Alliance Trust (ATST) is one of the UK’s oldest and largest investment trusts. Almost three years ago, on April 1 2017, the trust adopted a new approach which sees management of the portfolio outsourced to nine fund management groups in different parts of the world, each tasked with managing a portfolio comprised of a concentrated, bespoke selection of their fund managers’ best ideas. The management groups in this stable – many of them otherwise out of reach for ordinary investors – are selected and overseen by Willis Towers Watson (WTW), which manages allocations toward them so that performance is primarily driven by stock selection in the long run, rather than by sector, style or country weightings.
In August 2019 WTW brought a new fund manager onto the roster. Vulcan Value Partners, a manager that WTW has known and liked for many years, was added when Vulcan reopened for new capacity.
In the first two years under the new strategy, ATST has generated strong returns relative to both the benchmark and comparable open and closed-ended global peer groups. The past year in particular has seen the trust deliver impressive returns, benefiting from the blend of both growth and value managers which the portfolio contains as the market has rotated slightly to the latter
ATST’s discount narrowed significantly around December 2016 when the trust announced the change in strategy. The trusts average discount in 2018 was 6% and the board continues to manage the discount, and is committed to buying back shares where necessary. Currently the trust trades at a discount of 4.1%, relatively wide in comparison to its peers.
Alliance Trust is the one of the most competitively priced multi-manager funds available to UK investors in either the closed or open-ended sectors.
The market volatility observed in 2019 is likely to continue into the foreseeable future, which is good news for the active, bottom-up method approach which is common to most of the managers running money under the trust’s umbrella. ATST’s approach also has clear benefits relative to other multi-manager funds. In particular the high-conviction, concentrated underlying portfolios offer greater potential capacity for alpha generation. In addition the availability of WTW’s vast resources – including one of the largest manager selection teams of any multi-manager, and the bespoke nature of the underlying portfolios give clear appeal for investors who are looking for that little bit extra.
Alongside this, by putting the ‘best ideas’ portfolios together, shareholders can benefit from all the advantages of concentrated portfolios, but still benefit from diversification on various levels. An obvious additional benefit is that ATST has no ‘key man risk’ as would be the case were it managed by a single fund manager..
The blending of the overall portfolio undertaken by WTW means that ATST has no specific stylistic, sectoral or geographical biases. WTW operates on a regionally unconstrained basis which they think allows their chosen managers maximum freedom to choose their best ideas. They argue that by restricting managers by sector or region you risk forcing them into a situation where they are buying a company because it is the best that is available within those constraints – not the best that is available overall.
The benefits of the ATST/WTW approach were evident in 2019, when the trust kept up with its peers during the first half of the year (with growth stocks driving performance), but then also performed strongly over the second half (when there was a shift to value stocks outperforming).
The board’s clear commitment to discount control means a return to a double-digit discount is extremely unlikely, yet the current discount of 4.1% is one of the widest in the AIC Global sector despite the trust’s impressive performance over 2019.
|Differentiated multi-manager approach, providing access to high conviction stock picking fund managers, not otherwise available to ‘retail’ investors||Still a relatively new strategy, although WTW has been running similar strategies for institutional investors for over ten years
|Strong performance since the change of strategy, including continuation of an steady dividend record
||Relatively low weighting to the UK (compared to the AIC peer group) could mean a relative headwind if sterling/UK equities benefit from a ‘Brexit bounce’
|Wide discount relative to peers
||Structural gearing will amplify any downward movement in the portfolio value (and vice-versa)