In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they’d never buy.
This week our interviewee is Joe Bauernfreund, CEO & CIO of Asset Value Investors, and fund manager for both the Morningstar 3-star rated AVI Global Trust (AGT) and 5-star rated AVI Japan Opportunity Trust (AJOT).
Which Sector Shows the Biggest Promise in 2022?
2022 is almost over and I don’t think we are out of the woods yet. So, I would say cash! For 2023, I would say Ex US equities – unhedged.
What’s the Biggest Economic Risk Today?
Recession – central banks are tasked with keeping inflation under control and its extremely likely that in trying to tame inflation they cause economies to slow down more than they want.
Describe Your Investment Strategy
We focus on exploiting inefficiencies in listed markets by buying high quality businesses trading at discounts to their value. It is a very much bottom-up strategy that requires diligent and in-depth research on companies.
Which Famous Investor Do You Admire?
The late David Swensen. He was a pioneering investor who reshaped the attitudes towards long-term investing and diversification. He had the courage to do what was different from everybody else at that time. David was also an enthusiastic people person who was generous of his time, and I was fortunate to benefit from his guidance early in my career when he participated on AVI’s Board.
Name Your Favourite “Forever Stock”
AVI Global trust. I believe in the phrase “Le patron mange ici” and invest a substantial share of my net worth in AVI’s products. So AGT is my favourite “forever stock”.
What Would You Never Invest In?
Crypto.
Growth or Value?
I once wrote a piece entitled “The Third Option” and in it I make the argument that there is a third way treading between the two camps of growth and value. I will not invest in companies where I do not see the long-term potential for substantial growth in value. I want a good quality company trading at a discount, where I can benefit not only from closing the discount gap, but from long-term growth. Value-growth investing is a nuanced game, relying on our investment team’s research efforts, ability, patience, and diligence to find the right opportunities. A company that is undervalued by the market, but with long term prospects that would excite any hard-core growth investor is the archetypal ‘value-growth’ stock.
House or Pension?
A house provides a sense of security and is not an investment decision that can be made without emotion. Whereas a diversified pension should be structured with long-term retirement goals in mind.
Crypto: Brilliant or Bad?
Bad. It is something that most people do not understand and are simply following a crowd mentality which is not investing.
What Can be Done to Improve Diversity in Finance?
Get fund managers to visit local schools and tell the students about the opportunities in Fund Management and what an interesting career it is. Fund management is not a profession that is tangible, like an engineer, a teacher, or a doctor so children do not have an image of what it means. Going into schools and bringing the profession to life will encourage students from all backgrounds to consider pursuing a career in fund management.
Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
We have been engaging with Fujitec, the elevator company, both publicly and privately since 2020. Most of the dialogue was conducted privately and excellent progress was made on several issues which we are proud of. However, Fujitec’s response this year to legitimate concerns regarding related-party transactions have been disappointing and fallen far short of what we expect from a listed company. We maintain our dialogue with Fujitec and encourage the Board to rectify the situation.
What’s the Best Advice You’ve Ever Been given?
Stick to your knitting and don’t worry about what others are doing! If you focus on what you do best one is more likely to make good decisions.
What Would You be if You Weren’t a Fund Manager?
I’ve always been fascinated by the stock market and so it’s been my dream job since I was a youngster. I love planning holidays, so perhaps if I wasn’t a fund manager, I might have been a travel agent!
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