Monthly Newsletters

2017

May

BTEM posted a 1.6% NAV return for May with performance boosted by a narrowing portfolio discount (in to 24%) and helpful FX moves but held back by weakness in a few holdings.

Over the month, Wendel, Kinnevik, Pargesa, Adler Real Estate, Tetragon Financial, Investor, DIC Asset, NB Private Equity, and Better Capital 2009 contributed the most to returns; Hudson’s Bay, Digital Garage, AP Alternative Assets/Athene, Toshiba Plant Systems & Services, and Tokyo Broadcasting were the largest detractors.

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April

Despite headwinds from FX, BTEM posted a 0.7% positive return for April aided by a 90bps narrowing in the portfolio discount.

Wendel, Hudson’s Bay, Investor AB, Exor, Better Capital 2009, AP Alternative Assets/Athene, and Pargesa were the largest contributors; Symphony, NB Private Equity, Jardine Strategic, and JPEL Private Equity all detracted from returns despite minimal change in local currency prices (negative FX translation effects).

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March

BTEM’s NAV increased by a subdued 0.5% in March as Sterling strength and a widening portfolio discount (26.1% from 24.9%) acted as headwinds to performance.

Wendel, Jardine Strategic, Investor AB, Pargesa, Exor, Digital Garage, and NB Private Equity Partners were the largest contributors; Hudson’s Bay, Symphony, Aker, and Adler all detracted from returns.

Jardine Strategic benefitted from both a rising NAV (up 7% on strong performance from Hongkong Land, Dairy Farm, and Jardine Cycle & Carriage) and narrowing discount (in from 31% to 28% as the post-MSCI index inclusion buying continued). Although Pargesa’s discount remained wide, material share price increases at its holdings in Adidas, Imerys, and Lafarge boosted its NAV.  Exor, the Agnelli-family controlled Italian holding company with investments that include Fiat, Ferrari, and Partners Re, saw its discount narrow markedly from 25% to 21%.  Our investment in Digital Garage, a Japanese technology-focused holding company, also benefitted from a narrowing discount (18% in from 26%) which was more than enough to offset the impact of a decline in NAV resulting from share price weaknesses at its largest holding Kakaku.

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February

BTEM’s NAV increased by a further 3.1% in February on the back of strength in several key holdings.

Last month’s largest detractor was this month’s joint star performer as Hudson’s Bay (HBC) recovered from its lows, increasing 23% over February as the market responded to speculation that HBC is poised to make a bid for its much larger rival Macy’s which, like HBC, owns valuable freehold real estate. Whether HBC can pull off a deal for Macy’s remains to be seen, but the news has certainly served to highlight the value in the real estate of both retailers. HBC is much further on the journey to monetising its property holdings, having already spun off a sizable portion of them into private JVs.  We continue to believe the ultimate end-game of Richard Baker, HBC’s Chairman and largest shareholder, involves a full separation of the retail and property assets with a listing for the latter highlighting their true value. HBC contributed 71bps to BTEM’s NAV over the month, justifying our decision to add to the position after it had fallen dramatically during the previous month.

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January

The first month of the new year saw BTEM’s NAV increase by 1.6%. Markets started the year on a positive foot, and events at our top holdings as well as Sterling weakness against all major currencies (excepting the US dollar) acted as tailwinds for BTEM.

Symphony was our largest contributor over January, adding 60bps to NAV. We have written in the past about our constructive engagement with the manager and board of this Asian consumer-focussed closed-end fund, and the announcement mid-month of a buyback programme of at least 10% of the company’s shares over the next year marks further success in this regard.  This new buyback is in addition to the existing distribution policy that last year saw a pay-out equivalent to a yield of 9% on the share price at the time.  Symphony’s discount to fully-diluted NAV narrowed from 28% to 20% over the month in addition to positive NAV growth of 3%.

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2016

December

BTEM ended the year strongly with its NAV up +4.8% in the last month of 2016. While Sterling weakness was helpful in December, outsized returns from some of our larger holdings were the main driver. The IPO of Athene Insurance, the sole asset owned by our largest holding AP Alternative, saw the value of our position in AP Alternative increase by a further 15% over the month.  Investor AB’s discount narrowed significantly (in from 24% to 18%) while its NAV rose 3% to make it our second largest contributor over the month.

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November

BTEM’s NAV fell by 2.8% over November in a month where returns in local currency were swamped by a strengthening Pound on growing expectations of a “soft” BREXIT. Against Sterling, the Euro fell by 5.4%, the Norwegian Krone by 5.0%, the Swedish Krona by 4.3%, the Japanese Yen by 10.0%, and the US Dollar by 2.2%. This follows an October in which we had benefitted from Sterling weakness, and a pattern of currency volatility is becoming well established.

Our top position, AP Alternative Assets (AAA), was by far our largest contributor as its sole holding – fixed annuity specialist Athene Insurance – officially launched its IPO and AAA shares rose 16% (in USD) in response to add 89bps to our NAV. AAA is distributing 12.5% of its stake in Athene to AAA shareholders which can then be sold at the IPO.

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October

BTEM had a good month with its NAV rising by 7.2%. A narrowing portfolio discount, in from 31.7% to 30.1%, strong performance from some of the largest positions in the portfolio, and continued Sterling weakness all contributed.

Aker was yet again our largest contributor. A combination of solid NAV growth (+4%), a narrowing discount (from 31% to 27%), and a strong Krone (+2.4% vs GBP) combined for a 14% return in Sterling over the month.  On the last day of the month, Aker BP (which accounts for 57% of Aker’s NAV) announced its maiden dividend. Aker BP was formed earlier this year through the merger of Aker’s DetNorske business with BP Norway’s assets, a transaction that has left the merged entity with not only exceptional growth prospects but substantial current cash-flows.

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September

BTEM had a good month with its NAV rising by 4.5%.  Strong individual stock performance, the portfolio discount narrowing 40bps, and the pound being weak against all major currencies helped returns.

Aker, comfortably our best performer over the last year, was also our top contributor over the month despite its discount widening slightly (by 50bps). Aker’s holding in DetNor – 58% of NAV – jumped 12% in NOK (18% in GBP), buoyed by a 4% rise in the oil price on tentative signs of an OPEC agreement to curtail production.

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August

BTEM’s NAV added to its recent gains with another 3.5% rise in August, with the portfolio discount contracting slightly to 32%.

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July

BTEM had another strong month with a 6% increase in NAV. We saw very slight discount contraction as the portfolio discount narrowed from 33.4% to 33%. Overall, discounts across the portfolio remain wide both in absolute terms and relative to historic levels.

Aker was once again our largest contributor with another month of strong share price performance – up 18% in local currency terms. This was driven by a combination of both NAV growth and discount contraction, although the current level of discount (32%) remains far too wide in our view. Whilst no major news was out, the market is still rewarding the company for the DetNor- BP Norway transaction announced last month, the latest in a series of value enhancing transactions the company has carried out.

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June

In an eventful month, BTEM was up +8.1%, with the major moves coming in the last week following a shock victory for the Leave campaign in the EU referendum.  Headwinds from sharply widening discounts (portfolio discount expanded 300bps to 33.4%) were more than offset by the beneficial effects of the collapse in Sterling given our low exposure to GBP assets (just 6% on a look-through basis).

NAV growth of +17%, a moderately tighter discount, and a +9% translation effect from the Norwegian Krone combined to again make oil-focussed Norwegian holding company Aker our largest contributor.  Over the last 3 months, the shares are up +66% in GBP (+56% in local currency).  The activity at Aker is a textbook example of the value that engaged long-term owners can create throughout market cycles.

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May

For the second consecutive month, the portfolio discount ground tighter to end the month 50bps narrower at 30.4%. BTEM’s NAV was down -0.39%; the benchmark was down -0.96%.

Aker’s discount narrowed from 41% to 35% over the month to make it our largest contributor for a second month running. This contribution came despite headwinds from the weak Norwegian Kroner and a fall in its NAV with strong performance from E&P player DetNor insufficient to offset weakness in the other underlying listed holdings.  We have been pleased to see this NAV weakness reverse in early June to continue Aker’s good run.  A number of transactions took place at the beginning of June.

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April

The portfolio discount tightened slightly over the month to rest at 31% at month-end.

Aker was our largest contributor, benefitting from the sustained rally in oil which rose 20% over the month and from maintaining its dividend at last year’s level when many sell-side commenters were expecting a cut.   Aker’s performance was all the more creditable given no change in its very wide discount (41%) which represents an attractive store of future outperformance. Pargesa was a strong performer, with its exposures to oil (Total) and European construction (LafargeHolcim) boosting returns, while its relatively new holding in Adidas continued a run of stellar share price performance. Its robust NAV growth was accompanied by a 260bps narrowing of the discount.

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March

March was a very strong month for equity markets. The broad MSCI AC World index rose by 4.2%, while our formal benchmark the MSCI AC World ex-USA increased 4.9% as the US underperformed the rest of the world in Sterling terms due to the weak US Dollar.  British Empire outperformed over the month with our NAV up +5.7%.  This outperformance was consistent with the narrowing of the discount on our portfolio from 33.3% at end-February to 31.2% at end-March.

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February

While still volatile, markets were less weak in February. Fears surrounding a devaluation of the Chinese Yuan have receded somewhat, while the bounce in the oil price over the second half of the month helped markets given the correlation between stock markets and the oil price that has so far been a feature of 2016.

Sterling weakness on heightened Brexit fears meant most bourses recorded positive returns in GBP terms.   The broad-based MSCI AC World index was up +1.1% over the month in, driven by the US; Europe was weaker with the MSCI Europe index flat.  Our benchmark, the MSCI AC World ex-US, registered a +0.7% gain.

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January

The opening month of 2016 was witness to highly volatile markets as concerns on China and global growth led markets to lurch downwards. Our benchmark index, MSCI AC World ex-US fell 3.2% with its Value segment down 3.8% (vs 2.5% for Growth) continuing the ever-stretched theme of underperformance of Value stocks.  BTEM’s NAV fell even further (-4.9%) due to the discount on our portfolio pushing out from 28.5% to 32.6%.

The largest detractor over the month was Kinnevik, the Swedish holding company with investments in telecoms (including Tele2 and Millicom) and e-commerce (including Zalando and Rocket Internet).

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2015

December

The last month of 2015 saw BTEM’s NAV register a gain of +0.38% after adjusting for the final dividend, slightly ahead of the +0.24% recorded for the MSCI AC World ex US benchmark and the +0.33% return from the broader MSCI AC World index. This was despite “Growth” extending its winning run over “Value” for another month, with the Growth segment of the MSCI World outperforming its Value counterpart by 41bps, and an even more pronounced differential of 173bps between the two segments in the MSCI Europe index.

The largest detractor over the month was Spanish-listed holding company, Sacyr which saw the value of its stake in Repsol fall by 17% following further falls in the oil price. Sacyr has valuable concession assets and trades on a discount of 45% to our estimate of its NAV, but these attractions are obscured by the volatility in the share price of Repsol.  We expect Sacyr to sell Repsol in the event of a recovery in the oil price.  Other areas of portfolio weakness included Dolphin Capital (no news), Rallye (Brazilian exposure at Casino, the French-listed food retailer), and Dundee Corp (mining exposure).

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November

Developed markets were up over the month, led by the US.  Our MSCI AC World ex-US benchmark recorded a 0.49% gain against 1.8% for the MSCI AC World index (which includes the US).  British Empire’s NAV fell 0.21% on the back of further Euro weakness (down 1.5% vs Sterling), and continued outperformance of “Growth” vs “Value” stocks.

Jardine Matheson was our largest detractor as its NAV fell with the wider Asian market, exacerbated by a widening discount.  The position in BlackRock World Mining was once again painful, and we added to the holding at lower levels as it fell over the month.  Weak sentiment towards commodity-related exposure was also responsible for declines in Dundee Corporation, a Canadian holding company with exposure to gold (through listed Dundee Precious Metals) and oil (via private holding United Hydrocarbon).

The stand-out performer was Symphony International, up 11% in November.  Despite Thai-listed Minor International accounting for over half of Symphony’s NAV, there is a near-zero correlation between daily moves in the two companies’ share prices.  We once again took advantage of the resulting high volatility in Symphony’s discount to add to our position at the low levels seen at the start of the month.

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October

Markets recovered their poise in October, with the MSCI AC World ex-US benchmark up 5.4% on a total return basis and our NAV a little behind at a 5% return. Sterling strength again held back our returns.

Jardine Matheson was our largest contributor on the back of a 10% increase in NAV and discount narrowing for a 16% share price return. The company’s indirect holding in Astra International, which accounts for 20% of its NAV, climbed 13% in local currency as sentiment towards emerging markets improved.

Swedish holding company Investor AB was not far behind in terms of contribution, with strong performances from its stakes in Atlas Copco, ABB, and SEB resulting in solid NAV growth and discount contraction of c500bps. The company ended the month trading on a 20% discount to our estimated NAV. Given the long term value creation by the company, there is justification for the discount to be narrower than it is today. The resulting return over the month of 8% in Sterling was held back by a 3.7% decline in the Swedish Krona as disappointing Swedish unemployment figures led to speculation that the Riksbank may move rates even further into negative territory.

Other helpful contributors over the month included Kinnevik, Hitachi, and JPMorgan Private Equity.

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September

Continuing concerns regarding global growth saw markets swoon with our MSCI AC World ex-US benchmark falling 3.1%.  Our NAV fell by 40bps more than the market as the portfolio discount widened out to 28%.

Symphony International was our largest contributor, as it bounced back from a pronounced fall at the end of August.  Minor International, the Thai hotels and restaurants group that accounts for 45% of Symphony’s NAV, strongly outperformed a weak Thai market rising +8.5% vs MSCI Thailand’s negative return of -4% for the month.

Disappointing news came from Better Capital with the disposal of Fairline, the luxury boats manufacturer, for a “modest deferred consideration”.  While we are pleased that no further capital was committed to the “problem child” of the 2009 cell, the hit to NAV is clearly a negative.  That said, the sale of Santia expected before year-end could mitigate the impact.

 

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August

There were few places to hide during the month as markets around the world fell sharply on fears of a China slowdown and large falls in its stock market.

As far as our portfolio goes, there were small positive gains from German property company DIC, UK student property company Empiric and from Detour Gold, as well as some of the European Holding Companies where Euro strength over the month helped push contributions into positive territory. Overall however, these were little compensation for the very sharp falls suffered across the portfolio with international indices down 6.3%. The largest detractors came from Symphony International, First Pacific, Aker and Kinnevik, whose share prices fell by 17.5%, 18.7%, 12.4% and 13.3% respectively.

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July

European holding companies were the strongest performers during the month, with Investor, Wendel and Sofina the largest contributors as their share prices increased by 8%, 10% and 5% respectively. All experienced sharp discount contractions too, and the weighted average discount on the portfolio also narrowed from 26% to 25%.

The one area of the portfolio that hurt us during the month was companies with mining and resource exposure. Thus Dundee Corp, Blackrock World Mining Trust and Teck Resources fell by 12.4%, 14.5% and 22.2% respectively over the month – in aggregate detracting 0.75% from performance.

Cash has been further reduced during the month and at month end we were slightly geared having added to a number of existing European holding companies and property companies.

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June

In a rather weak market we outperformed our benchmark due to the outperformance of our European and UK holdings, where we are substantially overweight. Notable outperformers during the month include Aker whose share price rose by 6.6%, JP Morgan Private Equity (+5.5%) and Better Capital (+7.5%). Our Canadian holdings also performed well with Dundee Corp rising 9.9% and Detour Gold up 8.1%.

Fears over the potential “Grexit” during the month of June, as well as extreme volatility in China spilled over into all markets. We used the volatility to add to companies we find very attractively priced. Most of the acquisitions were additional investments into our European names. The discount on Kinnevik has widened out to close to 25%, having been almost 10 percentage points narrower in recent months. In addition, the potential for NAV growth is extremely high as the core underlying investments such as Zalando, continue to perform well. We have added substantially to Kinnevik in recent weeks.

During the month the weighted average discount to NAV increased to 25.1% from 23.5% one month earlier.

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May

Whilst the portfolio’s weighted average discount remained unchanged at 24.8% over the month, there were some large individual moves.

The discount on Aker widened by over 3 percentage points to 44%, making it the largest detractor from performance as its shares fell by over 6%.  Teck Resources was another large detractor falling 21% over the month as weakness in the coal price led the company to temporarily shut down its coal operations.

On weakness, we added to Eurazeo where the pace of portfolio recycling has been picking up.  Following its IPO in February, the share price of Elis is up by more than 40% and this has contributed to Eurazeo’s NAV growth.  Moncler was similarly “IPO’d” at the end of 2013 without Eurazeo selling shares in the market until last month, when the shares were approximately 70% higher than the IPO price.  The next IPO is due in coming weeks when Eurazeo will be bringing Europcar to the market.  Following a multi-year turnaround in Europcar’s fortunes, we anticipate another step towards a successful exit from this investment.

Relative discount moves at GBL and Pargesa have allowed us to gain exposure to the same group of underlying assets, but at a more attractive discount.  Whilst GBL’s discount has remained flat over the course of the year at around 27%, Pargesa’s has widened from 22% at the start of the year to 34% recently.  Pargesa’s sole asset is a 50% stake in GBL and with little in the way of administrative expenses at Pargesa, there is no justifiable reason for the divergence in discounts.  In the past the discounts on the two companies have on average been more or less in line with each other.  A return to this long-standing trend would see Pargesa outperform GBL and for this reason we have been switching out of GBL in favour of Pargesa.

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April

Europe continues to be a successful theme for us as a number of our holding companies benefit from stronger than market NAV performance and discount contraction.

Sofina was the largest contributor to performance with its shares rising by 5% over the month.  Thus far in 2015 its discount has narrowed from 37% to 32% and remains wide in absolute terms and relative to its peer group.  We do not believe that such a wide discount is justified for a group that has consistently delivered market beating NAV performance.  Shares in Paris Orléans jumped by 15% over the month as the company announced that stronger than expected results and also that it would be renaming itself Rothschild & Co. Aker, the Norwegian oil services holding company has also had a bounce in recent weeks, helped by a stronger oil price.  Three recent acquisitions in the mining sector were also strong contributors over the month.  Detour Gold shares rose 27.5%, Blackrock World Mining increased by 7.5%, and Teck Resources went up by 5%.

On the negative side Jardine Matheson was the largest detractor from performance over the month.  A 2% decline in share price was magnified by a widening in the discount from 24% to 27% and this was further compounded by US dollar weakness against the Pound.  Other dollar priced holdings such as Harbourvest, NB Private Equity and Symphony International detracted from performance – more from Dollar weakness than share price declines.

During the month, the discount on the portfolio widened to 24.8% and cash levels remain relatively low at 3.2%.

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March

AP Alternative Assets’ shares rose strongly over the month. The 11.5% jump over the month was boosted further in Sterling terms by a strong US dollar. Despite the stellar gains already recorded on the position to date (up almost +200% in less than 3 years), we still see significant future upside from the company’s sole asset, Athene Insurance. We expect an IPO of Athene, slated for later this year, to be achieved at a value substantially in excess of the valuation used by AP Alternative in its reported NAV.

Paris Orleans has finally started to move ahead over the last couple of months. The French holding company of the Rothschild family is soon to be renamed Rothschild & Co and this may generate more attention to this little known holding company. At the same time, increased profitability from both investment banking work, as well as from the wealth management division, Provides further support for an increase in the share price.

Sales over the month included an exit from our position in Pantheon’s Ordinary shares on a 15% discount to NAV. We have also started to reduce our position in Hudson’s Bay after the company announced JV’s with Simon Property Group and RioCan REIT for their US and Canadian freehold property portfolios at the end of February.

Dolphin Capital’s share price deteriorated further over March as tensions rose between Greece and their creditors.

The weighted average discount on the portfolio at the end of March was 24.1%.

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February

Strong performance across most of our geographic universe has once again been offset by the strength of Sterling, which continued to rise against most developed market currencies. There were strong performances in local currency terms from a number of holdings.

Hudson’s Bay in Canada jumped 20% over the month, as it announced two transactions as part of their strategy to unlock value from their extensive property assets. This comes on top of a rise in price in November 2014 on the news of a revaluation of their 5th Avenue, New York store. Initiatives by management to narrow the gap at which the company trades relative to its NAV have led to a 57% increase in share price thus far this financial year.

Investor AB reached new highs as it rose 9% during the month as it continues to outperform markets. The company also announced a 12.5% increase in its dividend. SVG Capital was also a strong performer with its shares up 13.1% over the month. A further sale of Permira’s stake in Hugo Boss added to the company’s already substantial cash balance, while the NAV was driven higher by a 13% rise in the share price of largest holding Freescale Semiconductor. Shortly after the month-end, the acquisition of Freescale by NXP Semiconductors was announced in a part-cash part-shares deal which saw a further gain of 12% in Freescale’s share price.

The biggest detractor from performance was Hitachi, although part of the overall loss was offset by the currency hedge on the Yen, which weakened against Sterling by 4.8% over the month. Investors reacted negatively to Hitachi’s Q3 results as earnings fell short of plan in one of its key divisions, which caused some concern over the ability of management to continue to deliver on its growth plans. It is trading on a discount to its sum of the parts of c. 25% and on a low earnings multiple of c. 12x and we think the shares should recover.

The other detractor over the month was Jardine Matheson where a small fall in share price of 0.7% was exacerbated by the 2.8% fall in the US dollar against Sterling.

It was an active month for us in terms of purchases and sales, as four new holdings were initiated and three companies were sold entirely.

On the buy side we bought three companies in the energy and mining sector including a stake in in Blackrock World Mining Trust. This is an area of the market to which we have had very little exposure to however, after very sharp declines there are signs that value is emerging. It is possible that this will continue to be a volatile sector however, value often emerges in areas of the market that are the least-favoured. Many of the reasons for continued falls in commodity prices are well known and may well be discounted by the market.

We also invested in Sacyr, a Spanish holding company that has exposure to Spanish real estate via Testa – a company that is likely to come to the market via an IPO in the next few months, and also to Repsol, the oil company via a 9% stake in its equity. We acquired our holding on a discount of c. 25%.

Whilst mining and energy companies have been unpopular with the market and arguably have valuations to match, one area of our universe where it is hard to make the value case is German residential property, where much of the sector is trading at substantial premia to NAV. We completed the sale of our small holding in Buwog during the month, at a premium to NAV, and Westgrund received a bid from its larger peer, Adler Real Estate.

The largest sale was of Tui, the German holding company that recently merged with Tui Travel Plc. We bought into the company in June 2014 – before the merger was announced – on a discount of 35%, and sold out at a discount of 10% after the share price went up by 29% in Euro terms.

Cash at month end was 4.4% and the weighted average discount on the portfolio was 24.4%.

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January

The ECB formally adopted its version of QE during the month. This drove the Euro even lower and boosted stock markets across Europe. For the first time in a long while, the MSCI World ex US Index outperformed the broader MSCI World Index, reflecting the relative underperformance of US markets against the rest of the world. This is a phenomenon which ought to benefit us, as we have no direct exposure to the US. We continue to find good value opportunities on wide discounts in Europe and the weaker currency, as well as ECB monetary policy, could provide a further boost to these markets. This would likely lead to a narrowing of discounts within our universe and would be beneficial to our strategy.

Two of our closed-end fund holdings were strong contributors to performance over the month, with NB Private Equity Partners (NBPE) and Harbourvest Global Private Equity (HVPE) recording solid gains. Both discounts contracted materially, and the positions were also buoyed by the strong US dollar.

Euro weakness was not enough to hold back our holding in TUI, whose share price climbed +8.8% in sterling terms over the month (+13.1% in Euros) as the market digested the transformative nature of the holding company’s merger with its TUI Travel subsidiary.

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2014

December

In NAV terms we ended 2014 2.6% ahead of our benchmark.

The share price of Marwyn Value Investors (MVI) bucked the market, climbing 6% over the month on the back of an 8% rise in its largest holding, media company Entertainment One. Shortly before the start of the month, MVI had announced the sale of its second largest holding, Breedon Aggregates. A return of capital equivalent to 4% of month-end share price will be affected in January.

German residential owner, Westgrund, was up 9% over the month as the company closed the refinancing of their recently acquired Berlinovo portfolio. A 7 year loan with a cost of 2.14% has replaced bridge financing which cost 2.75%. Investors’ belief that the sector is due for further consolidation following the merger of Deutsche Wohnen and GAGFAH was a further boon for Westgrund as investors identified it as a potential takeover target.

 

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November

This was a good month for us as markets continued to recover from their recent lows in mid-October. Importantly some of the key contributions to performance came from corporate events. The first was Forterra Trust, which although not a particularly large investment, nevertheless was able to inflict a fair amount of pain as its share price fell by 36% during the 2014 financial year. Since the end of September, it has jumped by 57% as its largest shareholder, Nan Fung, launched two attempts to take the company over. The first attempt was launched in October and was set at a price of $1.85. This received an unenthusiastic response and has since been followed by a second offer at $2.25. This won the support of the second largest shareholder and allowed Nan Fung to increase its ownership above the 50% level. Subsequent purchases in the market have taken their control to 90%, which includes the c. 4% stake held by AVI funds.

There were strong performances from Investor (up 6.6%), Tui AG (up 12.1%) and WM Morrison (up 15.3%).

The main detractor from performance was Aker, whose shares fell a further 7.3% during November, further compounding the sharp falls suffered by the company since the oil price started to fall in June. With a portfolio of assets dominated by oil related businesses it is unlikely that Aker’s share price will move in a different direction to that of the oil price in the near term. However, with a prospective dividend yield of over 9%, a discount of over 40% and financially sound assets there is a strong case to be made that Aker’s shares will at some point bounce very sharply from these very depressed levels.

We made two new investments over the month, and added to some of the recent investments we made in Europe.

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October

October was a volatile month which at one point saw European stockmarkets down more than 10% from their 2014 peaks. The heightened risk aversion that comes with sharply falling markets tends to push discounts out to wider levels, and this was a feature of some of the stocks in our portfolio during the month. Most outperformed markets in NAV terms which is encouraging as it allows for some catch up in performance when discounts narrow again. One particularly painful investment over the month was Aker ASA, which fell by 22% as its NAV was hit by the rapidly falling oil price. With investments in oil exploration company Det Norske and in oil services company Aker Solutions, its value has been hit hard. The company’s policy of paying out a relatively high dividend and of actively managing its investments in order to maximise value, is a source of confidence in the long term potential of Aker. On a discount of almost 40% and with such a swift fall in value over the month, we believe there will be a bounce in the share price. However, in the very near term sentiment will continue to be driven by moves in the oil price.

Whilst we don’t hedge our foreign exchange exposure as a matter of course, there are times when we do wish to hedge particular exposures. During the month we decided to hedge most of our Japanese Yen exposure, as we were mindful of the potential for further QE in Japan which would weaken the currency. The timing proved fortuitous, as the BOJ announced aggressive additional monetary stimulus plans at the end of the month. This not only weakened the currency sharply, but also sent the stock market up strongly. Our two stocks in Japan, Hitachi and Mitsui Fudosan were beneficiaries of this move as their share prices jumped by 5% and 9% respectively.

We raised some cash early in the month by taking profits out of Asia Pacific in order to take advantage of more compelling opportunities in Europe where markets had been far weaker. Within our universe of European companies, several which we didn’t own on valuation grounds had fallen by more than 25%. We wanted to take advantage of more compelling valuations here and therefore raised some cash from a part of the portfolio that had not suffered material declines in recent weeks, and where valuations and discounts were less interesting. Money was raised from KT Corp in Korea, Westfield in Australia and Jardine Matheson in Singapore. We made a few small new investments in European holding companies during the month, as well as some additional investments into existing holdings.

 

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September

Our two largest closed-end fund positions, NB Private Equity Partners and Harbourvest Global Private Equity, were also our two largest contributors over the month. Both companies reported strong monthly NAVs up 3% on the receipt of H1 2014 valuation reports, and our positions in both also benefitted from a strong US dollar. NBPE’s discount also moved in by 150bps over the month to 16%, while HVPE started and finished the month on a 19% discount.

The third largest contributor to performance during the month was our investment in Hudson’s Bay, the North American retailer. Our original thesis was the monetisation of their real estate portfolio, which we believe is assigned very little value in the share price. Their Q2 results mentioned an expectation to announce details of their real estate review no later than April 2015, giving a much clearer time frame for investors. The company has high end real estate on its balance sheet which includes Saks 5th Avenue in New York and Beverley Hills, the Lord & Taylor flagship store in New York, as well as properties in Vancouver, Calgary, and Montreal, and we believe the sale of these assets could provide significant upside.

Shares in Dogan Holding, our sole investment in Turkey, were weak over the month falling 15% on no news, underperforming a weak Turkish market by 8%; a 3% fall in the Turkish Lira against Sterling exacerbated the loss. Dogan’s market cap barely covers the cash on its balance sheet, and we expect the recent buy-out of minorities and subsequent delisting of Dogan Yayin Media to increase group efficiency. Aker ASA and Dundee Corp were also weak on little news-flow.

We added to Eurazeo, and made three new investments during the month: Westgrund, JP Morgan Private Equity, and Fondul Proprietatea.

Net cash levels came down from 5.6% to 1.7% as we took advantage of attractive opportunities and the weighted average discount increased by 30bps to 28.6%.

 

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August

The recent gyrations in European markets gave us the opportunity to invest in French holding company, Eurazeo. Its share price fell by 20% between June and mid-August and this pushed its discount up from mid-teen levels to close to 30%. There are two additional factors that make this particularly interesting. Firstly, the widening of the discount prompted comment from management about the absolute level of the discount, together with a statement regarding their intention to boost the level of share buybacks to 10% of the shares outstanding should the discount remain at these wide levels. And secondly, management confirmed the intention to sell two of their largest private equity holdings – Elis and Europcar – which together make up approximately one-third of total NAV. In early September, Elis confirmed its intention to proceed with an IPO. Both companies have performed strongly in operational terms over the past year and the prospect of successful disposals should provide support for further narrowing of the discount, as well as potential increases in NAV.

At Vivendi, the ongoing rationalisation continues with the company accepting a takeover bid for its Brazilian broadband business GVT. We used the strength in the share price to take partial profits on our holding. We had added to the position at the end of June on price weakness, and the recent strength allowed us to sell at a very narrow discount to our estimate of NAV.

Net cash levels increased very slightly to 5.6% and the weighted average discount increased marginally to 28.3%.

We continue to identify attractive opportunities on wide discounts at attractive valuation levels and with genuine catalysts for discount narrowing.

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July

The largest riser over the month was London-listed closed-end fund Marwyn Value Investors (MVI), up +19% on the back of a 10% rise in the share price of its largest holding Entertainment One (77% of MVI’s investment portfolio). Entertainment One is an independent film & TV distributor and producer, owning a valuable library of film and TV rights. A strong set of results accompanied by global M&A activity highlighting the value of content were responsible for the rise. MVI’s performance over the month was particularly gratifying as we had added to our holding before much of the share price rise occurred. On a discount of 32% and with Entertainment One attractively valued at 14x next year’s earnings, we see scope for substantial further upside in MVI’s shares. AVI funds own approximately 13% of the company.

The major faller over the month was recent acquisition, TUI AG, whose shares fell by 14%. The shares were dragged down by a 9% fall in London-listed subsidiary, TUI Travel (60% of TUI’s NAV). TUI AG’s shares are exceptionally cheap with an implied EV/EBITDA multiple for its hotels and cruises business of just 3.5x, and we took advantage of the share price weakness to add to our position. Were its merger with TUI Travel to fail to be consummated, the company has other levers to pull in order to spark a re-rating, most notably the disposal of its stake in the Hapag-Lloyd container shipping business scheduled to IPO next year.

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June

The focus of investing into companies when they are trading on wide discounts to NAV means that as those discounts diminish and the risk of discount widening increases, we seek to recycle capital into more attractive opportunities. During the course of the month, there was a reasonable amount of such rotation as a number of stocks reached their target values and/or discounts.

Two property stocks have performed well recently and were trading very close to NAV.

In Germany, we reduced our weighting in Gagfah substantially. We first invested into this company in March 2013 at prices around the 9 Euro level and on a discount to NAV of 30%. The thesis for investing was that the company was likely to focus on deleveraging, reducing the cost of its debt and improving the management of its portfolio of German residential properties, with the ultimate objective of initiating a dividend after years of poor management. Over the last 15 months the company has benefitted from all these factors. Debt has come down. The cost of debt has been reduced significantly and as a consequence the discount at which the stock trades has narrowed to sub 5%.

We invested into British Land at the start of 2014. Underperformance relative to its peers allowed us to invest into it on a reasonable discount, and in addition we anticipated further strong growth in its NAV. Some of this growth has indeed come through during the period of our ownership. The discount however, has largely been eliminated and British Land is now trading in line with its peer group and is no longer on a discount to its NAV. As with Gagfah, we prefer not to own companies that are trading on narrow discounts and would rather recycle cash into companies where there is more upside from both NAV growth and discount contraction. Hence we have sold out of British Land.

Whilst we focus on buying stocks on wide discounts, it is not always our expectation that discounts are entirely eliminated and that all stocks in the portfolio trade at NAV. In the case of Hyundai Motor Preference shares, we invested into the company when the preference shares were trading at a 60% discount to the ordinaries. This was towards the wider end of the historic range. Our target was a 30% discount which was in line with the narrowest level over the past decade. It was not simply a case of buying into the company on wide discount. We also believed Hyundai Motor to be undervalued. Over the past 6 months since we first invested, the preference shares have appreciated by about 30% and the discount on the preference relative to the ordinaries has come in to 28%. With no explicit catalyst for the discount to be eliminated entirely we have started to take profits and shift our cash into cheaper opportunities.

These included TUI AG, a German-listed holding company whose principal asset is its 55% stake in London-listed tour operator TUI Travel. TUI AG also owns a portfolio of branded hotels and operates a cruise line. In addition, TUI AG owns a 22% stake in Hapag-Lloyd, a container shipping business that recently merged its operations with Chilean peer, CSAV. The combined entity is scheduled to IPO in the first half of next year and will provide TUI AG with an opportunity to exit a business it has long regarded as non-core. We believe the disposal of this stake should prompt a re-rating in TUI’s shares, which trade at a 35% discount to our estimated SOTP. The second catalyst we foresaw was an eventual merger of TUI AG with TUI Travel Plc, although we were pleasantly surprised to see events unfold so quickly after establishing a position with the announcement on 27th June of a nil-premium all-share merger recommended by both boards. The muted share price rise of just 4% reflects scepticism that a deal will be approved by TUI Travel shareholders and that “we have been here before” with previous approaches – nevertheless, this is the first time that TUI Travel’s board has recommended the merger and that precise merger terms have been put forward. Management and directors of both companies clearly have much work to do to steer the merger through, but the prospect for TUI Travel shareholders of sharing in the release of the value trapped in TUI AG may prove attractive to many. Were a merger to be consummated, the upside for our position is substantial.

Cash at month end was 3.1% and the weighted average discount on the portfolio increased from 26.9% one month ago, to 28.4% at the end of June.

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May

In addition to the M&A activity of recent months, we have seen several of our portfolio companies proactively taking action to narrow their discount and unlock value.

Aker ASA, the Norwegian listed holding company was the largest contributor to performance as its shares rose 10% over the month. The driver of this performance was the announcement by Aker Solutions, a company in which Aker holds a stake of 40%, that it would split itself into two separately listed companies in order to improve efficiency and drive shareholder returns. The discount on Aker remains wide at 31% which is narrower than its widest levels of 42% that we have seen in recent years but leaves plenty of scope for further narrowing. With a dividend yield of almost 6% and clear evidence of management attempting to improve the rating of the company – both at the holding company level and at the underlying portfolio level – the case for further discount contraction is compelling.

Shares in Dogan Holding jumped a further 18% over the month. We described last month how the buy-out of minorities in the 80% owned media subsidiary was positive for shareholders in Dogan Holding. In late-May, the announcement of a very favourable merger ratio for the holding company’s shareholders caused a sharp run-up in the share price. We estimate that the implied issuance price of the holding company’s shares represents a 40% premium to their undisturbed price; although the company is issuing its shares at a wide discount to its NAV, the subsidiary’s even wider discount to its SOTP NAV means that the transaction is accretive to the holding company’s NAV by +4%. Perhaps more importantly, the merger removes a layer of costs, wipes out the double discount and cleans up the group’s structure.

As a holding company, Investor AB epitomises all that is positive about family controlled holding companies. Its long term investment horizon and its proactive management of portfolio companies, has consistently delivered NAV outperformance and strong growth in dividends. Its discount has narrowed from over 35% two years ago to just under 20% today. However, we believe that given the scope for further NAV growth, particularly from some of its unlisted assets, the case for further discount contraction remains. The share price of the company increased by 4% over the month, despite the setback to NAV of the sharp fall in Astra Zeneca’s share price after the failure of Pfizer’s takeover attempt.

The share prices of Symphony International, Hitachi, DWS Vietnam and Marwyn Value Investors all fell between 6% and 7% over the month. Symphony drifted lower on no news and we believe the investment case to remain intact. We took advantage of the weakness in DWS Vietnam and Marwyn Value to add to our positions.

Net cash is currently c. 1% of NAV and highlights the conviction we have in the prospects for our portfolio as the numbers of corporate events expand and the potential for discount contraction grows.

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April

The portfolio has continued to benefit from increasing levels of corporate activity, with a number of our European holding companies having exposure to the large M&A deals currently in the pipeline. As business confidence in Europe continues to grow and with credit becoming more readily available, the conditions are ripe for this trend to continue. With our portfolio, trading on a weighted average discount of almost 28%, there is every possibility of our portfolio continuing to be a beneficiary of this.

Lafarge makes up c20% of GBL’s NAV and the positive share price reaction to its tie up with Holcim helped push GBL’s share price up. Investor AB owns a 4% stake in Astra Zeneca that makes up just under 10% of its NAV and the news of Pfizer’s interest in taking over the company boosted Investor AB’s NAV and share price accordingly. Investor AB saw its discount narrow from 24% to 20% over the month and its share price increased by 7.6%.

At the smaller end of the market cap spectrum, LMS Capital announced the sale of its largest holding, Updata Infrastructure, to Capita at a price representing a 5.3x return on cash invested and an IRR of 52% since acquisition. The holding, 13% of NAV at year-end, was sold at a 36% uplift to last reported carrying value and had already been written up by almost 50% over 2013. The exit provides additional confirmation of the conservative marks used to value its mature portfolio, and we anticipate further exits at uplifts to NAV. A £40m tender at NAV has been announced, after which almost 60% of our original cost will have been returned to us with our holding showing a 59% gain.

The turbulent political environment in Turkey has weighed on the shares of Dogan Holding, a Turkish media and energy holding company. Despite owning a variety of attractive assets across the media and energy sectors, , we estimate the shares trade on a discount to SOTP of almost 60%, with 90% of Dogan’s market capitalisation covered by cash held in USD at the holding company level. While there is a medium term catalyst in place with the resumption of dividends from 2016 once an accumulated loss is paid off, we were pleased to see more immediate action taken to tackle the discount in April with the company announcing a buy-out of minorities in its 80%-owned listed subsidiary, Dogan Yayin Holding, whose own shares trade at an estimated 60% discount to SOTP. The elimination of the double-discount was well received by the market, with Dogan’s shares rising 7.5% over the month.

We made one new investment during the month. Westfield Group is an Australian listed investor in retail property around the world. It trades on a discount to its NAV of 26% and we anticipate this narrowing in coming months as the company splits into two separate entities. Part of this discount is due to investors perceiving Westfield Group as a pure Australian company, which is considered a low growth market. In reality its Australian operations represent less than one-third of its gross assets. In an attempt to combat this perception and to boost the share price, Westfield has outlined plans to separate its mature Australian and New Zealand assets and to combine them with assets held by the Westfield Retail Trust, an Australian listed retail REIT, to form Scentre. The remaining assets will be re-listed, most likely in NY, as Westfield Corp, which will have the bulk of its assets in the US and Europe. We expect the valuation for this company to appreciate as its rating moves into line with other US REITs.

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March

We have seen a notable pick up in corporate activity in recent months. This is a positive phenomenon for our investment style and a number of companies in our portfolio are seeing stronger performances on the back of this.

The bidding for Vivendi’s SFR has concluded with the announcement of Altice as the winner. The other bidder, Bouygues, had the upper hand at first and its share price jumped early on and we sold our position in Bouygues and retained our holding in Vivendi. We await clarification from Vivendi on any return of capital which we believe likely given the very substantial cash inflow it will see from the sale of SFR to Altice.

The weakest performer over the month was Morrison, a fairly recent addition to the portfolio. Morrison had fallen sharply since September on fears of a challenging operating environment. We believed management would seek to deliver some value to shareholders by way of a sale of part of their freehold estate, with the potential for some of that capital to be returned to shareholders. The operating environment was worse than feared and the four UK majors face a real structural challenge from the low cost operators which is worrying. Given the degree of asset backing, the current dividend yield and the plan put in place we still think the current share price looks to have upside.

We made a new investment in Dolphin Capital, an AIM listed property developer, with assets principally located in the coastal areas of Greece and Cyprus. Its market capitalisation today of c £250m is significantly lower than the capital it raised on launch in the mid-2000s. The onset of the financial crisis hit this company hard and in late 2012 it was forced to raise additional capital from several hedge funds. Today, with many of its projects well on the way to being developed and markets such as Greece once again attracting interest from foreign investors, the future looks a lot brighter for Dolphin Capital and having acquired our stake on a discount to NAV of 45% we see a lot of upside. Management recently reported the first increase in NAV since 2008. This is a positive indicator of the changing fortunes for its asset base. The intention is to sell off the developments that are completed and to return capital to shareholders. The pace of capital returns is dependent of course on the timing of asset sales. We think it is possible that one or two larger schemes are sold in the not too distant future which will allow for a swifter re-rating of the shares and of course capital return.

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February

We sold out of Electra entirely and also trimmed the holding in Vivendi.

In the case of Electra we have had a position since 2006. We added substantially in late 2008/early 2009 when it was trading on a 56% discount and added again in the first half of 2012 on a 32% discount. During that time, as well as substantial growth in NAV, the discount has narrowed to 12% which is the level at which we sold. Given Electra’s historical trading range and the current discounts of peers, we saw limited scope for a further re-rating and expect muted short-term NAV growth given the relative immaturity of the portfolio after a spate of realisations. While the emergence of activist Sherborne Investors on the register has prompted a tightening discount post our sale, it is not immediately apparent what value they can add/unlock for a highly-rated externally-managed vehicle such as Electra. This is a good example of buying into a high quality company when it is out of favour and trading on a wide discount, and ultimately benefiting from the double whammy of NAV growth and discount contraction. We will rarely time the highs and lows perfectly and in the case of Electra, the share price continued to rise strongly in the few days after our sale. However, the focus on buying on wide discounts and selling on narrow discounts ensures we maintain a strong value discipline when making investment decisions.

Vivendi’s share price rose by 3.9% during the month and since the start of the financial year (1st October 2013) it has been the largest contributor to performance and risen by 21.8%. It continues to be pulled higher by the anticipation of the spin-off of SFR and the elimination of the conglomerate structure. However, at the same time it is also being held back by the operational challenges that continue to plague SFR and the other players in the French mobile phone industry. Our profit taking during the month reflects the fact that the discount has narrowed substantially over the last few months and the risk-reward profile of this holding justifies a lower weighting in the stock. Post month end Vivendi has received 2 bids for SFR – one from Bouygues (2.1% of the portfolio) which moved up sharply on the news of its bid.

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January

We made a number of changes to the portfolio during the month as new positions were initiated and 4 holdings were sold entirely. We exited fully from last year’s top performer, Kinnevik, as well as from Granite Real Estate, Henderson Land and JP Morgan Private Equity. In the Far East we bought Hyundai Motor Preference Shares and Hitachi, both on wide discounts.

We are always looking for measures that companies can take to improve shareholder returns and often try and engage with management accordingly. In the UK we bought a stake in WM Morrison. Recent weak operating performance has left the shares trading at relatively low multiples, as well as below the theoretical value of its real estate. Pressure is mounting on management to deliver returns for shareholders and a number of large value/activist investors have stakes in the company. Similarly, we recently invested into German industrial conglomerate, ThyssenKrupp. It too has made poor capital allocation decisions in recent years with value destructive capital investments in their North American steel business. They have the attraction of a high quality elevator business, but the challenge of loss making steel business. They too are coming under pressure from activists.

Amongst our investments in listed private equity funds, we continue to use our clout on the shareholder register to engage with management in a constructive manner. Following the sale of the last tranche of the Lehman Estate’s holding in Neuberger Berman Private Equity Partners (NBPE), we met with the manager for an update. AVI is now the largest shareholder in NBPE with an 11% stake which accounts for 2.5% of our funds’ NAV. In line with our thesis, the discount has narrowed sharply following the removal of the perceived Lehman Estate overhang and currently stands at 19%, in from the 28% level where we last acquired shares at the end of 2013. The company’s transition from a fund of funds to a direct investor in private equity continues, with 55% of NAV now in direct investments. As the portfolio shift continues and is more widely recognised by the market, we expect its discount to contract further towards the single-digit average at which direct investing peers trade.

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2013

December

During December performance was driven by the strength of several of our larger holdings in Europe, with Vivendi continuing to make the largest contribution to performance on the back of management’s intention to split the company into two separately listed companies. The two Swedish holding companies Investor AB and Kinnevik were the next largest contributors and in the case of the latter we continue to take partial profits after a tremendous run in 2013 which saw the share price more than double and the discount to NAV all but disappear.

We see this as an exciting time for our strategy. Whilst the pace of corporate actions is picking up and investor appetite is starting to push discounts in, we are able to find numerous opportunities to make new investments on wide discounts. During November and December four new names have come in to the portfolio, and the New Year has started with a further five new names.

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November

Vivendi confirmed that its Board had approved the demerger of SFR (the French mobile phone business) and that Vincent Bollore (5% shareholder and currently deputy chairman) would become Chairman of Vivendi next year. This further progress towards splitting the conglomerate into two separate companies is very positive. The share price has moved by over 20% since the summer when details of these plans began to emerge. This move has already had an impact on the discount at which Vivendi trades. The discount has narrowed to 15% since the summer, but more importantly it also sets the scene for potentially boosting the value of these businesses once they become separately listed. Whilst we haven’t formally increased our NAV, we do see potential to do so once details of capital structure and returns of capital become clearer.

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October

Orkla’s share price rose 10% on the back of improved Q3 earnings figures. The transformation of the group over the last few years into a pure play branded consumer goods company is almost complete. This has led to a contracting discount which has benefitted us alongside the special periodic returns of capital over the years. As a consequence of the narrower discount we began reducing our holding.

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September

Kinnevik, a Swedish family controlled holding company, had another strong month with its shares rising 7.5% over the month. The growth in Zalando, one of its holdings, has been very impressive and the interest in the potential IPO is drawing investors to Kinnevik. We have started to reduce our position gradually. Having made the investment a year ago on a discount of c30% to reported NAV, the share price today stands at a premium to that reported NAV, having risen by over 60% in that time. Our rationale for continuing to hold the stock is that the reported NAV understates the true value of Zalando, and some of the other e-commerce assets. However, the multiples at which these companies are being valued are high and there is always a risk that an IPO doesn’t materialise as planned. Whilst the story is attractive, the valuation is pricing in more of a good outcome and hence there is potential downside risk.

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August

The perception of “Fed Tapering” affected many interest rate sensitive sectors including Canadian REITS and property. A casualty to investors’ growing concerns that the US Federal Reserve could soon implement a change in the current status quo of monetary easing was Dundee Corporation. Dundee Corp is a Canadian conglomerate with mining, banking and property interests which fell by 10% over the month. We continue to believe though that the inherent value within Dundee Corp will be reflected in its share price as the underlying assets appear to be performing well and the management have a proven history of returning capital to shareholders.

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July

Vivendi announced the disposal of the majority of its 61% stake in Activsion Blizzard. The share price response to the announcement was somewhat underwhelming however, over the month the shares have risen by over 10% making it the largest contributor to performance. The key message from this disposal is that the transformation of the company is now underway. We can expect further details about the sale of the stake in Maroc Telecom in due course, and this should be a further indication that the company is moving away from the conglomerate model of the past and moving towards a more focused and shareholder friendly group.

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