Alliance Trust 07 September 2022

Alliance Trust (ATST), under the management of the global investment consultancy Willis Towers Watson (WTW), brings together a group of sophisticated investment managers from across the world into a single highly diversified global portfolio. ATST’s portfolio has been constructed with the intention of creating a ‘core’ equity offering, where thanks to WTW’s process, the trust demonstrates no material stylistic overweights relative to its benchmark the MSCI ACWI, while still retaining the stock-picking skill of its eight delegated managers. We describe the allocation process of WTW, as well as the company’s current market views, in our Portfolio section. While ATST has yet to remove a manager based on performance concerns, they have removed them due to changes in corporate ownership.

While ATST’s diversification in a concentrated market has historically hindered its relative Performance, thanks to the substantial increase in market risks over 2022 it has instead become a major tailwind. ATST has been able to substantially outperform its peers year to date while still keeping pace with wider equity markets, having weathered the sell-off in mega-cap growth stocks better than its peers. ATST has also commanded a more resilient Discount than its peers have, having not seen the same year-to-date widening that its global peers have. ATST currently trades on a 7.9% discount, compared to the 10.1% of its peers.

A major change to ATST over the last year has been a significant increase in its Dividend. The board has elected to increase the overall payment by 32.5% over the prior year’s, capitalising on the flexibility afforded by its substantial reserves. ATST currently has a yield of 2.3%.

We believe that ATST reflects a true ‘fire and forget’ equity portfolio, one which is best placed as a ‘core’ exposure in a portfolio. Ideally, this would be used by investors looking to increase their overall equity exposure without having to choose which specific style, region or sector to overweight. We believe ATST may be particularly attractive to long-term, low-turnover investors, as the responsibility for manager selection is effectively delegated to WTW, thus simultaneously removing any concerns about ‘style drift’ within the portfolio given WTW’s historical success in ensuring the trust has no style biases relative to benchmark.

We are also encouraged by the board’s own efforts in ensuring that ATST remains aligned to shareholder needs, further reinforcing the idea of its being a ‘core’ allocation. This has been shown through both the board’s continuing commitment to improving ATST’s ESG integration and the recent increases in the trust’s dividend profile.

We think that the major attraction of ATST is its ability to offer what WTW believes are amongst the best stock-pickers available to it. The current market environment has brought an end to the dominance of growth stocks, with WTW’s views on the dangers of market concentration being vindicated as a result. If this is the start of an unwinding of the historical headwinds that WTW’s style of investing has faced, then ATST may have the catalyst it needs to continue its outperformance. Once dominant style factors dissipate, this may give a chance for effective stock-picking to become the major driver of ATST’s portfolio returns.