AVI Global Trust (AGT) has announced its results for the year ended 30 September 2024. The company delivered a NAV total return of +13.7%, compared with +19.9% for the comparator benchmark index. Over the last five years the return has been +65.5%, compared to +63.3% for the current comparator benchmark. The share price total return was 16.3%, as the discount closed marginally. The bulk of both the NAV and share price returns were generated in the first half of the company’s accounting year.

The company’s performance was driven by stock selection, with outsized contributions from larger holdings such as KKR, Hipgnosis Songs Fund and Schibsted, The manager has continued to shape the portfolio around a concentrated handful of situations where activism and events provide real catalysts to unlock value. In comparison, the index level returns have principally been driven by a narrow band of US technology companies.

Revenue earnings for the year under review were 4.2 pence per share. At the half year stage an interim dividend of 1.2 pence per share was paid, which was the same as last year. The proposed final dividend is 2.55 pence per share. The total dividend for the year will therefore be 3.75 pence per share, which is an increase of 7.1% compared with the previous year’s total ordinary dividend of 3.5 pence. The board notes that it recognises that a dividend which is steady and able to rise over time is attractive to many shareholders however the portfolio is managed primarily for capital growth.

Discussing the performance for the year, and the outlook, the manager commented:

“We believe that activism and the ability to engage with companies is a key tool in our arsenal, and central to our ability to generate differentiated returns and unlock value for all shareholders. The public example of Hipgnosis Songs Fund – which added +245bps1 to returns over the period – demonstrates this. With that said, it is our preference and priority that most engagements remain private, where dialogue can be most constructive. In both the London-listed closed-end fund market and amongst Japanese small caps, we find a large number of lowly valued companies where we think we can add value through engagement.

“As well as this engagement, a focus on events and catalysts remains an important part of our approach. Schibsted was a prime example of this over the last financial year, and we have redeployed capital into new and existing names where we believe the prospects for transformational events are underpriced, such as News Corp (7.5% weight) and Bollore (5.1%).

“In recent weeks, we have also added significantly to D’Ieteren, which is now your company’s largest position. D’Ieteren is due to make an extraordinary return of capital of 74 euros per share – a yield of 39% – later this year. On a post-distribution basis, D’Ieteren is trading at an implied -54% discount to NAV, which we believe to be a highly attractive valuation.

“Performance since the interim period has been more challenging as discounts have generally widened, and we have witnessed bouts of volatility across markets. A number of companies have endured weaker share price performance, such as Christian Dior and FEMSA, and there has been a lack of commensurately strong performers from the top of the portfolio to offset this. Lulls in performance are not unexpected for a concentrated and catalyst-focused investment strategy, and the underlying asset quality means we can be patient while we wait for events to occur.

“Latterly, the portfolio has also suffered from extreme volatility in the Japanese equity market as the Bank of Japan raised interest rates and attempted (!) to pave the way for further hikes to come. A strengthening of the yen saw shifts in the carry trade, which reverberated through to global equities, with the TOPIX registering its largest single-day decline since 1987. Such moves are devoid of fundamentals and likely fuelled by algorithmic trading.

“In our view, fundamentally very little has changed, and we believe the thesis of governance reform, corporate activity, and activism remains a highly valid one that is still in a relatively early innings. As such, we took advantage of this volatility, adding approximately 300bps1 (£33m) to several Japanese names at prices few would have thought possible just a matter of days earlier. As we have always said, as uncomfortable as it feels at the time, volatility is the friend of the long-term investor.

“More broadly, both in Japan and other areas of the world, the opportunity set remains rich, and idea generation across all parts of our universe is high. Discounts have generally widened and are wide by historical standards, as indicated by the 35.7% portfolio weighted average discount at the year-end.

“As ever, we do not pretend to know what is around the corner from a macroeconomic perspective. Rather, our focus remains on the bottom-up fundamentals of a relatively small number of mispriced situations where we have an advantage. We continue to believe that stock picking, hard work, activism, and a focus on events are key tenets in navigating our way forward. Combined with attractive starting valuations, this gives us confidence in generating attractive long-term returns.”