Alliance Witan: Diversification and risk management

Alliance Witan (ALW) continues the legacy of Alliance Trust (ATST) following its combination with Witan (WTAN) in October 2024. The combined entity has become one of the largest investment trusts, with a market capitalisation of c. £4.8bn and promotion into the FTSE 100 Index, making it easily investable for institutional investors and wealth managers. Both ATST and WTAN shareholders have seen the ongoing Charges ratio fall, while the Dividends for ATST shareholders have been boosted up to the level WTAN’s enjoyed, with the annualised dividend yield up to 2.3%. The trust now has a 58-year track record of annual dividend increases, making it one of the AIC’s Dividend Heroes, and the board anticipates that the dividend for the trust’s financial year 2025 will be further raised.

ALW has maintained the same purpose as ATST: to offer a one-stop shop for global equities through a multi-manager approach. The investment committee at Willis Towers Watson (WTW) oversees the allocation to a team of complementary stock pickers, aiming to keep the Portfolio as neutral as possible in terms of geographic, sectoral and market factor exposure and allowing stock selection to drive relative returns.

Since the combination, the investment committee has appointed two new managers, bringing the number of stock pickers in the portfolio to 11. One is Jennison Associates, a growth manager with an emphasis on innovative and disruptive businesses investing, which was carried over from WTAN. The second is EdgePoint, which focusses on good, undervalued businesses, and replaces Black Creek in the portfolio. The investment committee has also reduced its exposure to growth-oriented stock pickers following a period of outperformance and increased its allocation to managers focussing on high-quality stocks over the past 12 months, due to concerns around potential valuation risks.

In our view, ALW’s style-balanced approach makes it a strong candidate for investors seeking a core global equity strategy. The trust has a track record of delivering good performance relative to both its sector peers and benchmark across different market environments, such as the 2022 bear market and the AI rally of 2023. ALW delivered double-digit returns in 2024, but similarly to many active global equity strategies, it struggled against its benchmark due to the concentration of market returns in a handful of US tech mega-cap stocks. However, we would argue that 2024 was an exceptional year, and we expect the strategy to deliver better relative performance in a more normal market environment.

Interestingly, since the start of the year, most of the Magnificent Seven have posted negative returns, while US stocks have underperformed other equity markets, suggesting that the market may be shifting away from these names. As such, we believe ALW’s diversification across geographies, sectors and market factors, as well as the investment committee’s risk management, could be beneficial for investors amid this uncertain outlook.

In addition, we believe that the combination with WTAN has enhanced ALW’s appeal. The liquidity of the shares has improved due to the trust’s larger size. Furthermore, the trust’s promotion to the FTSE 100 is likely to raise the trust’s profile, potentially attracting new investors, while it now receives inflows from index funds. The trust’s charges now also compare favourably with the AIC Global sector’s average, and it offers a higher dividend yield than most of its sector peers. Indeed, the five-year dividend growth rate of 13.85% is the highest of all the AIC’s Dividend Heroes who have increased their dividend every year for more than 20 years. ALW is also joint first among the heroes, with a 58-year track record of consecutive dividend increases.