20 April 2018

By Jeff Prestridge, Mail on Sunday. First published 10 March 2018.

ALLIANCE TRUST: Thinking outside the box pays off as dividend rise continues

A lot of water has flowed under the bridge in recent years at Dundee-based Alliance Trust. Yet, despite all the trauma and culling, it seems the investment trust is in better shape than it has been for a long time.

Announcing its 2017 results last week, the trust’s board confirmed the shake-up is complete and that barring a catastrophe, this year will see another gentle increase in the annual dividend – taking its unbroken record of dividend growth to 52 years. Only two trusts, The City of London and The Bankers, have equivalent records.

To say Alliance has been through the proverbial wringer is an understatement. As a result of a five-year campaign by investment activist Elliott to shake up the trust, it bears little resemblance to its former self.

The investment management of the trust has been outsourced, its investment arm sold to asset manager Liontrust and the chief executive – Katherine Garrett-Cox – unceremoniously axed.

Today, the trust has managed to get shot of Elliott by buying back its shares. Despite all the chopping and changing, the performance numbers have held up well. Since the trust’s investment management has been overseen by consultants Willis Towers Watson (from last April), the share price has increased by a respectable eight per cent.

The transformation from internal to external management has been quite a feat.

Asset manager BlackRock was brought in to oversee the change which saw all bar a handful of the trust’s stocks (less than 20) sold.

It then constructed portfolios for the eight fund managers chosen by Willis Towers to run Alliance’s investments – the individual stocks within the portfolios having already been requested by the individual managers. The result is a trust comprising positions in 189 companies spread across the world but with a predominance in the United States.

Craig Baker, chief investment officer at Willis Towers, says the external fund managers were chosen for their complementary investment strategies – a point confirmed by the fact that only 11 stocks overall are held by two or more of the managers. They were also picked with a view to ensuring the trust can keep growing its dividend.

He adds: ‘They are all running high conviction portfolios which means no more than 20 holdings each. The only exception is GQG Partners which runs two separate portfolios for Alliance, one globally focused and the other with a basket of some 50 emerging markets stocks.’

The eight investment managers include the familiar and the not so well known (in the UK at least). Among the known are investment houses Jupiter and River Mercantile.

Off the usual radar of UK investors are Black Creek (based in Toronto, Canada), New York-based Lyrical Asset Management and Sustainable Growth Advisers (Connecticut, United States). So far Baker has stuck with the original eight although he envisages manager turnover of between 10 and 15 per cent a year – so one change a year.

Anthony Brooke is a non-executive director of Alliance who was brought in by Elliott ahead of the trust’s overhaul. He believes the changes to the investment process have given Alliance an edge over competitors. He says: ‘The trust is giving investors access to investment expertise that they would otherwise not be able to get hold of.’

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