The investment philosophy employed by Asset Value Investors (“AVI”), the managers of AVI Japan Opportunity Trust (“AJOT”), strives to identify valuation anomalies and focuses on investing where the market price does not reflect the estimated intrinsic value.
We look for:
Discounts To Underlying Value
We seek to find anomalous valuations and to invest in companies and funds trading on a discount to their net asset value
The Purchase Of Assets That Are Of High Intrinsic Quality
Identifying good quality underlying asset with appreciation potential at compelling values
The underlying assets must be seen to offer appreciation/growth potential which could be based on a number of events or catalysts including potential corporate activity or a turn in market sentiment towards a company etc
Asset Value Investors (“AVI”) investment process for AJOT emphasizes bottom up fundamental research, using both quantitative and qualitative techniques.
Screening of the Universe
AVI’s screening process starts by looking at the c.3,475 non-financial companies in Japan. This is then narrowed down to the c.2,180 companies with an average daily trading volume greater than £300k. We then take a closer look at the c.470 companies that have net cash and securities greater than 30% of their market cap. We have detailed models on approximately 60 companies out of this universe, which track stock prices and earnings information.
Throughout the filtering process AVI asks the following questions:
Is it a high quality company with a growing operating business
Are we comfortable with the NAV
Do we like the valuations
Do we want to own the underlying businesses
Does the business have a strong balance sheet
Is the company highly cash generative
AVI’s analysts track stock prices, earnings and balance sheet information with an aim to identify good quality companies trading on a discount to their NAV which exhibit clear trends to create long-term value.
In-depth analysis of company annual reports and filings
Consulting with industry contacts and brokers
Bottom-up analysis of a company’s fundamentals, management and industry trends
Specific focus on identifying the catalyst which will reduce the discount and unlock value
Regular meetings with top level management
We want to have a reasonably concentrated portfolio (typically 20-30 stocks) of our best ideas
The objective of AVI’s portfolio construction process is to end up with a concentrated portfolio of about 20-30 holdings, facilitating a clear monitoring process of the entire portfolio. AVI picks stocks that meet our investment criteria and once we decide to invest we seek a minimum position size of approximately 2% of the portfolio; however the timing of the catalyst and the liquidity of the stock can result in the holding being greater or lesser than 2%.
AVI Japan Opportunity Trust p.l.c is referred to as ‘AJOT’ throughout the website. AJOT’s
investment managers, Asset Value Investors are referred to as ‘AVI’
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