Will Aurora see a brighter dawn as Mars is left behind?
ANYONE looking at the track record of Aurora Investment Trust would run a mile. It makes for dreadful viewing. Yet this minnow is not what it was. Under new management, Aurora is on the cusp of a new dawn. As the band D:Ream once sang: ‘Things can only get better.’
Over the past five years, only one fund or trust investing in the UK stock market has a worse record. That dubious title goes to Artemis Alpha Trust, which has turned £1 into 81p – a 19 per cent loss. Aurora itself has managed a miserable five-year return of 3 per cent, against an average 62 per cent for its rivals.
Yet Phoenix Asset Management, the trust’s new manager, wants to let the good times roll. Since taking over late last year, Phoenix has been overhauling the trust. All bar one of the 40 holdings it inherited have been sold, while a performance-led mindset has been instilled.
In simple terms, if Phoenix does not outperform the FTSE AllShare Index consistently it will not earn a bean from managing Aurora. If it succeeds it will be paid by way of shares in the trust.
It’s brave, it’s brash, but Phoenix can’t do as badly as its predecessor Mars Asset Management. Phoenix was set up by Gary Channon, a former bond and derivatives trader who became an investment manager after reading Roger Lowenstein’s book on investor Warren Buffett – The Making Of An American Capitalist.
Established in 1998 and initially run from Channon’s home in Barnes, South-West London, Phoenix now has £610million under management, offices and a six-strong investment team.
Underpinning everything the investment house does is a search for a select band of companies that through a mix of good management, pricing power and transparency should provide outstanding long-term returns.
But Channon will only buy these firms when he believes the price is right – that is, when the shares are seriously undervalued. He will then hold them until they realise their full potential – that is, when they become fully valued.
All this is reflected in Aurora. The trust is built around just 14 UK stocks. A quarter of the portfolio is invested in developers Barratt and Bellway – positions strengthened in the wake of the Brexit vote, when shares in housebuilders plunged.
The other 75 per cent includes familiar UK brands – Diageo (maker of drinks such as Gordon’s Gin), GlaxoSmithKline, Hornby model railways, Lloyds Banking Group, Morrisons, Sports Direct, Tesco, Unilever and JD Wetherspoon. The holdings are completed by carpet maker Headlam, financial firm Randall & Quilter and engineer Vesuvius. Channon says: ‘These are companies I passionately want to own, understand implicitly and trust to get things right long term.
‘In the worst case scenario, I would hope to at least get my money back. It’s not an easy journey but you have to have faith. Everyone is saying right now that the economics behind supermarkets such as Tesco are broken. We don’t think so. As an investment manager, you have to be able to differentiate between temporary problems that beset a firm and terminal ones. Tesco’s problems are temporary.’
Though the firms Aurora holds are well known, Channon is not averse to sending staff out to see how they are doing – for example, visiting a Barratt site to witness a development’s progress. He likes to glean information from many unconventional sources to gain an edge over competitors – and has been labelled a ‘scuttle bucket’.
Channon wants to grow the trust through a mix of performance and new share issues – £100million is the target. He has also boosted the trust’s board, under chairman Lord Flight, appointing financial journalist David Stevenson.