DUNDEE-headquartered Alliance Trust seems finally to have put its woes behind it, with a root and branch restructure carried out at the beginning of this year showing tentative signs of bearing fruit.
Following the intervention of US activist investor Elliott Advisors, the trust sold off its asset management arm and moved to a multi-manager approach earlier this year, with eight fund houses picked by advisory business Willis Towers Watson (WTW) running the portfolio since April.
In the six months to the end of June the £2.6 billion trust, which lagged its benchmark by eight percentage points in 2016, made a net asset value total return of 12.4 per cent, almost double the 6.4 per cent generated by the MSCI All Countries World Index.
For trust chairman, Lord Smith of Kelvin, this shows that the “active stock selection of the underlying managers chosen by WTW” is paying off.
“This first half of 2017 has been characterised by the transition the business has gone through, and we strongly believe we now have the foundations in place to deliver strong and sustainable performance for our shareholders in the future,” Lord Smith said.
“Over the period, the trust performed well. Total shareholder return was 10.8 per cent, net asset value total return was 12.4 per cent and the share price rose 9.7 per cent to 700p.
“We are encouraged that, despite undertaking the transition to the new portfolio, the trust outperformed its benchmark […] primarily driven by the outperformance of the equity portfolio.
“Additionally, the costs of the transition were much lower than originally anticipated, which is a meaningful saving for the business and our administration expenses for the period are showing only a modest increase at £8.4 million.”
The process of realigning the trust was begun on March 17, when its assets were passed to transition manager BlackRock Advisors. It then spent a month selling down its existing assets and invested in the stocks that made up the wish-lists of its new managers.
“The total value of buys and sells completed during the transition was approximately £4.5bn,” Lord Smith said. “This was formed of 176 securities to be purchased and 56 securities to be sold, with 4.6 per cent of the legacy equity portfolio being retained. All transition trading was completed as of April 12, by which time all of the portfolios had been transferred to the control of the newly appointed equity managers.”
New York-based Lyrical Asset Management is now responsible for the largest portion of the trust at 16.5 per cent, with Fort Lauderdale investment house GQG Partners running 15.3 per cent of its assets across two portfolios. The smaller of the two is focused on emerging markets.
A year ago the trust’s largest holdings, which collectively made up 9.1 per cent of the portfolio, were Visa, Pfizer and Accenture. At the end of June its largest holdings, United Health Group, Charter Communications and Microsoft, accounted for 5.2 per cent of the total.
Prior to the changes being made Alliance Trust had net assets in the region of £3.5bn. These have shrunk by over 25 per cent, in part because all of Elliott’s shares were bought back when the revamp was agreed but also because the trust has bought back millions of shares from other shareholders in a bid to improve its discount.
This has paid off, with the discount at which its shares trade narrowing from 10.3 per cent in June 2016 to 5.1 per cent this June.
Lord Smith said the trust, which has racked up 50 years of consecutive dividend growth, planned to continue its “progressive dividend policy” by declaring an interim dividend of 3.29p per share to be paid in October.
At the end of June 2016 the trust had paid dividends for the year of 5.65p. This had risen to 6.58p for the same period this year.
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