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Questor: This 130-year-old company has been reborn, but does not yet challenge its rival
It’s not often a trust that has been around for 130 years is judged just on one year’s performance, but that is the case with Alliance Trust.
The £2.4bn investment trust underwent an overhaul a year ago, selling the fund management business it owned, which also ran the trust’s portfolio, and moving to a multi-manager model run by consulting giant Willis Towers Watson.
Regular readers will be aware of the high-profile problems the trust faced after activist investor Elliott Advisors took a large stake and publicly petitioned for change.
The move resulted in the chief executive and chairman departing, the sale of the asset management arm to Liontrust and an about turn in strategy.
The trust now allocates money to eight fund managers, investing in global stock markets. Gone are the fixed income and more esoteric holdings of the past.
This month marks the first anniversary of the trust’s new direction, so how has it gone?
It has met its target of outperforming the MSCI All Country World Index by two percentage points a year, returning 4.9pc on a “net asset value” basis. Yet the share price return lagged, at 3.9pc, because of a lingering discount.
The discount has also narrowed – it was 13pc at the peak of the conflict with Elliott, and is currently 5.6pc, in line with its 12-month average. The board says it is happy with this level.
The board has carried out a large swathe of share buybacks in the past year and also negotiated with Elliott to buy back all of its shares, leading to a further shrinking in the trust’s size – from £3.1bn a year ago to £2.4bn.
This is progress, but other obstacles remain. The trust kept hold of Alliance Trust Savings, the investment shop business. In the past year, the platform has continued to struggle to integrate its acquisition of rival Stocktrade and undertook a costly relocation.
Lord Smith of Kelvin, chairman of the trust, did not rule out a sale of the business, but said “there is no sale process in place at the moment”.
“It is only just over 1pc of assets of the trust, but it matters, and I want these problems solved, and they will be,” he added.
Alliance Trust Savings will make a loss this year, and the trust slashed the value of its 100pc holding of ATS from£61.5m to £38m.
The sale of the asset management business to Liontrust was more successful, handing the trust £10m more than the £25m projected.
The change in management has attracted other costs. Each time a fund buys or sells a share or other asset there are associated fees – wholesale changes such as those undertaken by the trust come with a price tag.
Existing investors would have paid an additional 0.18pc as a result. That is not an insignificant amount when you consider the trust has imposed a 0.65pc cap on charges.
Alan Brierley, of broker Canaccord Genuity, said that the trust has had a “highly encouraging start” and also believes the current discount is due to historical issues with the trust rather than fears over performance.
A year ago Questor said it was too soon to judge whether the portfolio changes would be successful and the savings arm was a distraction. Instead we tipped rival Witan, which has been running a similar multi-manager model for longer.
Over the past year the discount has narrowed from 4.3pc to 1.9pc, and the share price has risen by 8.4pc – more than Alliance Trust’s, although its net asset value performance is similar at 5.4pc. Witan is more expensive, with a 0.78pc ongoing charge fee, but performance is after fees.
We stand by this recommendation. While the initial performance from the new structure at Alliance Trust is reassuring, one year is not long enough to judge a new strategy.
The issues with Alliance Trust Savings remain a distraction and will likely continue to drag on performance.
Questor says: Hold Witan
Tickers: ATST, WTAN
Prices at close: Alliance Trust: 712p; Witan: £10.28
Investment trust news
The management of the Schroder UK Growth trust will change from Schroders to Baillie Gifford’s Iain McCombie and Milena Mileva, after a period of poor performance.
The trust will be renamed the Baillie Gifford UK Growth, and the holdings will be trimmed to 40.
The trust was trading on a 13.5pc discount on the day of the announcement last week, which has narrowed to 8pc.