Aurora 03 September 2020
Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
To provide shareholders with long-term returns through capital and income growth by investing predominantly in a portfolio of UK-listed companies
Aurora Investment Trust
Phoenix Asset Management Partners
Association of Investment Companies (AIC) Sector
UK All Companies
12 Mo Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge ex Perf Fee
(Discount)/Premium (Cum Fair)
Daily Closing Price
Aurora Investment Trust (ARR) sits in the UK All Companies sector and aims to offer long-term returns through capital and income growth.
Phoenix Asset Management was awarded the management contract in 2016, with Gary Channon as manager. He employs a high-conviction and deep value approach, creating a highly concentrated portfolio of 15–20 stocks. Gary is a long-term value investor, with the selection of companies being entirely bottom-up, following an in-depth research process. Gary and his team like to have “encyclopaedic knowledge” of the companies they hold, meaning a huge amount of time goes into analysis before investing. They only back management teams that they trust, and they never pay more for shares than 50% of what they think a business is worth.
Phoenix was appointed after generating outstanding returns on its open-ended Phoenix UK Fund, and have more than doubled the returns of the FTSE All-Share from launch in 1998 to July 2020. However, since Phoenix took over ARR, it has significantly underperformed the benchmark in a challenging period for value investing. Up until 16 August, the trust has generated NAV total returns of 15.4%, compared to c. 24% for the FTSE All-Share. The volatile markets of the last six months have seen value-orientated portfolios being particularly badly hit, and as a result ARR has underperformed the benchmark, losing 32.5% while the benchmark is down 20.4%. The board pays a dividend and currently ARR yields 2.9%.
ARR has proven popular with investors, having grown from £15 million of net assets in 2016 to the current £123 million (as at 14/08/2020) through share issuance.
Phoenix Asset Management employs a deep value approach to investing and this, coupled with its high-conviction approach, has meant that its performance has been weak since taking over the ARR portfolio in 2016. Over the same period, growth stocks have consistently outperformed, particularly through the volatile conditions of 2020. The divergence seen this year, as shown by comparing the MSCI UK Growth Index (down 6.3%) to the MSCI UK Value Index (down 30.2%), is the widest for the last five years. Against this backdrop the trust has fallen by 32%, underperforming the index; however, the manager calculates a potential upside of 150% from current asset values to what the team deems fair value. As such, should we see a period where value companies come back into favour (as last seen in 2016), ARR could be a standout beneficiary. For long-term value investors the possibility for stylistic mean reversion and the 6.6% discount could provide an interesting buying opportunity.
A rare, particularly attractive feature of the trust is that there is no annual management charge. Instead, Phoenix has aligned its interests with investors and is only rewarded if it outperforms the benchmark, with clawback provisions in case of later underperformance (see the Charges section).
|High-conviction, detailed approach||Greater volatility than most|
|Attractive fee structure||Value style continues to be out of favour|
|Attractive discount relative to history||Concentration increases single-stock risk|