Looks can be deceiving

Last updated 24th August 2021

Top-down portfolio characteristics can obscure the investment characteristics of a trust, particularly when it comes to multi-manager portfolios. Here, we examine how Alliance Trust maintains a high active share while still offering a diversified underlying portfolio…

It's easy to take things at first impression. But, as we are all aware, appearances can be deceptive.

When it comes to investment trusts, a cursory glance at portfolio characteristics can mask the true nature of a trust and its investments, with investors potentially misunderstanding the proposition at hand. Nowhere is this truer than for multi-manager funds.

By their nature, multi-manager funds tend to have higher numbers of portfolio holdings than their single-portfolio peers. Many also opt to have a diverse range of sub-portfolios, with the top-down effect being a portfolio that looks remarkably similar to its benchmark. However, these characteristics can be misleading when taken out of the context of a trust’s overall portfolio construction.

By employing sub-portfolios tactically and with dynamism, some trusts are able to maintain a high active share, even while benefitting from the diversification that the multi-manager structure offers.