Results Analysis: Alliance Trust

ATST’s 2022 full-year results illustrate that its unique approach to portfolio allocation is paying off…by Alice Rigby

• Alliance Trust has posted strong relative performance for the year ended 31/12/2022, achieving a total shareholder return of -5.8% and a NAV total return of -7.1% which compares to a -8.1% return for its benchmark index, the MSCI ACWI, and an average return of -20.3% among peers in the AIC Global Sector.
• The outperformance versus peers was aided by the portfolio’s balanced style, which meant it avoided the worst of the dramatic declines in growth stocks.
• This good relative performance has continued post-year end, with the trust’s NAV total return up 9.8% in the year to 09/03/2022 compared to a total return of just 6.4% for the MSCI ACWI Index.
• The company has raised its ordinary dividend to 24p per share, a 26% increase on 2021, maintaining its AIC Dividend Hero status.
• Over the year the discount averaged 5.9%, the board buying back 15.5m shares to help keep the discount narrow.
• Chairman of the board, Gregor Stewart, said: “We are pleased that our performance was more resilient than the market and ahead of most of our peers in the AIC Global Sector.”

Kepler View

Alliance Trust (ATST) provides investors with a “core” allocation to global stock markets. Global investment consultancy Willis Towers Watson (WTW), which manages the overall portfolio, brings together a group of sophisticated investment managers from across the world into a highly diversified portfolio. Crucially, the team aims to ensure the trust has no significant overweights to any particular style or factor.

The WTW process, inducted in 2017, has produced muted performances versus peers in recent years, as markets rewarded other managers who were more fully tilted to the growth style. However, WTW’s style-balanced approach is intended to produce relatively smooth returns over the long-term, including both capital growth and a rising dividend.

If the proof is in the pudding, then the trust’s ability to hold up well compared to peers over the course of a tumultuous 2022 for global equities shows that investor’s patience is now being rewarded. The strong performance in 2023 so far could be further evidence that the tide has shifted in ATST’s favour.

Furthermore, ATST’s significant increase in the dividend – and the board’s clear indication that they expect the 56-year track record of increasing dividends to continue – means that it is beginning to meet both its objectives. With the meaningful increase in the dividend, ATST now offers a dividend yield of 2.9%, which compares favourably with the AIC Global sector average yield of 1.24%.

While the trust is neutral when it comes to style or factors, this does not mean it is passive. The current portfolio blend, which results from manager selection rather than WTW taking a tactical direction, does have some differences to its benchmark.

For example, the trust is currently overweight the UK and relatively underweight North America. These positions are largely reflective of the active investment approaches of the underlying fund managers, who allocate independently of one another.

In terms of outlook, WTW have indicated that they remain on the cautious side near-term, with earnings expectations still optimistic given the economic risks currently at play. As a result, they have kept gearing on the low side of its long-term strategic position of 10%. Despite this, the trust’s underlying stock pickers have suggested that market volatility is leading to some mispricing and therefore opportunity.

Overall, the trust’s strong performance over 2022 confirms our view that ATST embodies the ‘fire and forget’ portfolio that it has long sought to be. The board’s reinvigorated commitment to the trust’s dividend growth and WTW’s continued execution of its style neutral investment approach both suggest that the trust is well-placed to deliver its objectives in a tumultuous market and economic context.

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