Alliance Trust PLC
Alliance Trust PLC Summary Alliance Trust is one of the UK’s oldest and largest investment trusts. Launched in 1888, the trust has total assets around £3bn, and has delivered a growing dividend to shareholders every year over the last 50 years. Earlier this year, the trust announced proposals for a major overhaul of the investment process, switching to a multi-manager approach with eight top rated equity managers running dedicated portfolios on behalf of the trust, under the stewardship of investment management specialist Willis Towers Watson (WTW). The managers are not restricted to distinct regions, asset classes or strategies. Each runs a highly focused global portfolio – although one of them (GQG) is also tasked with a portfolio specifically focused on emerging markets. The portfolio as a whole has no asset allocation benchmark, but aims to outperform the MSCI AC World Index by 2% per year after costs over rolling three year periods. The reorganisation of Alliance Trust as a manager-of-managers offering puts it squarely alongside Witan, which in 2010 executed a similar overhaul under chief executive Andrew Bell, former chairman of the AIC. This structure has proved extremely positive for Witan’s shareholders in the years since; dragging the trust out of a long, index hugging malaise to become a well-respected actively managed portfolio. Unlike Witan (WTAN), which tends to allocate toward existing funds managed by its appointed investment managers, Alliance Trust allocates toward segregated funds specifically managed on its behalf, and designed for the trust as concentrated ‘best ideas’ portfolios. As a result, Alliance Trust (ATST) has a far more concentrated portfolio of around 200 stocks (less than half the number owned by Witan), and is considerably cheaper; the board have said the OC will be below 0.65% at the current size, versus Witan’s 0.79% plus a performance fee. Both trusts offer a similar yield – with Alliance Trust on 1.9% and Witan on 2%. The board of ATST has renewed its commitment to a progressive dividend and has, since the overhaul, taken a much more active approach to buying back shares. Activist shareholder Elliott is no longer on the books, having been bought out in mid-March, and the trust’s discount has come in markedly since the start of the year - trading at arouund -5% since January.
It’s early doors to talk about performance under the new setup, but ATST is up 7.6% since the start of April in NAV terms, outperforming by a strong margin the MSCI AC World index which is up 3.5%, and its nearest competitor Witan which is up 7.3%.
Portfolio Transition of the portfolio was complete by the middle of April 2017 and Alliance Trust is now a global equities portfolio which reflects the concentrated ‘best ideas’ picks of a range of eight managers selected by Willis Towers Watson (WTW). As the table below shows, the eight initially selected managers offer a mix of growth, value and quality styles. MANAGER BREAKDOWN MANAGER
PORTFOLIO FOCUS
HOLDINGS
STYLE
River & Mercantile
Global
20
Value
Jupiter Asset Management
Global with an income bias
20
Value
Lyrical Partners
Global with a bias to US
20
Value
Sustainable Growth Advisers
Global
20
Growth
GQG Partners
Global + Emerging Markets
70
Growth
Veritas
Global
20
Quality
FPA
Global
20
Quality
Black Creek IM
Global
20
Quality
Source: Alliance Trust plc
The process of choosing each sub-manager, monitoring performance, and finessing the overall shape of the portfolio is led by an investment committee chaired by Craig Baker, WTW’s global chief investment officer, and including Stuart Gray, a senior member of the research team, and the two co-portfolio managers, David Shapiro and Mark Davis. On an ongoing basis they will allocate and reweight assets to the different sub-portfolio managers in order to shape the whole portfolio, using cashflows to maintain a roughly equal contribution from each manager. Given the unconstrained nature of each sub-manager’s remit, the management committee also keeps an eye on crossover between the portfolios – and would reallocate assets/funds were it to become too marked, but so far this has not been necessary;
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according to WTW thirteen of the trust’s 200 holdings are held by two of the sub-portfolio managers, and none are held by three or more.
Alliance Trust Portfolio breakdown
Financials Information technology
The trust has no formal asset allocation benchmark in place. Each manager will largely ignore the index and consider risk primarily in absolute terms. However, WTW will also manage risk at the combined level, both in absolute terms and relative to the index, through their choice of managers and the weightings assigned to each. WTW will look to ensure that stock selection is the key driver of returns as that is the real skill-set of each of the managers chosen, and therefore country and industry weightings are unlikely to deviate significantly from the index at most points in time which may mean during periods of negative market direction the trust’s performance reflects that. It should also be noted that because of the above, the portfolio will remain close to fully invested most of the time (albeit the managers do have some freedom to hold cash), and therefore limited emphasis will be placed on short-term capital protection during periods when the index is in negative territory. The trust’s largest regional weighting is toward the United States (44.8%). Europe is the second largest weighting at 22.2%, while Asia & Emerging Markets comes third (19%). The UK makes up 10.8%, and this low exposure to Blighty is a key differentiator when considering this trust versus its competitors which may have much higher crossover with investors’ existing UK large cap allocations. ATST is a ‘global’ mandate – in the sense that it provides exposure to ‘the rest of the world’ beyond our shores. The UK is a much more significant part of the portfolio at Witan, for example, where it makes up 37% of the trust’s total holdings. Alliance Trust: Regional exposure 60
(%)
40
20
0 North America
UK
Portfolio weight
Source: Alliance Trust plc
Europe
Asia & Emerging Markets
Cash
Cash
Consumer discretionary
Telecoms Utilities Materials Energy Industrials
Consumer staples Healthcare
Source: Alliance Trust plc
Highcharts
Alliance Trust Savings, the trust’s savings platform subsidiary, remains as an asset on the trust’s books with its own board, as now. The platform, which has £15bn under administration, was profitable in 2016 but reported a loss of £1.5m for the half year and is expected to report a loss for the full year in 2017. A portion of the portfolio amounting to around £238m is not allocated to the sub-managers and is instead managed on behalf of the board directly by WTW. This consists of various holdings in private equity, mineral rights, asset management company Liontrust, and a number of Liontrust funds.
Gearing Gearing in the first half of this year averaged around 7.8% and stood at 8.9% at the end of August. Alliance Trust has a nominal £100m of 15 year fixed rate borrowings, with significant additional borrowing via flexible bank loan facilities. Under the previous setup, gearing was used tactically and tended to increase when the managers saw opportunities on the table, and decrease when they felt more bearish. The facility allows the manager to borrow up to 15% without consulting the board, and a further 15% with the board’s permission, but the trust has rarely seen gearing in excess of 18%. This facility remains in place and will continue to be used in accordance with the board’s macro view. Derivatives may also come into play as a means to manage risk in the future, but there are no plans for derivatives in the portfolio at this stage. The underlying portfolios are not allowed to gear up themselves.
Benchmark weight Highcharts
In sectoral terms the trust is broadly diversified with significant weightings in information technology, financials, consumer discretionary, industrials and healthcare, with smaller weightings in a range of other sectors and an active share of 81% according to the managers.
Returns Alliance Trust in its old shape had underperformed its benchmark and the average trust in the Global sector over one, five and ten years.
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It’s early doors to talk about performance under the new setup, but ATST is up 7.6% since the start of April in cum-fair NAV terms, outperforming by a strong margin the MSCI AC World index which is up 3.5%, and its nearest competitor Witan which is up 7.3%. Alliance Trust: Performance vs benchmarks 01/04/2017 - 31/08/2017
The firm places great emphasis on due diligence in order to identify such managers. Craig Baker, the global Chief Investment Officer at WTW leads the relationship and chairs the investment committee that is responsible for the portfolio. He has 23 years investment experience.
10 7.5 5
%
managers” do exist. Typically, therefore, WTW favours active managers that run concentrated portfolios and have high active share, and by sub-dividing a given portfolio between different active managers with different investment styles, it hopes this inbuilt diversification will lead to smoother, more consistent returns for investors.
2.5 0 -2.5 -5 Apr '17
May '17
Jun '17
Alliance Trust Ord (Total)
Jul '17
Aug '17
Sep '17
Alliance Trust Ord (Market)
MSCI ACWI GR GBP (Total)
Source: Morningstar
Highcharts
Given the nature of the trust’s asset allocation – with country and industry weightings unlikely to deviate much from the MSCI AC World index, and the portfolio usually fully invested – we would expect performance to reflect the direction of travel of the index, with limited capital protection during periods when that direction is negative.
Dividend Successive boards have been able to report rising dividends (for 50 years now) to shareholders and the board has reaffirmed its commitment to maintaining this record of growth. The more immediate past has seen no change to this pattern, and as the graph below shows, over the past ten years the trust has meaningfully earned more than it has paid out in dividends. This means that the revenue reserve is in a healthy state, we estimate at 1.68x the annual dividend. Alliance Trust: Dividend 2007 - 2016 15
(%)
10
5
EPS
Source: Alliance Trust
16 20
15 20
13
14 20
20
12 20
20
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(Y E
D ec )
Ja n)
10 20
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Others on the investment committee are Stuart Gray, a senior researcher, and David Shapiro and Mark Davis, co-portfolio managers. David Shapiro has 30 years’ investment experience. He is a senior portfolio manager and a former head of the global equity research team at WTW. Prior to this he was an equity fund manager for 17 years. Mark has 19 years’ investment experience and has significant prior research experience in various equity mandates. Stuart Gray has 14 years’ investment experience. Stuart has been a member of the global equity research team for 13 years and has headed the emerging markets research team. All of the individuals on the investment committee for Alliance Trust are also involved on the Investment Committee running the WTW Global Equity Focus Fund, an institutional mandate which has developed a strong track record pursuing a similar strategy to ATST. Between them the investment committee have more than sixty years’ service under their belts at WTW. Supporting this committee WTW has a 115-strong research team around the world, including 50 who are focused on equity research and 21 who look at long-only global mandates. Together, they run $88bn for 166 institutional clients with multi-manager structures. The research team undertakes nearly 1,000 meetings with potential fund management partners in the equity space every year and then, having created a shortlist, scores a sub-set of these fund managers on a 1-3 scale, based on numerous meetings with each manager as it approaches a conclusion. WTW will only use those which pass its operational due diligence tests and receive the highest rating ‘1’ – of which there are around 40 in the world running global equity mandates at any given time. All of the managers who will run the underlying portfolios for Alliance Trust are in this grouping and WTW has a ‘wait list’ of several alternative managers across a range of different styles.
Div (excl special) Highcharts
Management
WTW have provided a brief run-down of the sub-portfolio managers, which we reproduce here:
WTW’s core belief is that high conviction active management is the key to long-term returns and that “genuinely skilled active
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BLACK CREEK INVESTMENT MANAGEMENT (BLACK CREEK)
and head of equities (from February 2002). He was named Morningstar International Fund Manager of the Year in 2012.
Toronto, Canada (www.bcim.ca)
Rajiv looks for high-quality and sustainable businesses through a fundamental investment process utilising both traditional and non-traditional sources of information. Ideally, these quality businesses have enduring underlying strengths, which manifest in a variety of economic environments. The result has been portfolios designed to provide capital protection in down markets and attractive returns to long-term investors over a full market cycle. GQG will manage a global portfolio for the Trust with particular focus on emerging market companies.
Bill Kanko is founder and president of Black Creek, with 35 years’ experience in the industry. Prior to founding Black Creek in 2004, Bill was the lead manager for the AIM Trimark Fund and Trimark Select Growth Fund, which had outstanding performance during his leadership from 1999 to 2004. Bill is a long-term investor, looking for companies that are growing, are leaders in their markets and gaining market share. These companies tend to benefit from huge barriers to entry and sustainable competitive advantages. In Morningstar’s Canadian database, the Black Creek Global Leaders Fund ranks in the top 2% of funds in the global equity category over a five-year period and the top 3% over a ten-year period.
JUPITER ASSET MANAGEMENT LIMITED (JUPITER)
FIRST PACIFIC ADVISORS, LLC (FPA)
Ben Whitmore, who has 20 years’ experience in asset management, joined Jupiter in 2006 from Schroders. Ben is supported by Dermot Murphy, who has worked at Jupiter since 2014.
Los Angeles, USA (www.fpafunds.com) Pierre Py and Greg Herr, who have an average 20 years’ experience in the industry, have worked together at FPA since 2011. Pierre, managing director, previously worked at Harris Associates, Salomon Brothers, and Goldman Sachs. Pierre and Greg typically employ a long-term value investment approach, investing in companies that they believe have sustainable business models, exhibit financial strength, are run by operationally strong managers and whose stocks trade at a significant discount to the FPA team’s estimate of intrinsic value. For Alliance Trust the team will look to balance this discount with the businesses’ ability to produce an attractive and sustainable dividend yield. A number of FPA’s funds have been recognised for their performance by organisations including Morningstar and Lipper.
GQG PARTNERS, LLC (GQG) Fort Lauderdale, USA (www.gqgpartners.com) Rajiv Jain is the chairman and chief investment officer of GQG and serves as the sole portfolio manager for each of the firm’s strategies. With 20 years of emerging markets experience, Rajiv is among the longest tenured investors in global and emerging markets equities. He launched GQG in June 2016, having previously worked at Vontobel Asset Management for 22 years; as co-CEO (from July 2014) and chief investment officer
London, UK (www.jupiteram.com)
Ben is well known as a long-standing practitioner of contrarian value investing, investing in companies he considers to be out-offavour and under-valued. This approach has proved successful with the Jupiter UK Special Situations Fund being top quartile in its sector over 1, 3, 5, and 10 years.
LYRICAL ASSET MANAGEMENT(LYRICAL) New York, USA (www.lyricalam.com) Andrew Wellington serves as the firm’s chief investment officer and managing partner, and has been involved with active portfolio management for over twenty years, with the last eight at Lyrical. He previously worked at Neuberger Berman where he became the sole portfolio manager for the institutional US midcap value product, more than tripling AUM. Value matters most to Lyrical and the team also maintains a strict discipline of investing in quality companies that they believe are relatively easy to analyse. They believe the combination of value, quality, and straightforward business model creates resiliency in the portfolio and the greatest likelihood of long-term absolute performance and outperformance. In April 2015 Lyrical received the Long Biased Equity Fund – Long Term Performance award at the annual 2015 Investors Choice Awards.
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London, UK (http://www.riverandmercantile.com/river_and_ mercantile_asset_management/equity_funds) Hugh Sergeant is the chief investment officer of equities at River and Mercantile and was one of the founding partners in 2006. He has over 30 years’ experience and was previously head of UK Equities at Societe Generale Asset Management and prior to that at UBS/Phillips & Drew and Gartmore. The team invest in ‘recovery equities’, through an investment philosophy called PVT (Potential, Valuation & Timing) and a process that helps them identify value at different stages of a company’s lifecycle and to give signals from a timing perspective as to when that value might be unlocked. Hugh’s performance against his peer group has been strong and his UK and ‘World Recovery’ portfolios are both ranked in the top decile of returns within their IA universe since inception.
SUSTAINABLE GROWTH ADVISERS (SGA) Stamford, USA (www.sgadvisers.com) George Fraise, Gordon Marchand and Rob Rohn founded SGA in 2003 and average over 30 years’ investment experience each, having also worked together before SGA. While the team shares a common approach to evaluating businesses and structuring portfolios, the personality attributes of the three portfolio managers are complementary in important ways. SGA focuses on building concentrated portfolios of unique, high quality global growth businesses that possess strong pricing power, offer recurring revenue generation and benefit from attractive, long runways of growth. SGA’s global growth equity portfolio had achieved a top decile in the Morningstar World Stock Category since inception, while their Global Mutual Fund was featured by Morningstar as one of five ‘Under-the-Radar’ and ‘Up-and-Coming Funds’ on 15 November 2016.
VERITAS ASSET MANAGEMENT (VERITAS) London, UK(www.veritas-asset.com) Andrew Headley has over 20 years’ investment experience and is supported by co-portfolio manager Charles Richardson. They have worked together for almost 20 years including the last 13 years at Veritas, since founding the business in 2003.
Veritas focuses on active equity management, utilising its proprietary ‘Real Return’ approach since inception of the firm. Veritas employs an absolute mind-set when valuing companies and dispenses with any reference to indices when constructing the portfolio. Veritas describe the firm’s overall approach as investing in a concentrated portfolio of good quality companies at the right price. The Veritas Global Focus Fund carries a Morningstar five-star gold rating.
Discount As the graph below shows, for a long time Alliance Trust has traded at a relatively wide discount. However, Alliance Trust’s discount narrowed significantly on the announcement of the change in strategy, and has stood at around 5% since. Activist investor Elliott, which owned 19% of the trust’s shares at the start of the year, ended its war with the trust in late January, when the trust announced that it would buy back all of the arbitrageur’s holding at a discount of 4.75% - the same price available to other holders - in a series of tranches costing £620m which was complete by mid-March. Moving forward, the overwhelming majority of the trust’s shares are held by retail investors either directly or via an intermediary, which should help support liquidity, particularly coupled with the board’s renewed commitment to tackling the discount ‘materially’ which has seen it repurchase shares aggressively, keeping the discount at 5% since. Alliance Trust: Discount 04/10/2012 - 30/09/2017 0
-5
%
RIVER AND MERCANTILE ASSET MANAGEMENT (RIVER & MERCANTILE)
-10
-15
-20 2013
Source: Morningstar
2014
2015
2016
2017 Highcharts
Charges Historically the trust has been among the cheapest in its sector, with an OCF ranging between 0.38% and 0.8% over the past ten years. The board announced earlier this yera that they will be targeting total annual costs of 0.65% going forward at current size, including the cost of executive functions such as company secretarial and investor relations.
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This compares favourably with Witan which has an OCF of 0.79% according to data from Morningstar, and also charges a performance fee. It also compares well with the AIC Global investment trust peer group which has a weighted average OCF of 0.65% (Source: Morningstar).
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It’s early doors to talk about performance under the new setup, but ATST is up 7.6% since the start of April in NAV terms, outperforming by a strong margin the MSCI AC World index which is up 3.5%, and its nearest competitor Witan which is up 7.3%.
Portfolio Transition of the portfolio was complete by the middle of April 2017 and Alliance Trust is now a global equities portfolio which reflects the concentrated ‘best ideas’ picks of a range of eight managers selected by Willis Towers Watson (WTW). As the table below shows, the eight initially selected managers offer a mix of growth, value and quality styles. MANAGER BREAKDOWN MANAGER
PORTFOLIO FOCUS
HOLDINGS
STYLE
River & Mercantile
Global
20
Value
Jupiter Asset Management
Global with an income bias
20
Value
Lyrical Partners
Global with a bias to US
20
Value
Sustainable Growth Advisers
Global
20
Growth
GQG Partners
Global + Emerging Markets
70
Growth
Veritas
Global
20
Quality
FPA
Global
20
Quality
Black Creek IM
Global
20
Quality
Source: Alliance Trust plc
The process of choosing each sub-manager, monitoring performance, and finessing the overall shape of the portfolio is led by an investment committee chaired by Craig Baker, WTW’s global chief investment officer, and including Stuart Gray, a senior member of the research team, and the two co-portfolio managers, David Shapiro and Mark Davis. On an ongoing basis they will allocate and reweight assets to the different sub-portfolio managers in order to shape the whole portfolio, using cashflows to maintain a roughly equal contribution from each manager. Given the unconstrained nature of each sub-manager’s remit, the management committee also keeps an eye on crossover between the portfolios – and would reallocate assets/funds were it to become too marked, but so far this has not been necessary;
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according to WTW thirteen of the trust’s 200 holdings are held by two of the sub-portfolio managers, and none are held by three or more.
Alliance Trust Portfolio breakdown
Financials Information technology
The trust has no formal asset allocation benchmark in place. Each manager will largely ignore the index and consider risk primarily in absolute terms. However, WTW will also manage risk at the combined level, both in absolute terms and relative to the index, through their choice of managers and the weightings assigned to each. WTW will look to ensure that stock selection is the key driver of returns as that is the real skill-set of each of the managers chosen, and therefore country and industry weightings are unlikely to deviate significantly from the index at most points in time which may mean during periods of negative market direction the trust’s performance reflects that. It should also be noted that because of the above, the portfolio will remain close to fully invested most of the time (albeit the managers do have some freedom to hold cash), and therefore limited emphasis will be placed on short-term capital protection during periods when the index is in negative territory. The trust’s largest regional weighting is toward the United States (44.8%). Europe is the second largest weighting at 22.2%, while Asia & Emerging Markets comes third (19%). The UK makes up 10.8%, and this low exposure to Blighty is a key differentiator when considering this trust versus its competitors which may have much higher crossover with investors’ existing UK large cap allocations. ATST is a ‘global’ mandate – in the sense that it provides exposure to ‘the rest of the world’ beyond our shores. The UK is a much more significant part of the portfolio at Witan, for example, where it makes up 37% of the trust’s total holdings. Alliance Trust: Regional exposure 60
(%)
40
20
0 North America
UK
Portfolio weight
Source: Alliance Trust plc
Europe
Asia & Emerging Markets
Cash
Cash
Consumer discretionary
Telecoms Utilities Materials Energy Industrials
Consumer staples Healthcare
Source: Alliance Trust plc
Highcharts
Alliance Trust Savings, the trust’s savings platform subsidiary, remains as an asset on the trust’s books with its own board, as now. The platform, which has £15bn under administration, was profitable in 2016 but reported a loss of £1.5m for the half year and is expected to report a loss for the full year in 2017. A portion of the portfolio amounting to around £238m is not allocated to the sub-managers and is instead managed on behalf of the board directly by WTW. This consists of various holdings in private equity, mineral rights, asset management company Liontrust, and a number of Liontrust funds.
Gearing Gearing in the first half of this year averaged around 7.8% and stood at 8.9% at the end of August. Alliance Trust has a nominal £100m of 15 year fixed rate borrowings, with significant additional borrowing via flexible bank loan facilities. Under the previous setup, gearing was used tactically and tended to increase when the managers saw opportunities on the table, and decrease when they felt more bearish. The facility allows the manager to borrow up to 15% without consulting the board, and a further 15% with the board’s permission, but the trust has rarely seen gearing in excess of 18%. This facility remains in place and will continue to be used in accordance with the board’s macro view. Derivatives may also come into play as a means to manage risk in the future, but there are no plans for derivatives in the portfolio at this stage. The underlying portfolios are not allowed to gear up themselves.
Benchmark weight Highcharts
In sectoral terms the trust is broadly diversified with significant weightings in information technology, financials, consumer discretionary, industrials and healthcare, with smaller weightings in a range of other sectors and an active share of 81% according to the managers.
Returns Alliance Trust in its old shape had underperformed its benchmark and the average trust in the Global sector over one, five and ten years.
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It’s early doors to talk about performance under the new setup, but ATST is up 7.6% since the start of April in cum-fair NAV terms, outperforming by a strong margin the MSCI AC World index which is up 3.5%, and its nearest competitor Witan which is up 7.3%. Alliance Trust: Performance vs benchmarks 01/04/2017 - 31/08/2017
The firm places great emphasis on due diligence in order to identify such managers. Craig Baker, the global Chief Investment Officer at WTW leads the relationship and chairs the investment committee that is responsible for the portfolio. He has 23 years investment experience.
10 7.5 5
%
managers” do exist. Typically, therefore, WTW favours active managers that run concentrated portfolios and have high active share, and by sub-dividing a given portfolio between different active managers with different investment styles, it hopes this inbuilt diversification will lead to smoother, more consistent returns for investors.
2.5 0 -2.5 -5 Apr '17
May '17
Jun '17
Alliance Trust Ord (Total)
Jul '17
Aug '17
Sep '17
Alliance Trust Ord (Market)
MSCI ACWI GR GBP (Total)
Source: Morningstar
Highcharts
Given the nature of the trust’s asset allocation – with country and industry weightings unlikely to deviate much from the MSCI AC World index, and the portfolio usually fully invested – we would expect performance to reflect the direction of travel of the index, with limited capital protection during periods when that direction is negative.
Dividend Successive boards have been able to report rising dividends (for 50 years now) to shareholders and the board has reaffirmed its commitment to maintaining this record of growth. The more immediate past has seen no change to this pattern, and as the graph below shows, over the past ten years the trust has meaningfully earned more than it has paid out in dividends. This means that the revenue reserve is in a healthy state, we estimate at 1.68x the annual dividend. Alliance Trust: Dividend 2007 - 2016 15
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10
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EPS
Source: Alliance Trust
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Others on the investment committee are Stuart Gray, a senior researcher, and David Shapiro and Mark Davis, co-portfolio managers. David Shapiro has 30 years’ investment experience. He is a senior portfolio manager and a former head of the global equity research team at WTW. Prior to this he was an equity fund manager for 17 years. Mark has 19 years’ investment experience and has significant prior research experience in various equity mandates. Stuart Gray has 14 years’ investment experience. Stuart has been a member of the global equity research team for 13 years and has headed the emerging markets research team. All of the individuals on the investment committee for Alliance Trust are also involved on the Investment Committee running the WTW Global Equity Focus Fund, an institutional mandate which has developed a strong track record pursuing a similar strategy to ATST. Between them the investment committee have more than sixty years’ service under their belts at WTW. Supporting this committee WTW has a 115-strong research team around the world, including 50 who are focused on equity research and 21 who look at long-only global mandates. Together, they run $88bn for 166 institutional clients with multi-manager structures. The research team undertakes nearly 1,000 meetings with potential fund management partners in the equity space every year and then, having created a shortlist, scores a sub-set of these fund managers on a 1-3 scale, based on numerous meetings with each manager as it approaches a conclusion. WTW will only use those which pass its operational due diligence tests and receive the highest rating ‘1’ – of which there are around 40 in the world running global equity mandates at any given time. All of the managers who will run the underlying portfolios for Alliance Trust are in this grouping and WTW has a ‘wait list’ of several alternative managers across a range of different styles.
Div (excl special) Highcharts
Management
WTW have provided a brief run-down of the sub-portfolio managers, which we reproduce here:
WTW’s core belief is that high conviction active management is the key to long-term returns and that “genuinely skilled active
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BLACK CREEK INVESTMENT MANAGEMENT (BLACK CREEK)
and head of equities (from February 2002). He was named Morningstar International Fund Manager of the Year in 2012.
Toronto, Canada (www.bcim.ca)
Rajiv looks for high-quality and sustainable businesses through a fundamental investment process utilising both traditional and non-traditional sources of information. Ideally, these quality businesses have enduring underlying strengths, which manifest in a variety of economic environments. The result has been portfolios designed to provide capital protection in down markets and attractive returns to long-term investors over a full market cycle. GQG will manage a global portfolio for the Trust with particular focus on emerging market companies.
Bill Kanko is founder and president of Black Creek, with 35 years’ experience in the industry. Prior to founding Black Creek in 2004, Bill was the lead manager for the AIM Trimark Fund and Trimark Select Growth Fund, which had outstanding performance during his leadership from 1999 to 2004. Bill is a long-term investor, looking for companies that are growing, are leaders in their markets and gaining market share. These companies tend to benefit from huge barriers to entry and sustainable competitive advantages. In Morningstar’s Canadian database, the Black Creek Global Leaders Fund ranks in the top 2% of funds in the global equity category over a five-year period and the top 3% over a ten-year period.
JUPITER ASSET MANAGEMENT LIMITED (JUPITER)
FIRST PACIFIC ADVISORS, LLC (FPA)
Ben Whitmore, who has 20 years’ experience in asset management, joined Jupiter in 2006 from Schroders. Ben is supported by Dermot Murphy, who has worked at Jupiter since 2014.
Los Angeles, USA (www.fpafunds.com) Pierre Py and Greg Herr, who have an average 20 years’ experience in the industry, have worked together at FPA since 2011. Pierre, managing director, previously worked at Harris Associates, Salomon Brothers, and Goldman Sachs. Pierre and Greg typically employ a long-term value investment approach, investing in companies that they believe have sustainable business models, exhibit financial strength, are run by operationally strong managers and whose stocks trade at a significant discount to the FPA team’s estimate of intrinsic value. For Alliance Trust the team will look to balance this discount with the businesses’ ability to produce an attractive and sustainable dividend yield. A number of FPA’s funds have been recognised for their performance by organisations including Morningstar and Lipper.
GQG PARTNERS, LLC (GQG) Fort Lauderdale, USA (www.gqgpartners.com) Rajiv Jain is the chairman and chief investment officer of GQG and serves as the sole portfolio manager for each of the firm’s strategies. With 20 years of emerging markets experience, Rajiv is among the longest tenured investors in global and emerging markets equities. He launched GQG in June 2016, having previously worked at Vontobel Asset Management for 22 years; as co-CEO (from July 2014) and chief investment officer
London, UK (www.jupiteram.com)
Ben is well known as a long-standing practitioner of contrarian value investing, investing in companies he considers to be out-offavour and under-valued. This approach has proved successful with the Jupiter UK Special Situations Fund being top quartile in its sector over 1, 3, 5, and 10 years.
LYRICAL ASSET MANAGEMENT(LYRICAL) New York, USA (www.lyricalam.com) Andrew Wellington serves as the firm’s chief investment officer and managing partner, and has been involved with active portfolio management for over twenty years, with the last eight at Lyrical. He previously worked at Neuberger Berman where he became the sole portfolio manager for the institutional US midcap value product, more than tripling AUM. Value matters most to Lyrical and the team also maintains a strict discipline of investing in quality companies that they believe are relatively easy to analyse. They believe the combination of value, quality, and straightforward business model creates resiliency in the portfolio and the greatest likelihood of long-term absolute performance and outperformance. In April 2015 Lyrical received the Long Biased Equity Fund – Long Term Performance award at the annual 2015 Investors Choice Awards.
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London, UK (http://www.riverandmercantile.com/river_and_ mercantile_asset_management/equity_funds) Hugh Sergeant is the chief investment officer of equities at River and Mercantile and was one of the founding partners in 2006. He has over 30 years’ experience and was previously head of UK Equities at Societe Generale Asset Management and prior to that at UBS/Phillips & Drew and Gartmore. The team invest in ‘recovery equities’, through an investment philosophy called PVT (Potential, Valuation & Timing) and a process that helps them identify value at different stages of a company’s lifecycle and to give signals from a timing perspective as to when that value might be unlocked. Hugh’s performance against his peer group has been strong and his UK and ‘World Recovery’ portfolios are both ranked in the top decile of returns within their IA universe since inception.
SUSTAINABLE GROWTH ADVISERS (SGA) Stamford, USA (www.sgadvisers.com) George Fraise, Gordon Marchand and Rob Rohn founded SGA in 2003 and average over 30 years’ investment experience each, having also worked together before SGA. While the team shares a common approach to evaluating businesses and structuring portfolios, the personality attributes of the three portfolio managers are complementary in important ways. SGA focuses on building concentrated portfolios of unique, high quality global growth businesses that possess strong pricing power, offer recurring revenue generation and benefit from attractive, long runways of growth. SGA’s global growth equity portfolio had achieved a top decile in the Morningstar World Stock Category since inception, while their Global Mutual Fund was featured by Morningstar as one of five ‘Under-the-Radar’ and ‘Up-and-Coming Funds’ on 15 November 2016.
VERITAS ASSET MANAGEMENT (VERITAS) London, UK(www.veritas-asset.com) Andrew Headley has over 20 years’ investment experience and is supported by co-portfolio manager Charles Richardson. They have worked together for almost 20 years including the last 13 years at Veritas, since founding the business in 2003.
Veritas focuses on active equity management, utilising its proprietary ‘Real Return’ approach since inception of the firm. Veritas employs an absolute mind-set when valuing companies and dispenses with any reference to indices when constructing the portfolio. Veritas describe the firm’s overall approach as investing in a concentrated portfolio of good quality companies at the right price. The Veritas Global Focus Fund carries a Morningstar five-star gold rating.
Discount As the graph below shows, for a long time Alliance Trust has traded at a relatively wide discount. However, Alliance Trust’s discount narrowed significantly on the announcement of the change in strategy, and has stood at around 5% since. Activist investor Elliott, which owned 19% of the trust’s shares at the start of the year, ended its war with the trust in late January, when the trust announced that it would buy back all of the arbitrageur’s holding at a discount of 4.75% - the same price available to other holders - in a series of tranches costing £620m which was complete by mid-March. Moving forward, the overwhelming majority of the trust’s shares are held by retail investors either directly or via an intermediary, which should help support liquidity, particularly coupled with the board’s renewed commitment to tackling the discount ‘materially’ which has seen it repurchase shares aggressively, keeping the discount at 5% since. Alliance Trust: Discount 04/10/2012 - 30/09/2017 0
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%
RIVER AND MERCANTILE ASSET MANAGEMENT (RIVER & MERCANTILE)
-10
-15
-20 2013
Source: Morningstar
2014
2015
2016
2017 Highcharts
Charges Historically the trust has been among the cheapest in its sector, with an OCF ranging between 0.38% and 0.8% over the past ten years. The board announced earlier this yera that they will be targeting total annual costs of 0.65% going forward at current size, including the cost of executive functions such as company secretarial and investor relations.
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This compares favourably with Witan which has an OCF of 0.79% according to data from Morningstar, and also charges a performance fee. It also compares well with the AIC Global investment trust peer group which has a weighted average OCF of 0.65% (Source: Morningstar).
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