AVI Global held back as underlying discount widens – For the year ended 30 September 2019, AVI Global delivered an NAV return of 2.1%, lagging its benchmark, the MSCI All Country World ex US Index, which returned 4.5%. A widening of the discount from 8.5% to 10.9% left shareholders with a return of -0.4%. The dividend has been increased from 13.p to 16.5p. This year’s underperformance reverse some of the outperformance achieved in the prior year when the trust outstripped its benchmark by 5.3%.
Susan Noble’s chairman’s statement draws attention to, what the board believes, is considerable latent value within the portfolio – as the underlying asset values of the individual investments rose but their share prices did not. She says “the level of value in the portfolio does appear to us exceptional. This value ranges from discounted investments in many well-known companies to the particular opportunity which a changing approach to corporate governance in Japan presents. In addition, the Investment Manager has increased the level of cash in the portfolio, which is being carefully deployed into increasing stakes in existing investments and new opportunities. Your Board believes that the store of value in the portfolio provides both some security in challenging times and the opportunity for attractive returns over the longer term.”
Discount approaching crisis levels
The managers say that the underlying discount widened from 30% to 33% – in context “Over the past 20 years it has been as narrow as 12% and as wide as 39%.” The managers say this is almost as wide as the discount hit in the 2009 global financial crisis.
There are many factors that contributed to the result. One was poor performance of the companies Japanese investments. On this the manager had this to say “Japan has been an area that continues to be unloved by international investors and a market that has suffered from the negative sentiment pervading markets. It is seen as a play on global growth and particularly so for the small-cap universe. We remain optimistic about the opportunities in Japan. Indeed, your Company’s exposure to Japan increased from 20% to 27% over the past 12 months. Notwithstanding this, the summer months have proven to be extremely challenging for the Japanese market. Valuations of many Japanese companies have fallen to distressed levels, with some having cash covering almost their entire market capitalisation.”
The managers also drew attention to the impact of the unrest in Hong Kong on the fund’s holdings in Jardine Strategic and Swire Pacific. The exposure to the oil and gas sector (through investments in Riverstone Energy and Akur) proved unhelpful. On the plus side they “have seen strong performance from Cosan Ltd, Pershing Square and Fondul Proprietatea, all of which registered excellent NAV growth in the past year.”
AGT : AVI Global held back as underlying discount widens