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Alliance Trust - investing in experience

Jonathon Curtis, Investment Analyst, reports on Alliance Trust investment trust after it released its annual results to 31 December 2018.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • The managers think their experience of dealing with difficult markets will be valuable if the global economy stutters
  • The share price fell 7.8% over the 12 months to 31 December 2018
  • NAV fell 7.0% compared with a 3.3% fall for the benchmark
  • A dividend of 13.55p was paid - variable and not an indication of future income

Willis Towers Watson run this investment trust by selecting eight experienced fund managers to invest for the trust, most of whom aren’t available to everyday investors. The team's best ideas are combined to create a portfolio of global shares. They can also invest in other assets if they think it’ll help them achieve their aim of long-term growth.

With investments in around 200 companies the trust’s got plenty of diversification. Nearly half of it's invested in North America, although that’s slightly less than the global benchmark. Companies from continental Europe and Asia make up around a third of the trust, and there are also lots of UK investments.

The managers invest in a wide range of industries too. The main ones in the trust are information technology, financials and healthcare.

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.

How’s the trust performed?

The 12 months to 31 December 2018 were disappointing for the trust. Net asset value (NAV) fell 7.0% and the share price dropped 7.8%. The trust’s benchmark fell 3.3% over the same period. It’s now trading at a 4.8% discount.

A dividend of 13.55p per share was paid. This is a 3% year-on-year increase. The trust has now increased its dividend for 52 consecutive years. That’s not a reliable indication of future dividends though, and income is not guaranteed.

Annual percentage growth
Feb 14 -
Feb 15
Feb 15 -
Feb 16
Feb 16 -
Feb 17
Feb 17 -
Feb 18
Feb 18 -
Feb 19
Alliance Trust 9.7% 3.6% 40.1% 10.5% 1.6%

Past performance is not a guide to the future. Source: Lipper IM to 28/02/2019

Four of the eight fund managers did better than their benchmarks. They mainly invest in companies with high growth expectations, which have been popular with investors recently. The other four managers didn’t do as well as their benchmarks. They mainly invest in unloved companies they think can turn themselves around and return to favour. This style of investing, known as ‘value’ investing, hasn’t been popular in recent years.

The trust’s managers want to maintain a balanced portfolio in terms of investment styles. So they’ve taken profits and sold some of the growth-focused investments that’ve done well to bring the balance back in line.

Among the best-performing companies were Amazon, cloud-based software company, Microsoft, and healthcare facilities operator HCA Healthcare.

Some of the most disappointing shares were communications network provider CommScope, organic and natural products company Hain Celestial and electronics manufacturer Flex. The fund managers have spoken with these companies and believe their long-term prospects are still strong.

Many of the underlying managers used recent market volatility as an opportunity to invest in some companies whose share prices fell. This includes consumer goods giants Unilever and Reckitt Benckiser, US health insurer Cigna and pharmaceuticals maker AstraZeneca.

To simplify the trust’s structure, the managers have sold some of the minor parts of the trust. This includes investments in companies not listed on stock exchanges. Alliance Trust Savings, which was originally set up to be a cost effective way to invest in the trust’s shares, has also been sold subject to regulatory approval. The money from these sales will be invested back into global shares.

Managers’ outlook:

The managers think the main cause of the recent poor performance is the prospect of rising interest rates around the world. This makes cash savings more attractive, so money is pulled out of the stock market to be held as cash. It also makes borrowing more expensive, increasing costs for companies with debt. The threat of a trade war between the US and China has also made many investors nervous.

The managers think political uncertainty around the world is making it more difficult to predict what will happen to the global economy. But they think global growth will slow and market volatility will increase. They've invested through tough times before though. So if storm clouds gather over global stock markets, they believe this experience will help them cope well and even potentially benefit.


Key information document

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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