Aurora Investment Trust has published results for the year ended 31 December 2020. The NAV total return for the year was -5.3%, 4.5% better than the -9.8% delivered by the All-Share Index. This earned Phoenix (the manager) a performance fee (this is the only way it gets paid – there is no baseline management fee). It received this fee in shares in Aurora which it cannot sell for three years. There is also a clawback mechanism, so the shares will be cancelled if the outperformance does not remain after three years. [We would also like to see a clause that prevents a fee being paid out if shareholders have lost money since the last time a fee was paid – a ‘high watermark’.]
In the second half of the year, the shares moved to trade on a small discount from trading at a premium. Ahead of that, the trust issued £12.4m worth of shares at a premium (including £1.2m worth to the manager to settle the performance fee).
The dividend fell to 0.55p to 4.5p, reflecting the effect of COVID and the focus on capital growth rather than income.
Extract from the manager’s report
“From a share price perspective, there were many holdings which experienced price falls well in excess of the market in the first quarter. These included our housebuilders: Barratt Developments, Bellway and Redrow, and other holdings: easyJet and Frasers Group. Hornby, Randall & Quilter and GlaxoSmithKline counterbalanced these falls as they fell by only single digits during the first quarter.
Hornby’s resilient performance continued throughout the year and after good results in Q4, in which it outlined its return to profitability, it ended the year up 68%. Over the full year Ryanair, Dignity, Randall & Quilter and Vesuvius had positive share price performance with Frasers Group close behind, only losing 2%. Dignity’s share price benefited after the Competition and Markets Authority (CMA) produced its provisional decision report into the funeral industry in August, which did not include remedies that could be detrimental to the industry.
From a negative perspective, Lloyds, easyJet and JD Wetherspoon were among the holdings whose share prices suffered significant price falls over the whole year.
In the first quarter of 2021 we sold our entire holding in Redrow because of an accumulation of factors. It is a company again in transition following the retirement of its founder, has made some missteps of late and has a landbank with some sites that take a very long time to develop. We expect continued changes in environmental and building regulations in the coming years which will increase the cost of building. Ultimately, that cost will fall on future land sellers but for an existing landbank, it falls on the housebuilder. We prefer the shorter and faster turning landbanks of Barratt and Bellway, which are less exposed to those risks.”
ARR : Aurora beats UK market in turbulent year