Aurora Investment Trust : 2022 Interim Report

Aurora Investment Trust plc Half Yearly Financial Report

For the six months ended 30 June 2022

The total returns in sterling for the period/year were as follows:

1. Definitions of these Alternative Performance Measures ("APMs") together with how these have been calculated can be found on pages 29 and 30.
2. Including dividend reinvested.

OBJECTIVE AND INVESTMENT POLICY

Investment Objective

Aurora Investment Trust plc's (the "Company") objective is to provide Shareholders with long-term returns through capital and income growth.

Investment Policy

The Company seeks to achieve its investment objective by investing predominantly in a portfolio of UK listed companies. The Company may from time to time also invest in companies listed outside the UK and unlisted securities. The investment policy is subject to the following restrictions, all of which are at the time of investment:

• The maximum permitted investment in companies listed outside the UK at cost price is 20% of the Company's gross assets.
• The maximum permitted investment in unlisted securities at cost price is 10% of the Company's gross assets.
• There are no pre-defined maximum or minimum sector exposure levels but these sector exposures are reported to and monitored by the Board in order to ensure that adequate diversification is achieved.
• The Company's policy is not to invest more than 15% of its gross assets in any one underlying issuer (measured at the time of investment) including in respect of any indirect exposure through Castelnau Group Limited.
• The Company may from time to time invest in other UK listed investment companies, but the Company will not invest more than 10% in aggregate of the gross assets of the Company in other listed closed-ended investment funds.
• Save for Castelnau Group Limited, the Company will not invest in any other fund managed by the Investment Manager.

While there is a comparable index for the purposes of measuring performance over material periods, no attention is paid to the composition of this index when constructing the portfolio and the composition of the portfolio is likely to vary substantially from that of the index. The portfolio will be relatively concentrated.

The exact number of individual holdings will vary over time but typically the portfolio will consist of holdings in 15 to 20 companies. The Company may use derivatives and similar instruments for the purposes of capital preservation.

The Company does not currently intend to use gearing. However, if the Board did decide to utilise gearing the aggregate borrowings of the company would be restricted to 30% of the aggregate of the paid-up nominal capital plus the capital and revenue reserves.

Any material change to the investment policy of the Company will only be made with the approval of Shareholders at a general meeting. In the event of a breach of the Company's investment policy, the Directors will announce through a Regulatory Information Service the actions which will be taken to rectify the breach.

INVESTMENT MANAGER'S REVIEW

Performance

The NAV per share fell 17.3% during the half year with the share price down 17.7%. At the end of June, the shares were trading at an 8.0% discount to NAV. The FTSE All Share Index fell 4.6% over the same period.

As at the time of writing in late July, performance has recovered to some extent, with the NAV now down 10.4% on the year, versus the FTSE All Share which has fallen 1.7%. The main driver behind the recovery has been the performance of Frasers Group following the announcement of annual results in early July.

The fall in NAV during the half year was a reflection of a number of events, which to varying degrees were headwinds for the portfolio. Concerns over inflation and the war in Ukraine were macro factors negatively impacting sentiment. Our low-cost airline holdings suffered from ongoing travel restrictions in the early part of the year and operational difficulties in the second quarter as travel re-opened. Our housebuilders were impacted by inflationary concerns and by ongoing uncertainty over government policy in relation to historic "cladding" issues.

Every holding in the portfolio suffered a price fall and particular fallers of note in the half year were Barratt Developments, Bellway, easyJet and RHI Magnesita, whose share prices fell by more than 30%. Whilst the negative performance has been difficult, we believe the portfolio is well positioned, and in the Outlook section of this report we outline the very attractive value which exists today.

From a contribution perspective, the most significant contribution came from the inflation hedge we instigated last year. This was fully unwound early in the half year, and it contributed a further 7% to NAV on top of the 10% contribution in 2021. The largest negative contribution came from Barratt Developments, which contributed 5.3% of the 16.6% fall in NAV.

Activity

Activity of note included a reduction in the easyJet holding in the early part of the half year. We participated in their rights issue in September 2021 to avoid dilution but indicated the size of our holding was not appropriate for the long term. We took advantage of the subsequent price recovery to sell the proportion of the holding added through the rights issue.

Two new holdings, AO World and Netflix, have been added in the period as we took advantage of price weakness. The rationale was published in our monthly factsheets in March and June respectively and is outlined below.

The other major changes in the portfolio were a 4% increase in the Barratt Developments holding, as we took advantage of share price weakness in a company and sector which we know very well and which we believe offers exceptional value. We also added to our holding in Randall & Quilter in their recent fundraise.