Interim Management Statement

RNS Number : 0494K

Aurora Investment Trust PLC

08 July 2011

 



AURORA INVESTMENT TRUST Plc

Interim Management Statement 30 June  2011

Directors:

Alex Hammond-Chambers (Chairman); James Barstow FCA,

Richard Robinson and Richard Martin

It was announced on 1 July that Lord Flight of Worcester and the Hon J. Nelson have been selected to become Chairman and non-executive Director respectively after the AGM on 18 July,  to replace Alex Hammond-Chambers and Richard Robinson who are both retiring on that date.

Fund Manager:

James Barstow of Mars Asset Management Ltd

Year End:    28 February

Dividend:     Final only.  Latest dividend 3.5p.    Payment 25 July 2011

Benchmark:   All-Share Index

Objective:

Capital Appreciation through investments listed mainly on the London Stock Exchange.

Policy (Summary)

To invest primarily in equities but with some exposure also to Fixed Interest.  In general the portfolio will be weighted towards larger and mid-cap stocks.  A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK.

Largest Holdings    30 June 2011

		£'000		%
BTG		3,192		8.9
GCM Resources		2,631		7.3
West China Cement		2,566		7.1
Asian Citrus		2,291		6.4
Prosperity Minerals		2,164		6.0
Antofagasta		1,950		5.4
Rio Tinto		1,793		5.0
Royal Dutch Shell		1,555		4.3
Standard Chartered		1,382		3.8
Kazakhmys		1,380		3.8
Total		20,904		58.0

Sector Analysis

		Aurora %
Oil & Gas		15.4
Industrials		17.9
Consumer Goods		7.4
Health Care		9.3
Consumer Services		0.1
Telecommunications		-
Information Technology		5.4
Financials		12.3
Resources (mining)		30.4
Utilities		-
Fixed Interest		1.8
		100.0

Performance  

Period to 30/06/11		NAV (ex-income)		FTSE All-Share
		%		%
Since launch		+168.9		+43.6
5 years		+11.8		+4.3
3 years		+25.6		+8.4
1 year		+44.6		+21.7
4 months		-1.4		-0.3

		At 30/06/11
Share price		215.0p
NAV (ex-income)		262.9p
Discount		18.2%

Review

If the period under review witnessed no overall progress by the UK stock-market, indeed a small decline, it was certainly characterised by high volatility.

In the first week of March stock-markets around the globe nose-dived on the news of not only the major tsunami which devastated parts of the coastal area of Japan but also of the nuclear melt-down at the power station at Fukushima. Investor confidence was badly shaken by this huge disaster coinciding with the outbreak of the conflict with Libya, and civil unrest in Bahrain, Yemen and Syria and a consequent sharp spike in the price of oil.

The obvious implications for the impending decline in the level of economic activity, both in Japan and for world trade, on account of the disruption to the system of Just-in- Time manufacturing, were soon made apparent in a series of corporate announcements by a raft of manufacturing companies which were unable to receive their expected deliveries of components on the due dates.

Gradually, as the brave employees at Fukushima regained control of the nuclear power plant so investors slowly became more confident once more.  The UK market staged a recovery, along with other international markets, in the second half of March and April. Indeed, by the end of April the FTSE All-Share had surpassed the peak reached in early February as worries over the state of the Japanese economy gradually faded into the background.

May and much of June lived up to their normal reputation of being dull months in the market featuring little volume, as investors turned their attention more towards sporting events on account of the lack of corporate results.  Meanwhile the sharp rise in bond yields in Greece, Portugal and Ireland in particular heightened the fears about impending defaults by the weaker economies in the Eurozone; confidence started to sag once more.

Fortunately, the offer of assistance from China and news of a further bail-out for Greece stimulated a sharp rally in the final week of the period.

Unsurprisingly, in an environment of such volatility and beset with major fears over the level of economic activity, it was the defensive sectors e.g. utilities, food, tobacco and real estate which outperformed those of  a more cyclical/growth orientation to which the portfolio is exposed on account of their superior long term prospects. Nevertheless, the net asset value did not suffer excessively and surrendered a mere 1% of the strong out-performance of the last two years.

Outlook

The Western world continues to suffer from a wide range of macro-economic problems.  Whereas a degree of economic recovery has taken place in recent months the economic background remains fragile at a time when imported inflation, principally resulting from a decline in the currency and an increase in the cost of raw materials, poses a new and increasing threat to stability.

Although corporate profitability is currently increasing in the USA, particularly amongst the manufacturing sector exposed to the fast growing Asian economies, the housing market remains weak in many areas. The rate of new job creation remains disappointing while the consumer changes his habits of a lifetime by drawing in his horns, repaying debt and saving more.

In Europe, the German and Swedish economies continue to prosper. By contrast Spain, Portugal Ireland and Greece are all confronted with debt mountains, which require refinancing at a time of extremely high bond yields.  To date the IMF and the ECB have bailed out all these countries but the problems look set to deteriorate in future.

The UK Government has announced measures to cut the deficit and trim the public sector in order to free labour for the private sector, yet the degree of success it will enjoy in future years is far from certain.  The majority of British banks still have a long way to go to shrink their balance sheets. Whilst that programme is in process, new loans will be in short supply and therefore the rate of economic growth is forecast to be lacklustre.

Against such a gloomy background it is not difficult to foresee that Asia and emerging economies, which are relatively well financed, represent the best long-term prospects for economic growth and currency appreciation.  Short-term, however, it has to be mentioned that China is currently grappling with an unprecedented high rate of inflation and still applying the monetary brakes.

Accordingly, the portfolio continues to be heavily oriented towards these economies to take advantage of these trends.  The Manager remains confident that the portfolio is well positioned to benefit and outperform its benchmark.

 

END

 

 

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