Alliance Trust Strategic Review Announcement

The following note has been issued by ATSAG following the announcement this morning from Alliance Trust:

Alliance Trust Shareholder Action Group (ATSAG)

Update No. 13 – Outcome of Strategic Review

This morning the Board of Alliance Trust announced the outcome of its major strategic review. The key points are:

The management of the Trust’s investments will be outsourced to a series of active managers i.e. a multi-manager approach. Around 8 “best in class” equity managers will be selected.
The selection and monitoring of the managers will be outsourced to Willis Towers Watson (WTW), a leading global advisory consultant. The managers will be selected from WTW’s international database of 4,500 possible candidates.
The Trust will continue to focus on long term capital and income growth through investment in global equities. The Trust’s performance target, net of fees, and measured over rolling 3 year periods, will be increased from 1% over the MSCI All Country World Index to 2% over the same benchmark. Dividends will continue to be paid quarterly.
The existing investment subsidiary – Alliance Trust Investments (ATI) – will be divested to Liontrust Assets Management plc for a consideration well in excess of book value which at 31 June 2016 was £19.8m. The other subsidiary – Alliance Trust Savings (ATS) – is to be retained and is now profitable and, we understand, cash positive.
An aggressive buy back programme will be initiated to control the discount.

It is envisaged that under the range of new managers there will be circa 200 individual equity holdings. Each manager will run its concentrated portfolio on a “conviction” basis with a high active share i.e. the portfolio will be substantially differentiated from the benchmark.

The Board has negotiated very attractive fees with the individual managers and with WTW and the prospective Ongoing Charges Ratio (OCR) is targeted to be under 0.60%. (The Board’s previous OCR target was 0.45% by the end of 2016. The actual OCR in 2015 was 0.59%).

A small corporate team will be based in Dundee to oversee some residual, minor, investments. These are primarily the private equity investments (3.5% of the portfolio), the ATS subsidiary (1.6%), the shareholding in Liontrust (0.5%) and mineral rights (0.5%). ATS will continue to be run as an independent entity with its own Board. Both the private equity and mineral rights will, however, be divested in time. The Dundee team will provide the Trust’s Board with administrative support and will include a marketing function which will be substantially strengthened. We understand there is no intention to recreated the position of a powerful, domineering, Chief Executive Officer. The Trust will continue to be geared and this element will be managed by the in-house corporate team. Gearing currently is 6.6%.

ATSAG Assessment

The Board has undertaken an impressively thorough review and, in our view, the proposed changes, which the shareholders will be asked to approve at an EGM early in the New Year, are very positive. The multi-manager approach is much more flexible and lower risk than reliance on a single manager. The upgraded performance targets are ambitious but, if delivered, will fully justify the costs of the multi-manager configuration. The nearest comparator investment trust which is multi-managed is Witan and its performance relative to benchmark has been excellent over 1, 3, 5 and 10 years. Over 10 years, for example, Witan’s total shareholder return was 145.7% compared to a benchmark total return of 105.6%. However, Witan is more expensive, with an OCR in 2015 of 0.99%, including performance fees. Alliance Trust will not pay performance fees to any of its managers or to WTW. With approximately 200 stocks in the new Alliance Trust portfolio (which currently has 60 stocks), stock specific risk will be greatly reduced.

Overall, the new strategy gives the Trust a very cost effective, risk controlled, distinctive identity and will be clearly differentiated from its peers. The increased performance target is demanding. Provided the performance target is met, there is likely to be a better balance between supply and demand for the Trust’s shares. This should help to reduce the discount which, for many years, has been above the investment trust Global Sector Average.

James Cook 15/12/2016

See https://www.sharesoc.org/alliance.html for more background information.

Post Date: December 15, 2016

Stephen Burke says:

15th December 2016 at 1:04 pm

So who will do the overall asset allocation, and will it follow the World Index? I don’t really understand the significance of the performance target, given that there are no performance-related fees and that the individual managers’ performance will presumably diverge quite a lot from the index. Also, being slightly cynical it must be a couple of decades since the trust went for as long as three years without a change of strategy!

sharesoc says:

15th December 2016 at 4:20 pm

There will be some Forum meetings organised to explain matters to investors so I guess you might get your questions answered there if you attend.
Roger Lawson

Group description:	Our group is interested in sustainable investing and our goal is to identify and evaluate businesses that will thrive through innovation and their transition to a ‘One Planet Economy’. By leveraging the skills of group members, we aim to deeply understand these businesses, particularly focusing on how they develop long-term valuable benefits for their customers. Each year, we plan to evaluate around seven businesses to identify opportunities where our valuation exceeds the market price. A successful outcome is defined as achieving a compound annual growth rate (CAGR), including dividends, of 10% over a decade.
Meeting Type/Venue:	Meetings are in-person in a pub near to Waterloo station in London.
Meeting Frequency/Timing:	Meetings are bi-monthly on a Monday from 10:45am to 4:30pm. Members are expected to also pay for their own lunch which secures the group free use of a private room in the pub. The cost is expected to be £35-40 per person, per meeting, in addition to your SIGnet membership fee.

Group description:	SIGnet Taunton is a new group with around 10 keen members at present, with a range of investment styles and experience. We welcome new members.
Meeting Type/Venue:	In person meetings at a golf club near to the centre of Taunton.
Meeting Frequency/Timing:	We meet on the first Monday of every month at a golf club near to the centre of Taunton, 11am until 3pm with a lunch break.

Group description:	An online group for those who are new to investing, or have only been investing for a few years. Including topics such as: – What is a share or a bond, why and how to buy them. – Comparing funds, unit trusts, Investment trusts and exchange traded funds. – Portfolio management and diversification. – ISAs, pensions, SIPPS and how to save tax. – How terms such as PE ratio and dividend yield are used to value a share. – How to use technical analysis or charting.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Monday of the month at 7:00pm.

Group description:	An online group for those who already have some experience in investing. Covering topics such as finding companies to invest in, financial statements and ratios, valuation / margin of safety, analysis of companies and investment trusts and exchange traded funds.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Wednesday of the month at 7:00pm.

Group description:	The Equity Income Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on dividend paying Investment Trusts, though there is also discussion around individual shares.
Meeting Type/Venue:	Meetings are held online.
Meeting Frequency/Timing:	Meetings are held every 6 weeks on a weekday between 7 and 8:30pm.

Alliance Trust Strategic Review Announcement

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Group description:	A welcoming group open to all types of investors. Typical meeting content is to have a deep dive presentation on a topic selected by the participants and a session on buy/ sell/ key lessons learnt last month.
Meeting Type/Venue:	In person at a friendly pub close to Piccadilly Circus
Meeting Frequency/Timing:	Monthly during the evening on the first Wednesday of the month.

Group description:	All levels of experience welcome. A typical meeting agenda includes: – Macro Environment – Trades: Members review existing positions and identify securities with promising TA entry patterns or setups and with suitable risk/reward. Any security, long, short, futures, options may be considered. The convener takes actual positions in trades and maintains his own detailed ledger, accurately measuring performance of individual securities and cumulative activity. Members are notified by e-mail prior to the entries or exits that are decided upon. Following each meeting an updated copy of the ledger is circulated together with the next meeting agenda. Members may wish to maintain similar ledgers of their own but there is no obligation to do so. – Technical Analysis: Techniques and systems used in trades. Members can request discussion of particular aspects of TA.
Meeting Type/Venue:	Online via Zoom
Meeting Frequency/Timing:	The first Tuesday of every month from 7 to 9pm

Group description:	Open to all investors / people with an interest in investing. Typical meeting will involve members talking about recent purchases, successes, failures and possible future purchases. Also with occasional visiting speakers or members making presentations on a topic of interest.
Meeting Type/Venue:	We aim to meet on the last Tuesday of each month in a private room at a pub in Playhatch. Start time 7pm with members encouraged to meet up around 6pm for a bite to eat / drink before hand, if their diaries allow.
Meeting Frequency/Timing:	7pm on the last Tuesday of the month. Meetings likely to last about two hours but with informal ‘overspill’ before / after.

Group description:	This group was set up as a forum to discuss companies in detail, each company is introduced by a member and discussion may last one or two hours. Membership is by invitation only and is for experienced investors.
Meeting Type/Venue:	The group meets at a venue in Waterloo, London.
Meeting Frequency/Timing:	Meetings are on Tuesday mornings at two month intervals.