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The World seems to be in an endless Doom Loop of crisis after crisis, although to be fair I have never known a single year in the 40 years I have been advising clients where there has not been some event that worries investors. I enjoyed the opening paragraph of Tom Stevenson’s article in the business pages of last week’s Telegraph in which he quoted Woody Allen; “If you want to make God laugh, tell him your plans.”

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Tom Stevenson is an investment director at Fidelity and the point of his article is that as no one can accurately predict the future, one should not try and make big bets within one’s portfolio on regions, sectors or asset classes. Who would have thought that the interest rate sensitive technology sector would outperform on higher interest rates in the last couple of years? I recall clients telling me that the technology sector was dead when interest rates started their rise in 2021. Markets often do not conform to consensus view.

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Our aim at EXE Capital is to protect our clients’ capital and increase its real value over the long term. This requires a diversified portfolio, but it is not enough to simply produce a 60/40 equity/bond strategy. One needs deeper diversification. For equities, we look for conviction managers who do not overlap one another and who consider large, medium and small cap stocks as well as unquoted companies. We must consider both open-ended as well as closed-end funds. When it comes to fixed interest, managers will scrutinize duration, liquidity and credit risk.  We must also take account of alternative investments such as infrastructure, energy generation and property. Of course, each client’s portfolio is also set to their own specific needs and expectations.

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A perfect example of a truly diversified fund favoured by us is the AVI Global Trust, established in 1889 which has been run by Joe Bauernfreund for the last nine years. His approach is anomalous in that he seeks to invest in overlooked companies trading at wide discounts to their intrinsic value. Unlike many global mandates, the fund is underweight in the US and overweight in Europe and Japanese smaller companies relative to the index. Joe also favours family run businesses and other closed end investment companies. Having no direct exposure to the "Magnificent Seven" stocks also makes it very different from conventional global funds. Over those nine years the fund is up +190% against its benchmark of the MSCI ACWI ex US index return of +103%*.  The shares can be bought at a 10% discount to the underlying assets (NAV). A further compelling feature of this trust is the “double discount” on offer, as many of the underlying holdings are trading well below their intrinsic value.

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Commentary by James Scott-Hopkins

Founder, EXE Capital Management

*FE Analytics to 23/10/2024 Net of manager’s fees

The views are those of the author only. The above does not constitute a recommendation to buy the fund and advice should be sought from your financial advisor as to the appropriateness of this fund in your portfolio. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.

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