Focus on value in a market ‘going nowhere’

By Tim Stewart
 — 1 minute read

With global stock markets likely to track sideways over the next five to 10 years, it makes sense for investors to hold a concentrated portfolio of undervalued stocks, argues Avenir Capital.

Over the next decade, global equity indices are more likely to produce sub-5 per cent returns than the the double-digit returns investors have come to expect, Avenir Capital chief investment officer Adrian Warner said to InvestorDaily.

Mr Warner, who gave up a career in private equity to establish global equity manager Avenir Capital in 2011, reckons a value-orientated long-term approach will outperform in the coming decade.


"The people we're talking to are saying they're a bit nervous [about stock markets]. They all feel like the market is bringing returns forward," he said.

But that doesn't necessarily mean global equities are set to plummet, Mr Warner said.

"You don't have to believe in a catastrophe to be nervous that you've had all your Christmas presents in advance and there will be nothing left for Christmas," he said.

"I've had people from the US telling me 'We're telling our investors right now: get used to less than 5 per cent. Because the market's starting from such a high point'."

Avenir's approach – which has caught the eye of US endowment funds and family offices – is to hold a concentrated portfolio of between 15-30 companies for at least 3-4 years.

The aim is to invest in undervalued companies in the expectation they will double in value within three, four or even five years, Mr Warner said.

It is an inherently long-term approach, which is why Mr Warner isn't too concerned about the fund's 7.32 per cent underperformance compared with the MSCI All Country index in the 12 months to 31 October 2017.

"We think [the underperformance] makes [our long-term approach] more credible when we tell people what we're doing," he said.

While the broader market has been going gangbusters, Avenir Capital is happy to have its gratification delayed, Mr Warner said.

"When investors go through our portfolio and we walk them through each one, they say 'I can see why you see this delivering good returns over next 3-4 years'," he said.


Focus on value in a market ‘going nowhere’
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