Interim Management Statement

RNS Number : 7228V

Aurora Investment Trust PLC

16 January 2013

 



AURORA INVESTMENT TRUST Plc

Interim Management Statement 31 December 2012

Four months to 31/12/12

Directors:

Lord Flight (Chairman)

James Barstow FCA

Hon James Nelson

Richard Martin

Fund Manager:

James Barstow of Mars Asset Management Ltd

Year End:    28 February

Dividend:     Final only. Latest dividend 3.55p (paid 20 July 2012)

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 the larger rather than 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.

Largest Holdings   

Consolidated

31 December 2012

	Sector	£'000	% of portfolio
Asian Citrus	Food	1,966	9.1
BTG	Pharmaceutical	1,690	7.8
Royal Dutch Shell	Oil	1,521	7.0
Antofagasta	Mining	1,520	7.0
West China Cement	Construction	1,397	6.5
Prosperity Minerals	Cement/Iron ore/Property	1,149	5.3
Emblaze	Software	1,056	4.9
Rio Tinto	Mining	1,053	4.9
Medusa	Gold mining	852	3.9
BG	Gas	758	3.5
Top Ten		12,962	59.9

Sector Analysis

		Aurora %
Resources (mining)		26.3
Oil & Gas		16.5
Industrials		14.0
Consumer Goods		10.4
Financials		9.5
Information Technology		8.6
Health Care		8.4
Consumer Services		0.6
Fixed Interest		5.7
Total		100.0

Performance  

		NAV (ex-income)		Benchmark
		%		%
In the period up to 31/12/12:
Since Launch		+82.0		+43.5
5 years		-17.3		-5.9
3 years		-3.5		+12.5
1 year		-4.3		+8.3
4 months		+5.2		+4.0
		As at 31/12/12
NAV per share (ex-income)		177.6p
Share price		146.5p
Discount		17.5%

Review

The strong rebound in the UK stock-market, which had commenced at the end of May, started to lose momentum.  Worries over the outcome of the US Presidential Election, and then in respect of whether or not there would be a resolution to the problems of the US fiscal cliff, dominated sentiment during the period under review.

In Europe, the main feature was the issue of a third bailout of Greece's sovereign debt; it proved a protracted affair but was finally achieved in December. Meanwhile there was little favourable news elsewhere in the Eurozone.  The German export sector was in the throes of a sharp slow-down, and France began to suffer from the emigration of high income earners in the light of M. Hollande's determination to impose high taxes on the better off.  There was also increasing civil unrest in Spain as unemployment continued to mount, particularly amongst the young, to unprecedented and worrying levels.  Finally, there was the surprise resignation by Mario Monti as Italian Head of State when Berlusconi's party withdrew its support.

The economic news emanating from the UK economy was mixed.  Fears over a possible double dip recession waxed and waned during the period.  The rate of unemployment, however, confounded the forecasters by showing employment numbers which surprised the doomsayers.

In the Far East the main economies continued to expand, albeit at a more modest pace than in previous years. The focus of attention, however, rested on whether or not the Chinese economy would suffer a hard landing on account of the bursting of the property bubble and associated problems in the banking industry.  Such fears started to evaporate in December as strong evidence, via a rebound in the Purchasing Manager's index, began to appear.

Although the portfolio suffered during the earlier part of the period when defensive shares were in favour it regained more than lost ground when cyclical shares and those oriented towards the faster growing economies started to gain favour.  Overall during the period the portfolio outperformed its benchmark by 1.2%.

Changes to the portfolio

A new holding was taken in Sportingbet in the expectation of a takeover.  This occurred but only a derisory price was offered.  The holding in Medusa, a gold mining company based in the Philippines, was considerably increased in view of its expanding productive capacity and the positive outlook for gold.

The recent 10% share buy-back was financed by sales of two fixed interest stocks and the holdings of BAT and GKN and a reduction of Prudential.

Outlook

Despite the rise by major stock-markets in recent weeks and the fall in the VIX (a measure of volatility) to a much lower level, macro-economic problems still abound in profusion in the Western world which is likely to lead to much confusion and future uncertainty amongst investors.

Although the US economy is showing some signs of making a recovery, the issue of the Fiscal cliff   has only  temporarily been  resolved and is certain to resurface shortly when the debt ceiling is breached, causing new worries  in the months ahead.

In Europe, Signor Draghi may have helped to reduce the yields on sovereign bonds amongst the Mediterranean economies with his promise to do anything in his power to save the euro, but nothing so far has been achieved to curtail the divergence in unit labour costs within the Eurozone.  As unemployment continues to rise, it becomes evident to many that the only long-term solution to the crisis is for one country after another to exit the euro, leaving a small hard core in the northern part of the zone.  This course of events currently finds no favour with the Eurocrats in Brussels, consequently the outlook for the foreseeable future is bleak in indeed in this region.

The UK which conducts a major part of its external trade with the Eurozone (currently some 38%) thus cannot escape the effects of these lacklustre trading conditions and so will encounter even greater difficulty in reducing the level of government debt and in making a meaningful recovery towards a normal trend growth rate.

Meanwhile, the Asian economies, which unlike their Western counterparts are relatively debt free, continue to thrive and their currencies look set to appreciate. Their stock-markets also appear to represent excellent value by comparison with those of the developed economies at a time when investor sentiment should favour growth in preference to defensive characteristics.

In the light of such conditions, the Manager remains confident that the portfolio, which has long since been carefully oriented towards Asia and Emerging economies, away from exposure to domestic UK and European companies, looks well placed, following  an extended period of under-performance, to prosper in relative terms.

 

END

 

 

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