The Aurora Investment Trust management team are long-term value investors in the truest sense of the term. The trust’s website points visitors to a reading room of leading investment bestsellers, providing insight into managers Phoenix Asset Management’s approach and diligent investment process.
The variety of the reading room, which contains titles such as ‘The Warren Buffet Portfolio’, ‘Benjamin Franklin, An American Life’, and ‘Psychology of Intelligence Analysis, ‘ represents the expansive nature of the trust’s investment approach and research techniques. These techniques delve into the inner workings of a business, often taking years before making a decision to invest.
Aurora’s long-term approach is demonstrated by their frustrations at Hargreaves Lansdown’s potential takeover. Although the proposed takeover price would result in a gain in excess of 60% for Aurora, their investment was the product of years of research work on the company and patience waiting for an appropriate entry.
Highlighting the lengths the research team goes to in pursuit of undervalued companies, Aurora team members have spent time with Games Workshop’s figurine fanatics to understand what makes the hugely successful company’s customers tick. This deep understanding of a company’s customers is evident across the entire portfolio.
Barratt Developments is an interesting case study. While the world was falling apart during the great financial crisis and housebuilders’ share prices were obliterated, Aurora was prepared to step in to buy Barratt Developments as the rest of the market sold. Their boldness was the culmination of years of research into the company and a deep understanding of its long-term value. Aurora was right about Barratt Developments, and their investors have been rewarded.
Aurora’s portfolio is heavily weighted towards the UK, with housebuilder Barratt Developments, retailer Frasers Group and Lloyds Bank accounting for a large proportion of the portfolio. The trust also has a substantial holding in Castelnau Group, another investment company managed by Phoenix, which owns 54% of Hornby. Notably, Phoenix as a company has a 71% stake in Hornby across all of its funds.
The Aurora Investment Trust is comprised entirely of consumer-facing companies. The portfolio contains exclusively companies Aurora’s team can access and view through the eyes of their customers. As Partner Gary Channon says, they ‘want to go to the battlefield and see who’s winning’.
Aurora enjoyed tremendous success applying this approach to Games Workshop. One of the best-performing London-listed companies of the last decade, Games Workshop has built a loyal base of enthusiasts who almost see the building and collecting of the company’s tabletop figurines, as well as the subsequent gameplay, as a lifestyle.
To really understand what made Games Workshop customers tick and their propensity to support the group’s revenues long into the future, Aurora spent time with tabletop gaming enthusiasts to build a picture of how demand could play out in the years to come.
The same thoroughness and exploratory work was applied to housebuilder Barratt Developments. The Aurora team would regularly monitor the company’s localised websites to see how many properties had sold and how many were added. This research and information gathering was coupled with field work and management meetings to build up a clear picture of the company’s operations to formulate a valuation.
Management goes beyond the company and engages the wider industry. In the trust’s recent monthly commentary, they describe discussing the new Labour government with executives across the housebuilding sector and the encouragement they came away with for their holding in Barratts after hearing positive comments about changes to planning laws proposed by Labour, which should drive an increase in construction.
This level of detail is evident in the trust’s performance. Against a backdrop of uncertainty around the health of the UK economy and changing consumer habits, the Aurora Investment Trust’s NAV has returned 85.8% in the five years to June 2024 compared to 76.8% for the FTSE All-Share Total Return Index.
Last year was a sterling period for the trust as NAV surged 33.2% higher compared to the FTSE All-Share Total Return Index’s 7.9%.
As with many investment trusts in the current environment, whether it be sustainable infrastructure or UK equity, Aurora’s discount to NAV presents a material opportunity. When sentiment around UK equities improves, Aurora will likely be near the top of investors’ buy lists as they seek out undervalued trusts with portfolios of high-quality holdings.