Value Investing Picks

📊 Investing
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Hello you very intelligent and amazing people. I do hope you have had a successful week and i hope things are going well for you.

I kindly wanted to ask for the second half of 2023 do you kindly have any stocks you have researched that may be undervalued and have good growth prospects please? Whether thats in the United Kingdom, United States or other countries. I know the markets are very unstable and i would be very grateful and forever thankful if you could kindly share any recommendations. This would further help my research and give me potential ideas for investments areas. Any advice you can give it would be more appreciated than you may know.

Sending you lots of good wishes and i very much hope you are happy and healthy. Take care.

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It’s not a stock but AVI Global (AGT) has done really well for me over the past couple of years.

The great thing with this trust is the ‘double discount’ – it trades on a 10%ish discount to NAV and, last I read, the underlying portfolio is itself on a 30%+ discount.

It’s expensive though due to the layers of fees and you need to do your own research.

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Thank you very much for your response topher, that was very kind of you to reply. I do hope everything is going well for you.

I have reviewed AVI Global (AGT), this seems to have had an excellent run from around 2016, there was a rapid drop in January 2022 from around 1000 GBX to 190 GBX. Can i kindly ask what was the reason for this drop please if you kindly had any information on this? Further do you kindly feel this would have good prospects over the next few years please? If you kindly had time to get back to me i would be forever grateful and thankful.

Hope you have a wonderful and relaxing weekend topher. I very much appreciate your time and support. All the very best with your future investing goals, i wish you massive success.

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If I remember rightly, there was a 5-1 stock split so that’s nothing to worry about.

In terms of the future, I think the growth to value rotation has largely already happened. AGT is the top performer in its sector over 2-3 years and that won’t continue indefinitely.

I’d expect performance to cool off over the next few years but AGT has a stellar long-term record. Over the past 30 years, it has an annualised return of more than 10%.

That said, it’s just my 2p worth and you may be better off with a cheap, value-focused ETF. (Some options can be found via the link below.)

PS You are – by far – the most polite poster I’ve come across on any investing forum. Thank you. As they say, a little kindness goes a long way!

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Thank you very much for your kind comments also topher, that is very wonderful of you to say. I think life is tough enough and so i find it important to be respectful to everyone and kind.

I appreciate very much the further comments on AGT, i mainly hold stocks, so i am very grateful for the information you have provided on this. AGT seems less volatile than stocks and has created some steady annualised returns over the years. Can i kindly please ask lastly, when analysing a stock i tend to do around 15 hours of research on the company, how many hours would you put into researching a trust like this please roughly? Further what things would you look at how well its managed, the portfolio performance please? If you kindly had any advice on this i would be forever grateful and very thankful, i appreciate your support very much.

I very much agree with your comments a little kindness goes a long way. Sending you every best wish as always and hope things continue to go well for you topher.

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It’s tricky to put a number on how much research I put in. However, part of the reason I only hold collective investments, rather than individual stocks, is that there is less to do. I figure Baillie Gifford can do a better job picking growth stocks than I can. And I’d rather pay someone else to do it because my time is better spent on increasing my earnings, so I can invest more.

It depends on the trust. I researched PSH for ages before buying because it is more complicated than most. I also spent a long time researching TRY and BPCR because I know less about property and fixed income than equities. It’s crucial to have a good understanding of what you’re investing in, so I’ll research a trust until I do and try to stick to the adage: “If in doubt, do-nowt.”

Here’s some of the main things I consider:

Cost: This is not my main concern because passive funds make up most of my portfolio, costing less than 0.15%. However, active funds are expensive. With AGT, for example, you’re paying fees on top of fees. It’s not unusual to pay 2% and a 20% performance fee, so keep an eye on it.

Size: I tend to avoid smaller trusts as I hate being stung by a wide bid-ask spread and not being able to exit a position sharpish. Anything smaller than £100m is relatively illiquid. Any lower than £50m and a trust is likely to wind down or merge with another. Generally, £200m is the mark at which institutions consider a trust investible.

Diversification: This is a big one for me. I’ll always have a thorough look at what a trust holds by reading its annual/interim reports. I do this with the bigger picture of my portfolio in mind. For example, I don’t want to leave myself overexposed to any management group, country, style, sector, and so on. I’m also looking for a high ‘active share’ – meaning the trust’s holdings differ from the index. Otherwise, you’re paying more for what you already own or could buy cheaper.

Management: This is also key. You’re paying these people to invest your money, so you best have trust and confidence in them. I’m asking the following sorts of questions… Do they have skin in the game? How big’s their research team? What’s their track record? Is there a succession plan? Are they getting ludicrous bonuses? Are they experts in their field (particularly if it’s a relatively esoteric trust or narrow remit such as environmental securities)?

Gearing: It’s important to note that trusts can borrow money. This will amplify losses and gains.

Discount/premium: It’s rare I’ll pay more than a trust’s NAV. Buying something for a double-digit premium is dangerous as it could swing to a 30-40% discount. This is what happened with the Schiehallion Fund in recent years. On the other side of the coin, a discount can offer a great opportunity if it narrows significantly. Who doesn’t like paying 50-60p for £1? It’s not a deal breaker but I like to examine a trust’s discount control mechanism too. Is it buying back shares and has it worked? I try to be mindful of discount traps as well. A trust can trade at a wider-than-usual discount for good reasons, Home Reit’s a good example. Increasingly, I try not to be too beholden to discounts – the performance of the assets is what will really drive returns.

Anyway, I’ll end the essay there and leave you with a list of some of the best sources of free news and information on investment trusts:

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IMO you need to be careful with these. Some funds/trusts whatever have both management fees + performance fee. Why charge for both especially when the management fee is not so low in the first instance? Secondly others have poor clawback policies so if they had a performance fee when the share price performs above target - what happens when it falls below? At a minimum it needs to reset its benchmark level, but ideally a kickback. Its rare but some ITs I have seen the performance fee used to buy up shares, and then the shares are surrendered after a period of time if the performance is not consistent/good.

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Yeah, I think CHRY paid its managers something like £60m just before the share price plummeted 60%. This is a particular issue with performance fees that are calculated over relatively short periods such as a year.

AIE has an interesting fee structure. It has a 30% outperformance fee but there’s no ongoing management fee aside from a relatively low OCF which covers trading costs etc. It’s also paid in shares and calculated over three years to better align managers’ and shareholders’ interests.

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