Interim Management Statement

RNS Number : 4586J

Aurora Investment Trust PLC

16 July 2013

 



AURORA INVESTMENT TRUST plc

Interim Management Statement 30 June 2013

Directors

Lord Flight (Chairman)

M.J. Barstow

R. Martin

Hon J. Nelson

Fund Manager:

M.J. Barstow of Mars Asset Management Ltd

Year End:  28 February

Dividend:  Final only. Latest dividend 3.75p, payable 26 July 2013

Investment Objective

Capital appreciation through investments mainly listed on the London Stock Exchange

Investment Policy

To invest primarily in equities but with some exposure also to Fixed Interest. The portfolio comprises a mix of large, mid and smaller capitalised stocks. A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK.

Top Ten Holdings 30 June 2013 (consolidated)

Stock		Description		£'000		Portfolio %
BTG		Pharmaceuticals & Biotechnology		1,881		9.2
Royal Dutch		Oil		1,523		7.5
Asian Citrus		Food		1,479		7.2
Prosperity Minerals		Iron ore/cement/property		1,436		7.0
Emblaze		Technology		1,188		5.8
West China Cement		Cement		1,123		5.5
Persimmon		Housebuilding		944		4.6
Antofagasta		Mining		914		4.5
Gresham Computing		Software		902		4.4
BG Group		Gas		839		4.1
Total				12,229		59.8

Sector Breakdown

As at 30 June 2013

Sector		AURORA
		%
Oil & Gas		16.8
Resources (Mining)		16.5
Industrials		14.9
Consumer Goods		14.1
Financials		10.9
Information Technology		10.6
Health Care		10.0
Fixed Interest		6.2
Total		100.0

Performance

Period		NAV (excl. revenue)				Benchmark
(to 30/6/2013)		%				%
4 months		-12.6				-1.8
1 year		-11.5				+13.7
Since launch		+62.8				+58.2
At 30/6/2013
Net Asset Value
(excluding revenue)				159.2p
Share Price				137.5p
Discount				13.7%

Review

Following a strong run since last summer the four month period under review produced a small negative equity return in the London stock-market, having lost momentum at the end of May.  A sudden sharp rise in bond yields around the globe induced by worries over the timing by Mr Bernanke of a reduction/phasing out of Quantitative Easing was the principal reason for such a change in investor sentiment.  In addition fears about the rate of slowdown in the Chinese economy and a possible credit crunch within the shadow banking sector unsettled the share prices of mining and other China oriented stocks.

During this period the company's portfolio continued to suffer from relative underperformance on account of its heavy exposure to the Far Eastern economies.  The mining sector and, most notably of all, gold miners, endured a torrid time against a background of falling commodity prices. Of the few stocks which did perform well during the period, the most remarkable was the holding in Persimmon, purchased in the spring, which is a strong beneficiary of the Government's initiatives to stimulate the housing market. Also noteworthy is the fact that Gresham Computing won its fourth contract for its banking software solutions, three of which emanate from Tier 1 international banks, thus raising hopes that this will stimulate many other banks to follow suit. Pure Circle also goes from strength to strength as a result of many more new launches around the globe of its various (anti obesity) products incorporating Stevia, a natural sweetener two hundred times sweeter than sugar, yet with zero calories.

Outlook

Some five years after the financial crisis, the US economy is, despite the headwind of strong fiscal contraction, finally showing signs of a gradual strengthening in the rate of economic recovery, as manifested through the housing market, consumer confidence levels and a slow but steady rise in employment.  Huge discoveries of shale gas resulting in lower energy prices, indeed one quarter of the level pertaining in the Far East, will provide a huge boost to that economy over the coming decade.

The problems in the Eurozone remain and will do so for many more years, as the economies of the core northern based countries continue to diverge from their Mediterranean-based counterparts. The summer months will probably pass relatively uneventfully, but once the German elections in September have taken place, the problems are likely to come to the fore once more, with obvious consequences for increasing levels of volatility affecting all stock-markets.

Investor sentiment in the UK market is gradually improving; some selected smaller stocks with growth prospects are now finally beginning to outperform the defensively oriented large market cap consumer stocks, which have been so in vogue during the last year but of which several now appear excessively valued.  As time passes 'growth' looks set to come to the fore, particularly if the income hungry investors can satisfy their needs from higher bond yields.

Despite an extended period of underperformance, the Manager remains excited about the huge potential for eight stocks in the portfolio currently accounting for no less than 46% of the total. For example, BTG, the current portfolio's largest holding, is quietly confident that by the end of the calendar year it will have received FDA approval for its revolutionary treatment for varicose veins, to which it owns 100% of the rights. Several analysts are forecasting that sales will rapidly exceed the US$1BN level with huge transformational effects on the profitability of the company.  Asian Citrus is so lowly valued, despite its huge and growing margins, immense cash flows and strong visibility of growth, that both the 5m orange trees already planted and the 100,000 tonnes of fruit juice making capacity are valued at almost nil, as a result of heavy rains and one incident of poor corporate governance. This latter problem is likely to be resolved at the forthcoming AGM. Prosperity Minerals has just received, since the month end, a takeover approach, albeit at a disappointingly large discount to NAV. Emblaze is confident that a US judge has ruled in its favour in respect of a disputed patent case against Apple Inc., which will enable the jury in the forthcoming trial to award it a mouth-watering sum for past and future royalties.

Meanwhile, the Far Eastern economies, including China, continue to grow much more rapidly than their western counterparts and form an ever increasing portion of the global economy.  Despite this superior rate of expansion the stocks listed in London with exposure to these economies have underperformed to date - a trend which will inevitably change one day.

Mars Asset Management Limited

16 July 2013

 

END

 

 

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