Monthly Update

RNS Number : 7672I

AVI Global Trust PLC

15 December 2020

 

AVI GLOBAL TRUST PLC

Monthly Update

AVI Global Trust plc (the "Company") presents its Update, reporting performance figures for the month ended 30 November 2020.

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

https://www.aviglobal.co.uk/content/uploads/2020/12/AGT-NOV-2020.pdf

Performance Total Return

This investment management report relates to performance figures to 30 November 2020.

	Month	Financial Yr * to date	Calendar Yr to date
AGTNAV1	10.6%	10.7%	7.0%
MSCI ACWI Ex US3	9.9%	7.5%	4.2%
MSCI ACWI Ex US Value1	13.4%	10.5%	-6.7%
MSCI ACWI1	8.8%	6.1%	10.2%
Morningstar Global Growth1	8.2%	6.6%	14.8%

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

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

2 Source: Morningstar. Share price total return is on a mid-to-mid basis, with net income re-invested.

3 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.

Manager's Comment

AVI Global Trust (AGT)'s NAV rose by +10.6% in November , as positive news from the vaccine trials fuelled a broad-based rally in equity markets during the month. AGT's returns were driven by a combination of underlying NAV gains and a tightening of the portfolio discount (from 34% to 31%), although dampened slightly by GBP strength. Major contributors included Pershing Square Holdings, EXOR, Aker and VNV Global.

Pershing Square Holdings (PSH) was the largest contributor to returns , adding 146 basis points (bps), with returns driven by a strong NAV (+14%) and a 5% tightening of the discount to 25%. Many of PSH's holdings, particularly ones affected by lockdown measures, bounced strongly during the month. Fannie Mae and Freddie Mac (together, 5% of NAV) rose +60% in November on the back of speculation that their regulator, the Federal Housing Finance Agency, would push forward plans to privatise the companies before the change in presidential administration. Meanwhile, Pershing Square Tontine Holdings (PSTH), the US-listed SPAC sponsored by the manager, saw its share price increase +17% to place the cash shell on a 30% premium. We see PSH's option to invest its share of an additional $2bn investment on top of its existing near-$1bn commitment as a source of potentially valuable upside

Just following the end of November, we learned that PSH would be included in the FTSE 100. PSH's discount tightened substantially in the days prior to the announcement on the back of buying by arbitrage funds anticipating PSH's entry into the index. While PSH has given up some - but not all - of its discount tightening in the days following the announcement, we note that buying from FTSE 100 tracker funds has not yet commenced and is expected to provide a significant source of demand for PSH in the near future.

EXOR, which we had added to earlier in the autumn, was the second-largest contributor to returns over the month, adding 114bps. Its NAV rose +18% which, together with a tighter discount, resulted in a share price total return of +31%. Particularly strong performances were generated by FCA (27% of NAV) and CNH Industrial (15%), whose share prices rose +24% and +38% respectively as they participated in the strong rally in cyclical stocks sparked by the vaccine news. CNH's performance was further boosted by its quarterly results, posting sales and earnings figure strongly ahead of consensus estimates.

Despite the strong NAV growth, the shares continue to trade on an estimated 38% discount to NAV, which we believe reflects a legacy misconception that EXOR is a cyclical industrial holding company. This impression is contradicted by holdings in Ferrari and Partner Re (collectively, 64% of NAV), which certainly do not fit the classification of 'cyclical industrials'. Furthermore, we see significant merit in owning high-quality cyclical companies (such as FCA and CNH) as the global economy begins its recovery from the shock of the pandemic. We believe that EXOR's management agrees with our prognosis and are keen to correct this misperception. At the current valuation level, and with significant potential for further NAV growth, we continue to view EXOR as a highly attractive investment opportunity.

Aker added 87bps to returns over the month , making it the third-largest contributor. Returns were driven by NAV growth (+41%), tempered by a widening of the discount, leading to a share price total return of +36%. Aker's listed holdings, comprising over 100% of NAV, returned a weighted average share price return of almost +40% as oil prices rallied +27% over the month.

We have long viewed investing in family-controlled holding companies as an attractive proposition, as it gives us the chance to align shareholders' capital with a family that has a long-term focus and an active approach to value creation. The CEO's comments in the third quarter results reinforced this perception of Aker, as he addressed the challenges facing the energy sector and outlined Aker's three-pronged plan for growth and adapting to the need for more and cleaner energy.

Aker's portfolio is dominated by oil & gas producer Aker BP (54% of NAV), and this investment forms the first prong of Aker's strategy. Aker BP is one of the cleanest oil majors in operation, producing less than 5kg of CO2 per barrel of oil, compared to a global average of 18kg, helping to reduce the pollution associated with oil and gas production. It also has a production cost of $7 per barrel (compared to oil prices of close to $50 per barrel). As a cleaner, low-cost producer, Aker BP is a highly attractive investment proposition in its own right, with the ability to pay large dividends, which Aker can re-invest elsewhere in the portfolio. A large portion of this new investment will likely go towards funding Aker's second prong: increased emphasis on renewable energies and low-carbon solutions. Over the past several months, Aker has founded a new company - Aker Horizons, which at present is principally composed of Aker Offshore Wind and Aker Carbon Capture, both of which were spun off from Aker Solutions. The group has other offshore wind interests, as well as ambitions in hydrogen. These new and spun-out companies will absorb the cash flows that Aker BP provides, and help create a new growth platform for Aker. The third and final prong is an investment in Cognite, an industrial application software company that helps asset-heavy industries optimise their use of data.

Contributors / Detractors (in GBP)

Largest Contributors	1 month contribution bps	Percent of NAV
PERSHING SQUARE HOLDINGS	146	8.5
EXOR	114	4.5

Largest Detractors	1 month contribution bps	Percent of NAV
MITSUBISHI ESTATE	-4	1.1
NASPERS	-1	4.0

Link Company Matters Limited

Corporate Secretary

15 December 2020

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.

 

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