- The trust is split between nine experienced managers, whose investment styles are carefully blended together
- The managers expect to increase dividends for the 54th consecutive year, although income is variable, not guaranteed
- We think the trust could be used within a portfolio designed to deliver income or long term growth
How it fits in a portfolio
Alliance Trust aims to grow an investment and provide a rising income over the long term by investing across global stock markets. It uses a multi-manager approach, so there's plenty of diversification on offer. The trust could be used as a building block for a more adventurous portfolio. It could also bring international diversification to a UK-focused portfolio. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to the net asset value (NAV).
Manager
This trust is managed by nine global equity fund managers, most of which are not available to invest with by individual UK investors. Each manager is free to create portfolios of approximately 20 companies, from wherever in the world they choose. They each have their own strengths, styles and areas of focus which are carefully blended together to create a diversified investment trust.
The nine managers are selected by the Investment Committee at Willis Towers Watson. The Committee is chaired by Craig Baker, Global Chief Investment Officer. Other key members of the Willis Towers Watson Team include Senior Portfolio Managers Stuart Gray and Mark Davis. They're supported by a team of around 120 analysts and portfolio managers from across the globe.
Process
This trust invests with nine fund managers who each have their own unique investment process. That means the trust provides exposure to more established businesses that have grown profits consistently over time, as well as those that have been overlooked by other investors but are capable of recovery.
Some of the managers invest in smaller companies, emerging markets or use derivatives to help them invest, which all increase risk. The trust uses gearing (borrowing to invest) to try to boost returns. Gearing can also increase losses though, so it’s a higher-risk approach.
GQG Partners fund manager Rajiv Jain is one of the trust's nine managers. He invests in companies with high barriers to entry from competition, a proven management team, strong financials and plenty of headroom for long term growth. His growth-focused investment style has been in favour in recent years, and his investments have done well. Investments in Jain's section of the portfolio currently include Bank Central Asia. He feels there's plenty of room for growth in Asia's banking sector, where many people still don’t have bank accounts.
Jupiter manager Ben Whitmore also manages a section of the trust. He tries to invest in companies whose shares are available at a low price and attractive valuation, possibly because they've missed a profit target, or the management team made some unpopular decisions. Either way, they must be capable of a turnaround. This value-focused investment style has recently been out of favour, and performance has been weaker. But not all investments will perform well all the time – that's the nature of a diversified portfolio. Investments in his section of the portfolio include Barrick Gold. The company's share price is sensitive to the price of gold, which had been muted in recent years. However gold tends to perform well in times of uncertainty, and the company's share price has picked up significantly since the start of the coronavirus crisis earlier this year.
The Willis Towers Watson Investment Committee takes care of the portfolio's overall positioning, ensuring there isn't too much risk at a company, sector or geographical level. They also want to maintain a balanced portfolio in terms of investment styles. So they’ve recently taken profits from some of the growth-focused portfolios, which have performed well, and invested the proceeds with value-focused managers to bring the balance back in line.
Culture
The trust adopted its multi-manager approach in April 2017, following pressure from investors who wanted to shake things up. Although that is a relatively short period of time, Willis Towers Watson has been investing this way for over a decade on behalf of institutional clients with a reasonable amount of success.
The team engage with the companies they invest in, and vote on shareholder resolutions. They also consider environmental, social and governance (ESG) factors when they invest, which should help grow and shelter investors' money over the long term.
Cost
The trust targets an ongoing annual charge of less than 0.65%. In the year to December 2019, the annual charge was 0.62%. We think this is a reasonable cost for a global investment trust providing access to nine experienced fund managers. If held in a SIPP or ISA the HL platform fee of 0.45% per annum (capped at £200 per annum for a SIPP and £45 for an ISA) also applies. Our platform fee doesn’t apply if held in a Fund & Share Account.
Performance
Over the past year, the trust's NAV rose 3.8%*, underperforming the broader global stock market by 1.9%. The share price rose 3.9% as the discount to NAV narrowed slightly. At the time of writing, the trust trades on a 5.9% discount to NAV. You should note that past performance is not a guide to the future.
One of the trust's weaker performers was medical product provider Convatec Group. The coronavirus pandemic means many patients have had medical procedures delayed or cancelled, and this impacted the company's revenue. However the managers are encouraged that the company's taken steps to reposition itself, which includes delaying investment in certain areas to reflect the current environment and enhancing its digital capabilities.
In contrast, technology firm NVIDIA performed well. The company announced record revenues and significant growth in its data business.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Sep 15 -
Sep 16 |
Sep 16 -
Sep 17 |
Sep 17 -
Sep 18 |
Sep 18 -
Sep 19 |
Sep 19 -
Sep 20 |
|
| Alliance Trust | 28.9% | 27.0% | 10.0% | 5.1% | 3.9% |
| FTSE All World TR GBP | 31.3% | 15.5% | 13.4% | 7.8% | 5.7% |
Past performance is not a guide to the future. Source: *Lipper IM to 30/09/2020.
The coronavirus pandemic has caused many companies across the globe to reduce their dividends, or stop paying them altogether, and this impacted the amount of dividend income the trust received. Over many years, the managers have accumulated significant reserves, which they can draw on to pay dividends to shareholders, even if there is a short-term shortfall in income received from the trust's investments.
The managers expect to pay a dividend of 3.595p in December 2020 and March 2021, which would bring the total dividend for the trust's financial year to 14.38p, a 3.0% increase on the previous financial year. That would mark a 54th year of consecutive dividend increases. At the time of writing, the trust's historic dividend yield is 1.65%, although income is variable and not guaranteed. Yields are not a reliable indicator of future income.