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23 December 2020 Investment Styles, About Alliance Trust Alliance Trust

The power of active stock picking in a crisis

In this year of all years, having a team at your back to ensure your investment portfolio is not hard-hit by the peaks and troughs that have defined the last 12 months has been vitally important. With markets bottoming out in March as the pain of the Covid-19 outbreak struck across the world, before recovering amid loosening restrictions, it has hardly been an easy year for staying on top of every market movement. This is where the expertise of the investment team selected by Willis Towers Watson, the manager of the Alliance Trust equity portfolio, has really come to the fore.

With each of the nine carefully selected stock pickers managing their own high conviction selection of shares in the Alliance Trust’s equity portfolio, they are constantly monitoring the performance of the company stocks they own. They are on the lookout for company developments, be they big or small, that could affect the value of its share price. Crucially, they are also analysing how market movements impact the stocks they own. They question how a downturn might affect the share price of a business, or if a market surge means that a company is overvalued. On the other hand they must also consider if a sudden fall in a share price value is warranted, or actually marks an overreaction that opens up a great opportunity. 

The unusual conditions we have witnessed in markets this year have meant that our stock pickers’ position on certain stocks have changed, with some companies hit harder by the pandemic than others it has signalled a prime time to buy or sell shares. While some companies will continue to be attractive, the outlook for others may no longer seem as bright as a result of the Covid outbreak. As a result, the turnover of the equity portfolio has been far above average this year, hitting 13.5%, up from an average of around 4.3% in previous years.

Portfolio turnover is a way to measure how often a fund buys and sells stocks, calculated by taking the total amount of stocks bought or sold, whichever is less, and dividing by the fund’s net asset value (NAV). The higher the figure, the greater the turnover and the more stocks have been bought or sold. 

The highly volatile nature of markets this year has kept stock pickers on their toes. They have sold stocks in order to be able to buy new opportunities, or added to their positions in existing holdings that they strongly believe will outperform over the long term.

The shifting and adjusting works to minimise how correlated the equity portfolio is to wider markets, and throws into sharp relief the advantages of having a highly active and engaged team of investment experts managing an equity portfolio. 

Unlike actively managed portfolios, a traditional passive portfolio would be at the mercy of market movements. A passive portfolio replicates an index of stocks, no matter if it rises or falls. Having a team of highly active managers with the knowledge and insight to judge the good from the bad opportunities is key if you are to protect your investment pot from the whims of wider global markets.

The uncertainty of this year has been unusual, to say the least, and it has provided active managers with the chance to prove their worth and show the value they add when it is impossible to predict what markets will do next. 

As markets continue to be moved by world-changing events, the Alliance Trust stock picking team will be behind the scenes working to ensure that the equity portfolio continues to reflect their very best ideas, whatever the market conditions may be.

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