Merryn's Blog

'Skin in the game' at Alliance Trust

Katherine Garrett Cox at Alliance Trust has not had a particularly good time of it lately. But with over £1m of her own money invested, she can't be accused of not being committed to her fund.

I've written here before about the Alliance Trust, the UK's biggest investment trust. I interviewed Katherine Garrett-Cox, its manager, last year and ended up thinking that the market was being a little unkind to the company. The shares were trading not far off a 20% discount to their net asset value and everyone was having a go at Garrett-Cox for not doing something to pull it back in.

At the time, I said that I thought the shares might be a buy. And it turns out they probably were. The final results this year show that total shareholder returns over the year came in around 5% better than that of the generalist trust peer group.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

This was thanks in the end to Garrett-Cox and her board getting on with a huge share buy-back programme (this improves returns by increasing the net asset value of the shares still on the open market and by pushing up demand and so closing the discount). Overall, Alliance has bought back around 10% of its shares.

There's a lot more to be done here if Garrett-Cox wants the trust to consistently trade on a discount of under 10% (which should be a minimum aim for a trust this liquid). According to Collins Stewart's Alan Brierley, Foreign & Colonial and Witan (two competing generalist trusts) have been pushing harder to cut their discounts, buying back 25% and 37% respectively.

But at least the discount is down to 15% and it is clear to the market that a reasonable start has been made on task in hand.

The actual performance of the underlying stock selection (which is supposed to be Garrett-Cox's forte) has not been particularly good (Brierley calls it "indifferent"). But the investment management team has been strengthened, so it is possible that some crucial improvements here might follow.

Advertisement
Advertisement - Article continues below

I'm still interested in the trust (although irritatingly I never quite got around to buying it last year) on the basis both that the basic fund management performance could improve and that the discount is likely to close from here.

The buy-back programme should continue, and the the RDR rules coming in later this year are likely to increase the demand for shares in well-known investment trusts. Brierley agrees he has moved his view from 'hold' to'add' (ie from 'don't bother buying this' to 'think about buying this').

One last thing: Garrett-Cox has real 'skin in the game' (ie she has invested her own money). She might be overpaid on £840,000 a year, but her personal investment in the trust stands at £1,278,830. Skin in the game from managers is good.

Advertisement

Most Popular

Visit/investments/commodities/silver-other-precious-metals/600812/buy-silver
Silver and other precious metals

You should all own some silver. Just don’t expect it to make you rich

Silver is cool, beautiful and immensely useful. But for investors it's the most frustrating of metals. Dominic Frisby explains why you should own some…
12 Feb 2020
Visit/economy/600802/money-minute-wednesday-12-february-grim-times-for-european-industry
Economy

Money Minute Wednesday 12 February: grim times for European industry

Today's Money Minute previews industrial production in the eurozone, plus the latest from America's central bank.
12 Feb 2020
Visit/investments/investment-strategy/600804/the-secret-to-avoiding-being-panicked-out-of-your-portfolio
Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020
Visit/517625/tr-european-growth-trust-why-investors-shouldnt-overlook-europe
Sponsored

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019