THE board of Alliance Trust took a leap of faith in 2016 when, after a bruising run-in with activist investor Elliott Advisors, it proposed revolutionising how the then 128-year old Dundee-based trust is run.

Chairman Lord Smith of Kelvin felt the only way to get Elliott off the trust’s shareholder register was to completely revamp the way it was managed, with his plan to replace in-house manager Alliance Trust Investments with a blend of eight external fund management houses winning the backing of investors in March 2017.

The sell-down of assets and transfer of cash to managers at Black Creek Investment Management, River & Mercantile Asset Management, Jupiter Asset Management, Sustainable Growth Advisers (SGA), Veritas Asset Management, Lyrical Asset Management, GQG Partners and First Pacific Adviser completed later that month, with Craig Baker of Willis Towers Watson (WTW) put in charge of managing the managers.

READ MORE: Recast Alliance Trust fails to keep abreast of index

Two years in, however, and the trust has recently reported a disappointing set of results, generating a negative net asset value total return of 5.4 per cent in the 2018 calendar year against a drop of 3.3% in the MSCI All Country World Index. Its equity portfolio, meanwhile, which represents 97% of the trust, fell by 4.2% during the same period before taking account of asset management fees.

But does that mean the £2.7 billion trust is failing in its promise to deliver superior returns to its investors - the vast majority of whom are individuals - or has it just been hit by a temporary set-back that will be ironed out over the longer term?

Mr Baker, who is chief investment officer at WTW, firmly believes it is the latter.

“If we’re focusing on the period since implementation – the two years to the end of March – we have outperformed so I’m looking at it quite positively,” he said.

“If you take the worst 12-month period in that it was the calendar year 2018. What was interesting about 2018, and has generally been true over the whole period, but was very much the case in the first nine months of 2018, was how the market was really led by a relatively large number of large-cap stocks.

“We sometimes show this chart where if you take each calendar year of the last decade and look at what the return on the index was versus the return of the median stock most of the time you’d expect the median stock to do as well as the index.

“This decade the index has done better because large caps have done so well but what was interesting about 2018 was the extent of that – it was by far the most extreme year of any in the decade.”

READ MORE: Shake up approved at Alliance Trust

As Alliance Trust’s eight managers are free to assemble portfolios of their favourite stocks without having to pay attention to the index, the overall trust was hit last year by not investing in the big-name US tech giants that dominate the larger end of the market. Microsoft and Alphabet aside, none of the index’s top 10 constituents are represented in the trust’s top 20 positions.

“When you think about the way the managers put their portfolios together in this portfolio - or in any where they are bottom-up stock pickers – they tend to be a bit underweight in the mega caps,” Mr Baker said.

“Over the period since inception the more large-cap, growth managers like SGA have done exceptionally well, with outperformance of 15 to 20%.

“The more value-oriented managers like Lyrical have struggled and the difference between the top and bottom performing managers is much more extreme than we would normally have.

“Roughly half the managers have outperformed and half have underperformed but that’s the kind of pattern we would have hoped to have seen.”

While there has been no change to any of the eight managers running money for the overall trust in the past two years, Mr Baker noted that as it is possible for there to be up to 10 in total it is possible that another name could be added to help enhance performance in due course.

READ MORE: Alliance chair underlines his allegiance to new-look trust

“We’re still comfortable with the names of all eight managers – it’s more likely that we would add a manager than take one away,” he said. “We debate adding managers every week. We’re not at the moment saying we want to put one in but I wouldn’t be surprised if we do that.”

In terms of the current year, Mr Baker said the trust’s performance has so far been “pretty similar to benchmark”, making him confident that it will beat the three-year performance target put in place when the regime was adopted.

“When we launched we said the target was beating the benchmark over rolling three-year periods,” he said. “It’s a bit early to judge but I wouldn’t read too much into one calendar year.”