Aurora Investment Trust 

(ARR) 243p

Market cap: £185.3 million

Investors seeking a value-oriented fund focused on avoiding permanent capital losses first and foremost, while offering exposure to the improving consumer outlook among other themes, should buy Aurora Investment Trust (ARR).

Managed by long-term value investment firm Phoenix, the dividend-paying trust’s 10.2% discount to NAV (net asset value) offers a compelling opportunity to access Phoenix’s strategy of investing in a concentrated portfolio of high-quality and thoroughly-researched businesses at attractive prices.

Aurora’s board is determined to close the discount and grow the market cap to a medium-term target of £250 million, which suggests investors should see attractive returns in the years ahead.

Aurora is managed by Phoenix’s Gary Channon and his team, who use a value-based philosophy inspired by the teachings of Warren Buffett, Charlie Munger, Benjamin Graham and Phillip Fisher and begin with the aim of not losing money.

They devote their attention to understanding a small number of businesses in depth and wait patiently for their shares to reach the right price; Aurora never pays more than half of what the managers think a business is worth, which builds in a big margin of safety.

This approach gives Aurora the confidence to run a concentrated portfolio, typically 15 to 20 names, of great companies run by trustworthy management that boast pricing power and generate high and enduring returns on capital.

Excellent returns result when all this comes together, as demonstrated by results for the 2023 calendar year showing a swing from 2022’s losses to an impressive NAV total return of 36.3%, well ahead of the 7.9% haul from the FTSE All Share Total Return benchmark.

Top contributors included housebuilder Barratt Developments (BDEV), Mike Ashley-controlled retail conglomerate Frasers (FRAS) and posh chocolates seller Hotel Chocolat, taken over by US food giant Mars at a 175% premium.

As of 30 April 2024, Ashley’s diversified retail conglomerate spoke for almost 20% of Aurora’s assets, while other top holdings included online electricals seller AO World (AO.) and streaming service Netflix (NFLX:NASDAQ), so the fund offers a play on a potential consumer spending uptick. Other holdings spanned high street lender Lloyds (LLOY) and refractory products supplier RHI Magnesita (RHIM).

Aurora entered 2024 with a portfolio Phoenix has insisted is cheap despite a 2023 return that has taken the NAV to an all-time high.

‘The upside to intrinsic value is 130%, which is attractive in historical terms’; it says. Uniquely, Phoenix receives no annual management fee; instead it is solely remunerated from an annual performance fee, equal to one third of any outperformance of Aurora’s NAV against the benchmark. 

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