Alliance Trust provides update on changes to managing its equity portfolio

Following its strategic review, Alliance Trust announced, on 15 December 2016, proposals under which its equity portfolio would move from being run using a single manager to a multi-manager approach. The trust has now announced further details of the proposed equity managers and says that a general meeting to approve these changes is to be held on 28 February 2017.

The Board is proposing that Willis Towers Watson (WTW), which it describes as a leading investment group, will become the investment manager working with eight equity managers, each of whom is rated best-in-class by WTW. Each manager will typically select 20 stocks, which will make up the combined portfolio of the Trust. This distinctive approach means that every stock selected is one in which the equity managers have their highest conviction i.e. those investments they believe are most likely to deliver positive absolute and relative returns. WTW will maintain overall oversight of the combined portfolio, including income, risk and concentration characteristics.

The board says that Craig Baker, Chief Investment Officer of WTW, will lead a highly experienced team responsible for the combined portfolio, with David Shapiro and Mark Davis as co-portfolio managers and Stuart Gray as the lead researcher. WTW has a long track-record of successfully managing multi-manager portfolios, and in particular has extensive experience of working with managers to create concentrated portfolios.

In light of the Board’s confidence in the new approach, the board says that its target for the equity portfolio to outperform the existing benchmark, the MSCI All Country World Index, will be doubled from 1% to 2% p.a., net of costs, over rolling three-year periods. Alongside this enhanced target, the Board has reaffirmed its commitment to the existing progressive dividend policy. This aims to generate a growing revenue stream from the portfolio, which will allow the Trust to continue its 49-year track-record of increasing dividends year-on-year. It also says that, by leveraging the scale of Alliance Trust and WTW, total annual costs will be targeted to be below 0.6%.

In selecting equity managers, WTW studies a number of criteria to assess the competitive advantage of each manager and whether that advantage is likely to be sustained. These many criteria include: the calibre of the key people; stability of the team; the depth of fundamental analysis involved in investment decisions; and, specifically for Alliance Trust, evidence of skill in managing concentrated mandates. The eight equity managers selected by WTW are as follow:

Black Creek Investment Management (Black Creek) is based in Toronto, Canada (www.bcim.ca) Bill Kanko is founder and President of Black Creek, with 35 years’ experience in the industry. Prior to founding Black Creek in 2004, Bill was the lead manager for the AIM Trimark Fund and Trimark Select Growth Fund, which Alliance Trust says had outstanding performance during his leadership from 1999 to 2004. Alliance Trust says that Bill is a long-term investor, looking 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, LLC (FPA) is based in Los Angeles, USA (www.fpafunds.com) Pierre Py and Greg Herr, who have an average 20 years’ experience in the industry, have worked together at FPA since 2011. Pierre, Managing Director, previously worked at Harris Associates, Salomon Brothers, and Goldman Sachs. Alliance trust says that Pierre and Greg typically employ 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 trade at a significant discount to the FPA team’s estimate of intrinsic value. For Alliance Trust the team will look to balance this discount with the businesses’ ability to produce an attractive and sustainable dividend yield.

GQG Partners, LLC (GQG) – Fort Lauderdale, USA (www.gqgpartners.com) Rajiv Jain is the Chairman and Chief Investment Officer of GQG and serves as the sole portfolio manager for each of the firm’s strategies. With 20 years of emerging markets experience, Rajiv is among the longest tenured investors in global and emerging markets equities. He launched GQG in June 2016, having previously worked at Vontobel Asset Management for 22 years; as co-CEO (from July 2014) and Chief Investment Officer and Head of Equities (from February 2002). Alliance Trust says that Rajiv looks for high-quality and sustainable businesses through a fundamental investment process utilising both traditional and non-traditional sources of information. Ideally, these quality businesses have enduring underlying strengths, which manifest in a variety of economic environments. The result has been portfolios designed to provide capital protection in down markets and attractive returns to long-term investors over a full market cycle. GQG will manage a global portfolio for the Trust with particular focus on emerging market companies.

Jupiter Asset Management Limited (Jupiter) – London, UK (www.jupiteram.com) Ben Whitmore, who has 20 years’ experience in asset management, joined Jupiter in 2006 from Schroders. Ben will be supported by Dermot Murphy, who has worked at Jupiter since 2014.Alliance Trust says that Ben is well known as a long-standing practitioner of contrarian value investing, investing in companies he considers to be out-of-favour and under-valued. This approach has proved successful with the Jupiter UK Special Situations Fund being top quartile in its sector over 1, 3, 5, and 10 years.

Lyrical Asset Management (Lyrical) – New York, USA (www.lyricalam.com) Andrew Wellington serves as the firm’s Chief Investment Officer and Managing Partner, and has been involved with active portfolio management for over twenty years, with the last eight at Lyrical. He previously worked at Neuberger Berman where he became the sole portfolio manager for the institutional US mid-cap value product, more than tripling AUM. Andrew will be supported by Caroline Ritter. Alliance Trusty says that value matters most to Lyrical and the team also maintains a strict discipline of investing in quality companies that they believe are relatively easy to analyse. They believe the combination of value, quality, and straightforward business model creates resiliency in the portfolio and the greatest likelihood of long-term absolute performance and outperformance.

River and Mercantile Asset Management (River and Mercantile) – London, UK (www.riverandmercantile.com) Hugh Sergeant is the Chief Investment Officer of Equities at River and Mercantile and was one of the founding Partners in 2006. He has over 30 years’ experience and was previously Head of UK Equities at Societe Generale Asset Management and prior to that at UBS/Phillips & Drew and Gartmore. Alliance Trust says that the team invest in Recovery Equities, through an investment philosophy called PVT (Potential, Valuation & Timing) and a process that helps them identify value at different stages of a company’s lifecycle and to give signals from a timing perspective as to when that value might be unlocked. Alliance Trust also says that Hugh’s performance against his peer group has been strong and his UK and World Recovery portfolios are both ranked in the top decile of returns within their IA universe since inception.

Sustainable Growth Advisers (SGA) – Stamford, USA (www.sgadvisers.com) George Fraise, Gordon Marchand and Rob Rohn founded SGA in 2003 and average over 30 years’ investment experience each, having also worked together before SGA.  While the team shares a common approach to evaluating businesses and structuring portfolios, the personality attributes of the three portfolio managers are complementary in important ways. According to Alliance Trust, SGA focuses on building concentrated 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 (Veritas) – London, UK (www.veritas-asset.com) Andrew Headley has over 20 years’ investment experience and is supported by co-portfolio manager Charles Richardson. They have worked together for almost 20 years including the last 13 years at Veritas, since founding the business in 2003. Alliance Trust says  that Veritas focuses on active equity management, utilising its proprietary Real Return Approach since inception of the firm. Veritas employs an absolute mind-set when valuing companies and dispenses with any reference to indices when constructing the portfolio. Veritas describe the firm’s overall approach as investing in a concentrated portfolio of good quality companies at the right price.

Alliance Trust provides update on changes to managing its equity portfolio : ATST

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