Alliance Trust is finally getting its act together

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Alliance Trust was born out of the profits of Dundee’s jute industry

We’ve been complaining here about Dundee-based Alliance Trust for years. It’s charges have been too high; it has had an utterly unfocused investment strategy; it has been distracted by marginal businesses (a fund management business and a retail platform); and it has had a board wedded to the status quo and a horribly overpaid CEO.

I did at one point think that getting Katherine Garrett-Cox in to take charge would sort things out, but this turned out to be more wishful thinking on my part than anything else. So I’m afraid that a few years ago I lost interest in the company completely.

There are good trusts out there – run by good managers who get markets and understand that costs count. So there is no need for us to keep mooning around the lousy ones just because they have romantic histories (Alliance was incorporated in 1888 to invest the money that Dundee’s grandees had made in the jute industry).

However, things can change. And it looks like they may now be doing just that at Alliance. The fund management business (Alliance Trust Investment) is being sold to Liontrust. The platform business (Alliance Trust Savings – ATS) is staying, but is now (finally) profitable. And the core business of the investment trust – investing in global stockmarkets – is finally to be taken seriously.

Last month the board announced a new investment approach. It is become, effectively, a multi-manager fund and has just announced a starting line up of eight managers (chosen by Willis Towers Watson) known for their stock-picking skills.

Thanks to the scale of both Alliance and WTW, says Alan Brierley of Canaccord Ingenuity, this will mean that investors should get “relatively low-cost access to the best ideas of a highly focused and complementary list of global equity managers; a look-through portfolio of c200 holdings will reflect the best ideas of these leading managers”.

“Low cost” in this context means an overall annual cost of about 0.60% – which is not bad at all. This is exactly what Alliance should have been doing for the last 20 years – low cost but high conviction and well diversified investment for the masses. Still, better late than never.

Brierley now rates the shares a buy – and I am adding them to the long list for possible consideration for the MoneyWeek investment trust portfolio.

  • Momoko Miyamoto

    I don’t really see the appeal of ITs that invest in large quoted equities. 0.6% pa may be cheap for an IT but the Vanguard S&P500 ETF charges 0.07% AND has outperformed the vast majority of ITs and managed funds. The discount on ITs can be attractive but often doesn’t change much for years and therefore adds no value, quite the opposite as the AMC is charged on the NAV not the share price. However I feel that ITs can be of some use to small investors in giving diversified access to unquoted companies and startups e.g. Woodfood Patient Capital, which also happens to have a very reasonable charging structure i.e. if Mr Woodfood doesn’t earn you a decent return he gets ZERO reward. Shame that 99.99% of fund managers lack the same confidence and conviction, they generally talk a good talk but their fees structure says otherwise. In Warren Buffet’s early career he went even further, sharing in his investor’s losses if he failed to make them a positive return.

Merryn

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