KATHERINE Garrett-Cox has continued her overhaul of Dundee-based investment company Alliance Trust by slashing its stock list by half and buying an ethical investment business from her former employer, the insurer Aviva.
The £2.7 billion company posted a 5.5% net asset value total return for the first six months of the year, slightly ahead of the 5.3% recorded by the average global growth investment trust, as astutely-timed hedges protected it from European market and currency falls.
Alliance is paying £1 million plus an unspecified share of revenues for Aviva's £1.2bn sustainable and responsible investment (SRI) fund range, most of it equities.
Ms Garrett-Cox previously worked as chief investment officer of Aviva's funds arm and hired two of the five-strong SRI team that will join Alliance Trust.
She told The Herald: "It is a fairly transformational agreement for us."
She said the house believes that socially responsible investing is rising in popularity, particularly among investors in their 20s and 30s, and chimes with a move towards greater consideration of ethical issues in the trust's investment process.
The deal, which massively increases the scale of its £150m funds arm Alliance Trust Investments, comes just weeks after a shake-up that Ms Garrett-Cox yesterday confirmed has led to the axing of one-third of its equity investment team, some eight roles, and the closure of three funds. This will cut around £2m a year from running costs.
Ms Garrett-Cox said the house had been unable to build critical mass in areas such as Japanese, Asian and UK equities but it could do so in socially-responsible investing.
She said: "I am not sure anyone owns the sustainable space until now. Owning the space is very compelling.
"It does lend huge credibility to us as an organisation."
Ms Garrett-Cox has overhauled the way Alliance Trust's equities are run, establishing a single global equities team instead of regional portfolios.
She is now moving to cut its holdings from 200 stocks to 100 in an effort to boost returns by focusing on the best companies. This compares to 450 holdings when she first joined Alliance Trust in 2007.
She has already moved the trust out of private equity and property investing.
Asked if her restructuring efforts are nearing completion, Ms Garrett-Cox said: "The hard graft has largely been done. It is now about delivering for shareholders."
There are signs that her approach is paying off as the trust, long-criticised for lacklustre returns, claimed it has outperformed rivals over all timescales up to five years.
Over the six month period, Alliance Trust benefited from a short futures position on the Euro Stoxx 50 index as continental markets weakened.
This has been closed off as it further cut its position in European equities which now account for just 3% of investments.
The trust also hedged its position on the euro from January.
The company estimated it gained around €7m (£5m) through the move, adding 31 basis points to performance.
"We still think the environment for Europe and the euro looks challenging," she said.
She added that the trust is also likely to cut exposure to the UK in the coming months. Ms Garrett-Cox said the trust is also exploring new rules which could allow it to boost dividend pay-outs by using capital gains.
She denied that this was down to pressure from rebel investor Laxey Partners, which it defeated in a shareholder vote earlier this year, noting that, to her knowledge, the hedge fund no longer owns trust shares.
In the first half of the year, Alliance Trust spent £106.8m buying back shares but still saw the discount between it shares and the underlying portfolio widen as markets worsened.
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