Formerly sleepy global equities fund Alliance Trust (ATST) outperformed the benchmark and many peers in 2019. The investment company recorded an impressive increase in net asset value (NAV) per share, with even better returns for investors as the discount narrowed.
This was a year in which the diversification of the trust came to the fore, while the ‘AIC Dividend Hero’ also raised the total dividend by 3% to 13.96p, extending its enviable consecutive dividend growth track record to 53 years.
READ MORE ABOUT ALLIANCE TRUST HERE
For the uninitiated, Alliance Trust aims to deliver long-term capital growth and rising income via investments in global equities. In April 2017, it adopted a multi-manager approach after coming under pressure from activist investors looking to shake things up.
This new strategy sees Alliance Trust blending the top stock picks of some of the world’s best active managers - as rated by its investment manager Willis Towers Watson - into a single but highly diversified portfolio.
For the 2019 calendar year, Alliance Trust generated a NAV total return of 23.1%. That marked a turnaround from the 5.4% decline suffered in 2018 and also beat the 21.7% haul from the MSCI All Country World Index last year, although the shares were unable to escape the wider market sell-off on Friday, shedding 2.6% to trade at 748p.
THE KEPLER VIEW
As Kepler Trust Intelligence explains: ‘Alliance Trust has come a long way since the decision was taken to shake up what was, before its relaunch in 2017, a rather stuffy old trust which did not tend to perform with much panache. The case, we feel, is very much altered.
‘With the final parts of the overhaul finished in 2019 - the sale of the remaining legacy holdings and the disposal of the Alliance Trust Savings platform - the trust is now a completely new animal, and characteristics of its performance so far suggest the new strategy is finding its feet well.’
Outperformance was delivered despite the fact that during the middle of 2019, the growth stocks that had powered the equity markets’ performance for many years lost ground to the value stocks that had long been in the doldrums.
While Alliance Trust’s growth managers’ positive momentum was tapered in the latter part of the year, this switch allowed the trust’s value managers to recover some ground, and showcased the benefits of the trust’s diversification.
STREAMLINED STRUCTURE
‘During 2019, we completed the simplification of the trust by selling our subsidiary, Alliance Trust Savings, and virtually all our remaining non-core assets,’ commented Alliance Trust chairman Gregor Stewart.
As a result, Alliance trust is now ‘fully focused on global equities, something the board has been working towards for the last four years.’
Stewart expects the trust’s ‘new streamlined structure to lead to continued improvement in returns to shareholders, making us an attractive core holding for generations of investors for many years to come.’
WINNERS AND LOSERS
Alliance Trust’s strongest performance driver last year was US-based semiconductor name Qorvo, one of three major players that make radio frequency and power amplification systems for mobile phones, tablets and devices included in the Internet of Things.
There is a meaningful tailwind to this industry and business as the transition from 4G to 5G occurs across the globe.
Another winner was New Oriental Education, a provider of tutoring services in China, whose impressive growth was driven by from classroom expansions and strong increases in student enrolment.
Stocks that detracted from performance included Qurate, a leader in TV-based retail shopping and one of the largest e-commerce retailers in the US which slumped as earnings missed estimates as changes in product mix impacted profitability alongside rising customer acquisition costs.
Apple wasn’t held in the portfolio, yet the largest stock in the index benefited from the US technology mega cap momentum and rallied strongly over the year. As such, not owning the iPhone maker had a meaningful impact on the relative performance of the portfolio versus the benchmark.
