Alliance Trust (ATST)

09/03/2023

Results analysis from Kepler Trust Intelligence

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.

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%.

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 …

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