ALLIANCE TRUST PLC Interim Report for the six months ended 30 June 2017
Investing for Generations
The Trust has successfully implemented its new investment approach.
We are confident that our alliance of best ideas will deliver attractive returns for shareholders over the long term.
Our new investment approach supports our aim of achieving consistent outperformance at a competitive cost, while maintaining our progressive dividend policy. With the approval of our shareholders at the General Meeting in February, the management of the investment portfolio transitioned to Willis Towers Watson (WTW). It is responsible for selecting eight underlying managers that it rates as 'best-in-class', each of whom manages concentrated portfolios of their top stock selections. We are targeting an Ongoing Charges Ratio of below 0.65%.Alliance Trust Investments (ATI) was responsible for the Trust's performance to 17th March, at which point the transition commenced. The new strategy became effective on 1st April, with the official appointment of WTW and the transition
completed on 12th April. ATI was sold, at what we believe was a fair price, to Liontrust Asset Management, and that this is a good home for the team. We are grateful to all the team at ATI for their work on our behalf.
This first half of 2017 has been characterised by the transition the business has gone through, and we strongly believe we now have the foundations in place to deliver strong and sustainable performance for our shareholders in the future.
Financial performance
Over the period, the Trust performed well. Total Shareholder Return was 10.8%, Net Asset Value (NAV) Total Return was 12.4% and the share price rose 9.7% to 700.0p. We are encouraged that, despite undertaking the transition to the new portfolio, the Trust outperformed its benchmark on a NAV total return basis by 6.0%, primarily driven by the outperformance of the equity portfolio. Additionally, the costs of the transition were much lower than originally anticipated, which is a meaningful saving for the business and our administration expenses for the period are showing only
a modest increase at £8.4m (2016: £7.7m).
Alliance Trust Savings (ATS) has seen growth in both assets under administration and customer accounts. Whilst we had hoped that ATS would report a profit for the
period, additional costs were incurred in the second quarter contributing to a loss for the half year of £1.5m (2016: £0.4m profit). In the second half of the year ATS plans to continue to invest to improve its levels of customer service. We expect it to report a loss for the year.
Dividend
We are very proud of our dividend track record and the Board is delighted that
the Trust has achieved 50 years of consecutive dividend growth, and has been recognised by the AIC through its Dividend Hero Award. The Board continues its progressive dividend policy and has declared a dividend of 3.29p per ordinary share payable
on 2nd October 2017 to shareholders on the register on 1st September 2017.
Buybacks
Towards the end of last year, we introduced a more active approach to share buybacks, supporting our determination to narrow materially the Trust's discount to NAV which averaged 5.1% over the period. Consistent with this programme, the Trust also repurchased Elliott's shareholding following shareholder approval in February.
In summary
The first half of 2017 has been transformational for the Trust. We have a new investment approach which, although still in its early days, is demonstrating that it can deliver outperformance at competitive cost. We believe we now have a compelling offering and look forward to continuing to invest for generations.
Lord Smith of KelvinChairman 26 July 2017
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30 June 2017 | 31 December 2016 | 30 June 2016 |
Share price 700.0p | 638.0p | 524.0p |
Net Asset Value (NAV) per share* 742.2p | 667.5p | 591.4p |
Discount to NAV 5.7% | 4.4% | 11.4% |
Average Discount to NAV** 5.1% | 10.1% | 10.3% |
Company Performance
Source: WTW and Morningstar.
*Balance sheet value calculated with debt at fair value.
**Six months to 30 June and 12 months to 31 December.
Average Contribution Analysis (%) Weight | Total Return | Contribution to Total Return |
Equity Portfolio 99.8 | 10.6 | 9.8 |
Foreign Exchange Contracts and Index Futures N/A | N/A | 0.0 |
Non-core Investments 8.0 | 7.3 | 0.6 |
Effect of Gearing* -7.8 | N/A | 0.6 |
Investment Portfolio Total100.0 | 11.0 | |
Operating subsidiary | 0.0 | |
Cash and Accruals | 0.4 | |
Share Buybacks | 1.3 | |
Total Administration Costs | -0.3 | |
NAV including Income Total Return | 12.4 | |
Effect of Discount | -1.6 | |
Share Price Total Return | 10.8 | |
MSCI ACWI Total Return | 6.4 |
Portfolio Performance
Source: WTW, BNY Mellon Fund Services (Ireland) Ltd, Morningstar, MSCI Inc and FactSet.
*Gearing effect is attributed assuming that all borrowing is invested in the equity portfolio and is net of the cost of borrowing to achieve the gearing.
Shareholder Return
As at 30 June 2017 | 6 months | 1 year | 3 years | 5 years |
Total Shareholder Return (TSR) | 10.8% | 36.4% | 68.8% | 124.2% |
NAV Total Return | 12.4% | 27.3% | 55.0% | 95.7% |
MSCI ACWI | 6.4% | 22.9% | 54.1% | 104.7% |
Source: WTW and FactSet.
Administration Expenses
6 months to 30 June 2017 Year to 31 December 2016 6 months to 30 June 2016Total Administrative Expenses £8.4m Less Non-recurring Expenses* £(1.1)m | £16.8m £(3.4)m | £7.7m £(1.4)m |
Ongoing Administrative Expenses £7.3m | £13.4m | £6.3m |
Source: WTW.
*Includes reorganisation, strategic review and extraordinary general meeting costs.
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Alliance Trust is an investment trust with a unique global equity portfolio providing access to an alliance of 'best-in-class' equity managers and their best ideas, at a competitive cost. It has been a pioneer in investing since 1888 and its objective
is to be a core holding for investors seeking increasing value over the long term.
The equity portfolio's target is to outperform the MSCI All Country World Index by 2% per year after costs over rolling three year periods.
Investment PortfolioOur investment portfolio is made up of:
Global equity investments
Our subsidiary business - Alliance Trust Savings
Non-core investments
Mineral Rights*
Private Equity*
Funds
Liontrust Asset Management PLC shares**
*These will be disposed of at the appropriate time.
**Liontrust Asset Management PLC shares which formed part of the consideration received on the sale of Alliance Trust Investments (valued at £22.8m).
The equity investments are now managed by WTW who provide the Company with access to a range of specialist equity managers and oversee the management of the funds. They have appointed eight equity managers, the majority of whom are not otherwise accessible to individual investors in the UK.
Each of the equity managers runs a bespoke portfolio for Alliance Trust focused solely on their best ideas, each containing about 20 stocks. This distinctive approach means that every stock is one in which each equity manager has their highest conviction - investments which they believe are most likely to deliver positive absolute and relative returns. In addition, there is also an emerging markets portfolio which has around 50 stocks. Together these stocks comprise the Company's equity portfolio.
WTW's Investment Committee allocates funds across the eight equity managers to manage the investment and risk profile of the portfolio.
WTW is also responsible for oversight of the non-core assets.
The Alternative Investment Fund Manager and Investment ManagerTowers Watson Investment Management (Ireland) Limited (TWIMI) has been appointed as the Company's Alternative Investment Fund Manager (AIFM). The AIFM has delegated the management of the Company's portfolio to Towers Watson Investment Management Limited (TWIM). Both TWIMI and TWIM are members of the Willis Towers Watson group of companies.
Willis Towers Watson (NASDAQ: WLTW) has roots dating back to 1828 and is a leading investment group with over 39,000 employees across all of its businesses.
A significant element of WTW's business is the provision of investment consultancy. However, WTW is engaged as the Company's Investment Manager.
The Equity ManagersThe eight equity managers selected by WTW have an unconstrained mandate allowing them to choose what they believe are the best stocks. The managers have been selected not just for their capability but to provide a range of different and complementary investment styles.
Black Creek Investment Management (10.3% of the equity portfolio) looks 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. First Pacific Advisors (12.6% of the equity portfolio) employs 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 tradeat a significant discount to FPA's estimate of intrinsic value.
GQG Partners (10.9% of the equity portfolio) looks for high-quality and sustainable businesses which have enduring underlying strength to provide capital protection in down markets and attractive returns to long-term investors over a full market cycle. In addition, GQG manages a second portfolio (4.4% of the equity portfolio) for the Company with particular focus on global emerging market companies. Jupiter Asset Management (9.0% of the equity portfolio) is well known in the market as a long‐standing practitioner of contrarian value investing. It seeks businesses that are out‐of‐favour and under‐ valued, but have prominent franchises and sound balance sheets. Lyrical Asset Management (16.5% of the equity portfolio) maintains a strict discipline around investing in quality companies, seeking businesses that it believes will generate attractive returns on their invested capital, are resilient with reasonable debt levels, positive growth, attractive margins, competent management, and the flexibility to react to all phases of the business cycle. River and Mercantile Asset Management (8.7% of the equity portfolio) invests in Recovery Equities, through an investment approach that it believes identifies value at different stages of a company's lifecycle. Sustainable Growth Advisors (13.7% of the equity portfolio) focuses on building 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. Veritas Asset Management (13.9% of the equity portfolio) focuseson utilising its proprietary Real Return Approach and a number of other methods including themes to identify industries and companies that are well positioned to benefit from medium term growth.
Investment Objective
Alliance Trust is an investment company with investment trust status. The Company's objective is to be a core investment for investors seeking increasing value over the long term. The Company has no fixed asset allocation benchmark and it invests in a wide range of asset classes throughout the world to achieve its objective. The Company's focus is to generate a real return for shareholders over the medium to long term by a combination of capital growth and a rising dividend.
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Alliance Trust plc published this content on 27 July 2017 and is solely responsible for the information contained herein.
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