AVI Japan Opportunity (AJOT) fund manager Asset Value Investors (AVI) has sold 1m shares in the £226m investment trust shortly before it expands from the takeover of Fidelity Japan (FJV).
Since launching the small-cap activist fund seven years ago, AVI has invested at least a quarter of its annual management fee into AJOT shares, building up a holding of 2.1m shares. Its employees own a further 1.1m shares with the total worth £5.6m at 31 October.
The disposal cuts AVI’s holding to 1.1m shares, equal to the staff holding and lowering the overall position to 2.25m shares, or 1.7% of AJOT. It said this still represented a significant level and placed AJOT in the top 10% of investment company fund manager holdings.
“Prudent” sale
The sale on 19 November when the shares stood at 165p made £1.6m which AVI said it would invest to support growth in its business and retain key employees.
AJOT said AVI had told the board that due to its strong performance, with net asset value up 89% since October 2018, its stake in the trust had become “a substantial proportion of the value” of its business.
“In order to incentivise staff in a tax-efficient manner it is prudent for AVI to reduce its exposure,” it said.
Launched 40 years ago, AVI has around £1.6bn in assets under management, most of it in its £1bn flagship AVI Global Trust (AGT). It employs 23 people in London and Tokyo and in the year to 30 September 2024 saw pre-tax profit rise to £3.2m from £2.8m.
Its chief executive is Joe Bauernfreund, who is also AJOT and AGT’s lead manager.
AVI said it remains committed to AJOT’s success and would make no changes to investment approach.
This comes as the trust prepares to issue new shares to buy the assets of Fidelity Japan, the £264m large cap trust that failed its continuation vote in May and subsequently agreed to merge with the AVI trust.
Assuming FJV shareholders take up the option to encash half their holdings, the merger should bring in £185m for Bauernfreund and his team to invest, swelling AJOT’s net assets to over £400m.
Recent underperformance
AJOT’s performance since launch has been strong, with a 92.1% underlying investment return up to October beating the 46.8% return of the MSCI Japan Small Cap index, recently returns.
This year started well, with the portfolio up 5.9% in the first quarter. Since then, however, it has underperformed its benchmark as large companies in the index have rallied sharply as foreign capital has poured into the country on an easing of trade tensions with the US and hopes for further stimulus from new prime minister Sanae Takaichi.
Last month AJOT’s NAV fell 4.1% in sterling and 2.3% in yen, compared to the benchmark which gained 0.4% and 2.2% respectively.
Synchro Foods under fire
Its biggest gainer in October was Synchro Food, a business platform for restaurants, that is its latest campaign target having started to build a position in March.
Synchro shares rose 5% as it came under pressure from investors. AVI, which owns 20% of the company, requested an extraordinary general meeting to replace one of the directors with its head of Japan research Kaz Sakai. It is impressed with Synchro’s margins and revenue growth, but critical of its use of capital, issuing shares when it has plenty of cash and announcing a big acquisition in September that broke its medium-term budget.
Synchro, AJOT’s tenth largest holding at 6.8% of net assets, has also received an EGM request from LIM Advisors in Hong Kong. It too wants to remove director Morita and also for the group to form a strategic review committee and launch a share buyback programme.
