Los Investment funds led by legendary fund managers Bill Ackman, from Pershing Square, and Dan Loeb, from Third Point, are currently trading at a discount. This year has been difficult for all investment markets. In times of market uncertainty, we can sometimes find cheap entry points for our stock investment portfolio. And this is one of those moments...
Why are these funds sold at a discount?
Shares of Ackman's Pershing Square Holdings (PSH LN) and Loeb's Third Point (TPOU LN) are listed on the London Stock Exchange. Pershing Square in turn is also listed in the Netherlands (PSH NA), in this case in US dollars. Both Third Point and Pershing are “closed-end funds,” meaning they have a fixed number of shares available. And the price of those shares is determined not only by investor demand, but also by the Net Asset Value (NAV) of the fund, which is the company's total assets minus its total liabilities.
This is where we can find a bargain for our stock investment portfolio. Funds are said to trade at a discount when their share price (white line) is below NAV (blue line), and at a premium when their share price is above NAV. The greater the discount (red lower area), the cheaper it is.
Pershing Square stock price, its NAV, and discount to NAV (bottom panel). Source: Bloomberg.
When markets fall and investors sell part of their stock investment portfolio, the discounts on the net asset value are usually greater. As you can see in the chart, Pershing Square's discount to NAV reached 40% during the most panicky days of the pandemic during the month of March 2020. But its average over the last three years is only 29%. %. Currently, it is 32% lower than usual. That's why we think it's a good opportunity, given that Pershing Square has an active share buyback program. This way they help support your NAV and keep your discount under control.
Where then does a double discount occur?✌️
AVI Global Trust (AGT LN) is an investment fund. It also has a closed number of shares, and invests in funds that trade at a discount to their NAV and in other value stocks. Its largest holding, and 8,5% of its assets, is Pershing Square Holdings. Third Point, which also trades at a discount to its net asset value, is its fifth largest holding, with 5,9% of the value of its equity investment portfolio.
Due to its closed structure and market weakness this year, AVI's discount to NAV has grown to 12%, almost double its average at 7%, and not far from its discount during the pandemic, situated in 15%. That is, by purchasing a fund like AVI Global Trust, we could take advantage of the fact that it is trading at a discount, while also taking advantage of the fact that its investments, like Pershing Square, are also trading at a discount, getting that double discount.
Why should we look at AVI Global Trust?
Aside from the Pershing Square and Third Point funds, AVI Global Trust's investments include family-controlled holding companies, such as Christian Dior (long-term contract,) who is the owner of LVMH (LVMH). AVI also has a stake in the Agnelli family's Exor NV holding company (0RKY), which, in addition to its large investments in Classic Ferrari for sale (RACE) and Stellantis (FLOORS), has shares in Cameco (CCJ) and NexGen Energy (NXE).
If we buy AVI Global Trust, we will gain exposure to a wide range of sectors. This double discount is currently higher than normal due to the recent market decline. That's not to say the discount won't be even bigger, but at current levels, it seems unlikely to deepen noticeably from here. If market sentiment improves, the discount could be reduced again.
Top 10 Stock Holdings. Source: Asset Value Investors.
AVI plays an active role in improving fund management. Recently, following pressure from AVI shareholders, Third Point initiated a share buyback that has led to a closing of its discount to its NAV. AVI is also engaging with management to try to improve profitability. Investment funds can use leverage when they believe the markets are looking good to try to grow returns. AVI reduced its leverage at the end of 2021, anticipating declines in the market, but restarted its purchases again in July. Therefore, we must follow these opportunities to grow our stock investment portfolio in times like the one we are experiencing.