The great financial experiment of the last 10 years has seen investors flock to growth and momentum. It’s been the era of the so-called FAANGs and ‘bond proxy’ stocks.
The FAANGs are Facebook, Amazon, Apple, Netflix and Google’s parent Alphabet. Bond proxies are blue-chip companies that pay reliable, bond-coupon-like dividends. Think Procter & Gamble and Johnson & Johnson in the US, and Unilever and Diageo in the UK.
These themes are reflected in the portfolios of London’s current best-performing investment trusts in the global sector: Scottish Mortgage (a 10-year return of 609%) and Lindsell Train (625%).
However, as almost all investment literature warns, “past performance may not be indicative of future results”. And I’m concerned this could well be the case with the likes of Scottish Mortgage. This is due to the eye-watering valuations of many of the underlying holdings.
Value investing, as formulated by Ben Graham aeons ago, has outperformed growth over long timescales. As such, I believe unfashionable, value-focused investment trusts could deliver superior returns in the coming decades.
With this in mind, I’d be happy to buy FTSE 250-listed AVI Global Trust (LSE: AGT) and Caledonia Investments (LSE: CLDN). Their returns over the last 10 years — 130% and 157%, respectively — have been solid rather than spectacular.
AVI Global (formerly British Empire Trust) was established in 1889, and has been managed by Asset Value Investors since 1985. This trust seeks out listed companies whose shares stand at compelling discounts to their estimated underlying net asset values (NAVs). It looks for attractive businesses, with honest, intelligent management willing to engage with shareholders, and catalysts to bring the share prices to their true values.
It trawls the world for opportunities. For example, it invested in 16 Japanese companies with substantial excess capital, and is engaging with management about releasing it. The trust’s other investments include discounted closed-end investment companies (such as Third Point Offshore), asset-backed groups (such as Sony Corp) and family-backed holding companies (such as Jardine Strategic).
AVI Global reckons its portfolio is at a discount of over 30% to underlying NAV. And with the trust itself trading at a discount of around 10%, I see good value on offer for investors today.
Long-term value investor
Caledonia’s heritage goes back to the shipping empire established by Sir Charles Cayzer in 1878. The trust still enjoys the backing of the Cayzer family today. It says this gives “support to our long-term value investment horizon and provides a foundation to our culture of conservative generational wealth management.”
Over a third of Caledonia’s net assets are private capital investments in 11 UK companies with equity values of £25m-£125m. It has significant direct influence over these businesses and their management. They include control systems firm Deep Sea Electronics and bingo clubs chain Buzz Bingo.
The trust also invests in quoted companies (such as Microsoft and British American Tobacco) and funds, including quoted and private equity. The funds provide broad exposure to areas of the world where it would prove more difficult for Caledonia to invest directly.
Trading at a 17% discount to NAV, I reckon this trust is another terrific pick for long-term value investors.
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G A Chester has no position in any of the shares mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Apple, Facebook, Microsoft, and Unilever. The Motley Fool UK has recommended Diageo and Johnson & Johnson and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.