Aker are well placed to benefit here too, having established Aker Horizons, a renewable energy-focussed holding company in 2020. By creating a separate holding company - as opposed to conducting such activities via Aker BP which remains pure play - Aker were able to take advantage of investor enthusiasm and build Aker Horizon's foundations with a very low cost of capital.

That said, investor sentiment toward the sector has swung from euphoria to pessimism in recent months, and Aker Horizons share price now sits some -53% below its 52-week high (at the time of writing). Such booms and busts are painful, but they are not uncommon in new and emerging technologies where investors become overly optimistic, only to have their dreams crushed.

Aker have a history of going against the grain and investing through the down-cycle to create value in the longrun. We believe they will adopt a similar strategy, and that their industrial know-how and partnership model stands them in good stead to create value in the years ahead.

Japan:

In a risk-off environment nothing is entirely insulated in the short-term, but, as an asset class, cash-laden Japanese small caps are relatively unaffected by events in Eastern Europe.

In this vein it is worth noting that a number of the strongest performers in February came from our small cap Japanese holdings. Most notably shares in DTS Corp, Wacom and NS Solutions rose +13%, +5% and +12% respectively, adding +27bps, +16bps and +15bps to returns.

The possible returns from successful engagement and change in corporate control events are largely idiosyncratic, and we expect will continue to drive outperformance. Valuations remain compelling, and with COVID in the rear-view mirror and Japanese companies laden with more cash, the backdrop for our shareholder activism looks as promising as ever. As such we expect to continue allocating a significant portion of our capital to such ideas.

Associated British Foods:

During the period we exited our holding in Associated British Foods ("ABF").

We started to build the position in the Autumn of 2020, at a time when we increased our exposure to economically sensitive assets likely to benefit from a re-opening of the UK economy. Whilst our other UK reopening plays performed well, ABF was an unsuccessful investment. Social restrictions continued to disrupt trading, and not unfounded worries about the deterioration of Primark's competitive positioning stopped the company from re-rating. Cognisant of thesis creep, and with Primark's thin margins likely to be tested by higher rates of inflation, we took the decision to exit the position. Over the life of the investment ABF generated an IRR of -11% vs. +6% for the MSCI ACWI ex-US (£).

Third Point Investors:

Our position in Third Point Investors Limited (TPIL) was the largest contributor to performance as our public activist campaign came to an end with the appointment of an independent director we had proposed to the Board: https://www.investegate.co.uk/third-point-investors-ltd--tpou-/prn/board-and-shareholder-update/20220218123552PDE52/ Despite a decline in TPIL's NAV over February, its discount narrowed materially with a move in to 11% from the 18% at which it began the month.

Contributors / Detractors (in GBP)

Largest Contributors	1- month contribution bps	% of NAV
Third Point Investors	32	6.0
DTS Corp	27	2.5
FEMSA	20	3.2
Wacom	16	3.5
NS Solutions	15	1.5

Largest Detractors	1- month contribution bps	% of NAV
KKR	-93	5.5
IAC/InterActiveCorp	-78	4.3
Godrej Industries	-59	3.2
EXOR	-55	6.6
Oakley Capital Investments	-48	5.9

Link Company Matters Limited

Corporate Secretary

11 March 2022

LEI: 213800QUODCLWWRVI968

The content of the Company's web-pages and the content of any website or pages which may be accessed through hyperlinks on the Company's web-pages, other than the content of the Newsletter referred to above, is neither incorporated into nor forms part of the above announcement.

 

END

 

 

DOCFLFEVVAILLIF