Two new Stock Pickers join Alliance Trust
Two new Stock Pickers have been added to the portfolio to increase sources of potential return and balance risk. Both are employee-owned private businesses and are highly differentiated in their approaches to investing from the existing eight Stock Pickers.
Metropolis Capital is a UK-based boutique investment management firm with $1.4bn of client assets under management. It specialises in unconstrained, high-conviction, global equity investment, and is, therefore, a natural fit for the strategy.
With 40 years’ experience between them of building, running and selling successful businesses, founders Simon Denison-Smith and Jonathan Mills, both former management consultants, are value investors with a private equity approach to public markets.
They ignore short-term share price volatility, seeking instead returns through cash dividends and long-term market recognition of the fundamental value of their investments. They look for companies with skilled management teams that understand their business and are making decisions which are in the best long-term interests of the shareholders. Often they look for companies where management has a significant stake in the business, particularly owner-occupied firms, where a founder still has a leadership role.
With $68bn in client assets, Sands Capital is a much larger firm but still independent, based in the Washington DC area of the United States. It specialises in investing in concentrated portfolios of high-quality businesses from around the world who are truly innovative and can sustain above-average growth over the long term.
The lead manager on the Alliance Trust mandate will be Michael Sramek who has been with the firm since 2001.
There are six key criteria which have to be satisfied before Sands invests in a company:
- sustainable, above-average earnings growth;
- leadership position in a promising business area;
- significant competitive advantage/ unique business franchise;
- clear mission and value-added focus;
- financial strength; and
- rational valuation relative to the market and business prospects.
Sands’ focus is on the sustainability of a business’ future earnings growth, which leads it to invest in companies that are benefiting from structural change and secular trends—distinct from cyclical economic factors—in selective industries and businesses with powerful growth tailwinds.
Craig Baker, Chairman of the Alliance Trust Investment Committee and Global Chief Investment Officer of Willis Towers Watson, says Metropolis and Sands should provide new sources of potential return for the portfolio, and increase flexibility when allocating capital between the Company’s Stock Pickers.
“The addition of the new managers will not alter the overall concept that the portfolio should have no meaningful style, country or sector biases relative to the market,” said Baker. “Indeed, having two more skilled Stock Pickers in our line up should provide greater diversity and flexibility whist our portfolio construction will ensure that performance is driven by stock selection.
Despite the headwinds against the value style of investing for most of the last few years, Metropolis’ flagship strategy has delivered very strong outperformance since its launch in June 2008, returning 14.8% gross of fees per annum in GBP terms vs 10.2% for the MSCI ACWI Index. It has done particularly well over the last 12 months, outperforming MSCI ACWI by 13.6% gross of fees for the 12 months through to the end of March 2021.1
Sands has had very strong returns, outperforming MSCI ACWI in every calendar year in the last decade except for 2016. The Sands Global Growth Fund was up 20% relative to its benchmark for the 12 months to March 2021 end. The strategy outperformed the index by 10% per annum gross of fees in USD terms for 3 years, 5 years and since its inception in January 2009 to end of March 2021.
Like the other eight Stock Pickers, Metropolis and Sands will manage customised mandates of 10-20 stocks for Alliance Trust which can only be accessed through the Company. Although the number of holdings in the portfolio will increase, the overlap between the Stock Pickers is likely to remain low. “We anticipate that there may be some overlapping holdings, particular among the larger companies in the index, but Metropolis and Sands both bring something different to the portfolio and will naturally tend to invest in companies not currently held,” said Baker. The capital allocated to the two new managers to manage will be redistributed from the other eight.
