Alliance Trust (ATST) 964p

Loss to date: 7.5%

Original entry point: Buy at £10.42, 4 November 2021

A stroke of bad luck meant that Alliance Trust’s (ATST) winning streak in 2021 came to a disappointing end. A weak fourth quarter saw the global equity investment trust lag the broader market and ultimately underperform for the year.

The target for Alliance Trust is to beat the MSCI All Country World index by 2% a year, net of costs, over rolling three-year periods. It achieved an 18.6% increase in net asset value versus a 19.6% return from the benchmark in sterling terms, partially because it lacked the level of exposure to technology stocks which helped propel the MSCI ACWI towards the end of the year.

There are reasons to stay optimistic. First is the fact that its portfolio of 180 stocks is more aligned to the value investment style which is now in fashion across Europe, having already been in vogue in the US during 2021.

Alliance Trust features a panel of fund managers, each running a section of the trust’s portfolio with their best stock ideas. River & Mercantile and Jupiter account for a combined 13% of the portfolio and both value-style managers have done well so far in 2022, according to Craig Baker, global chief investment officer at Willis Towers Watson, the company responsible for overseeing Alliance Trust’s fund manager panel.

Another reason to be optimistic is that Alliance Trust’s portfolio companies offer less volatile earnings potential than the benchmark. ‘The portfolio is cheaper than the market, has higher earnings than the market, and more stable earnings growth than the market,’ says Baker. ‘That’s very attractive.’

Then there is appeal of higher dividends. Last year Alliance Trust reviewed the amount of revenue it kept aside in reserves to help smooth dividends in darker times and concluded that it could be more generous with dividends paid out to shareholders on a sustained basis – not simply a one-off boost.

Shareholders can now look forward to a dividend yield in the region of 2% alongside scope for capital gains.

It’s now been five years since Willis Towers Watson was appointed as the investment manager and so the pressure is on to deliver a consistent market-beating performance. Doing so would help the shares narrow their 8% discount to net asset value and stop shareholders from jumping ship to use a low-cost tracker fund to simply track the market.

SHARES SAYS: Investors have become less willing to pay up for high growth stocks, which makes Alliance Trust’s portfolio more appealing given it offers growth at a more reasonable price. Stick with it. 

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