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The value specialist investment trust more than merits its premium rating  
Thursday 21 Jun 2018 Author: James Crux

Investors looking to profit from a bargain-hunting style of investing should snap up Aurora Investment Trust (ARR) as it provides exposure to high quality businesses with huge upside potential.

Aurora trades at a near-3% premium to net asset value (NAV) of 213.63p, yet Shares believes this is more than merited by the manager’s superb track record, while the announcement (18 Jun) of a £2m+ fundraising by issuing new shares should increase the size of the trust while boosting its liquidity and marketability.

Phoenix Asset Management Partners assumed management of Aurora in January 2016, since when performance has
improved considerably.

Sharing the same investment strategy as the manager’s star-performing flagship Phoenix UK Fund, Gary Shannon-guided Aurora achieves long term returns by investing in UK-listed shares using a value-based philosophy.

This is inspired by the teachings of well-known investors Warren Buffett, Charlie Munger, Benjamin Graham and Phillip Fisher.

This approach leads Aurora to invest in high quality businesses run by ‘honest and competent management purchased at prices that, even with low expectations, will deliver excellent returns’.

Aurora looks for great businesses when they are cheap, usually because they are having short term issues; if its research is correct these companies should recover and deliver
high returns.

Phoenix’s contrarian value approach is reflected in the fact the manager will only invest when there is at least 100% upside to its intrinsic value estimate.

Aurora is a high conviction portfolio, typically consisting of 15 to 20 of the manager’s best ideas with a high weighting toward the top five stocks.

At last count, these included rejuvenated groceries leader Tesco (TSCO), Lloyds Banking (LLOY) as well as Mike Ashley-led sporting goods giant Sports Direct International (SPD).

Year-to-date, Aurora has reduced its exposure to housebuilders for portfolio management purposes, having generated strong gains from Redrow (RDW), Barratt Developments (BDEV) and Bellway (BWY).

The sole new investment is humbled funeral services provider Dignity (DTY), bought following a 70% share price decline that followed a profit warning in November.

Broker Liberum Capital says ‘Dignity is an example of the manager’s disciplined, long-term approach, having monitored the company for 14 years prior to investment’.

Also illustrative of the contrarian Aurora approach is the holding in EasyJet (EZJ). While the overall airline industry has a history of losses and corporate failures, Aurora points out EasyJet earns a high return on capital as it operates from airports that are at or near
full capacity.

This should limit the competitive threat from new entrants, while the expensive flag carrier airlines ‘are vulnerable to EasyJet’s cheaper, equally convenient offer’.


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