Results analysis: Alliance Trust

• Alliance Trust (ATST) recorded strong absolute performance in the six months to 30/06/2023, achieving NAV total return of 11.1% versus a MSCI ACWI benchmark return of 7.8%. Sentiment weighed slightly on the share price meaning that shareholder total return lagged the benchmark by 0.2%, recording a return of 7.6% over the six months.
• Performance remains well ahead of its peers, outperforming the AIC Global sector by 2.1% on an NAV basis.
• The trust’s strong performance once again demonstrated the benefits of its balanced approach, as markets continued to experience volatility throughout the period .
• ATST announced its second interim dividend of 2023 of 6.34p, meaning that total dividends for the half year sat at 12.52p, putting the trust on track for a 5% increase in annual dividends year-on-year.
• The trust’s discount widened steadily over the period from c. 4% at the beginning of the year to c. 7% on 30/06/2023. However, it has narrowed since to 6.1% as at 26/07/2023 and has remained considerably narrower than those of its peers, thanks in part to proactive buyback activity by the board.
• Longtime Chair of the trust, Gregor Stewart, will step down at the end of the year, to be replaced by existing board member Dean Buckley.

Kepler View

Alliance Trust (ATST) aims to offer a core investment solution, by utilizing a multi-manager approach to build a balanced portfolio of global equities, a process introduced in 2017 when the board appointed Willis Towers Watson to simplify and refine the trust’s investment process.

WTW focuses on offering a diversified exposure to global equities, balanced across different styles and factors, with the aim of achieving steady positive returns over the long term. To achieve this they employ a strategy previously reserved for institutional investors, blending 10-15 investment managers’ best ideas into an overall portfolio.

Each manager has a distinctive point of view, but blended together produce a balanced allocation to global equities, with active underlying management. Since the trust reached its half year, WTW has added a tenth strategy to the portfolio, Dalton Investments, which invests in undervalued Japanese companies largely at the small to mid-end of the market capitalisation spectrum. WTW explained that changing regulations in Japan combined with low inflation and interest rates means that it offers an interesting diversified exposure relative to the rest of the developed world.  

Six years on from inception the trust’s investment process is firmly bedded in, and has especially proved itself over a challenging three years for markets, during which the trust has outperformed its MSCI ACWI benchmark by 4.8% on an NAV total return basis to 30/06/2023 and by 4.2% on a total shareholder return basis.

Other aims for the trust include providing a gradually rising dividend and maintaining a relatively stable discount. In terms of the former goal, the trust has once again achieved this with aplomb, offering two interim dividends with a combined value of 12.52p in the first half of 2023. This puts ATST shareholders on track to see an annual dividend increase of at least 5% year-on-year should this payout rate be maintained across the third and fourth interim dividends as the board expects. This follows a bumper 26% increase in 2022 and reflects the board’s firm commitment to providing total returns for shareholders.

In terms of the latter goal, the board has been proactive, buying back shares equivalent to 1.9% of the shares in issue at the start of the period due to ongoing volatility in markets. While the trust’s discount has widened since the start of the year, from c. 4% to c. 7% at the half-year end, it has since narrowed to 6.1% as at 26/07/2023.

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