Strong interim results from Alliance Trust (ATST ) have helped lift the global multi-manager fund’s five-year returns up to second place in its sector, with technology stocks’ supercharged performance year to date providing a big boost.

The £2.9bn investment trust, whose portfolio is allocated to 10 external fund managers overseen by Willis Towers Watson (WTW), delivered a total underlying investment return of 11.1% in the six months to 30 June. That beat the MSCI All-Country World’s 7.8% advance, although a widening of the discount, or gap between the share price and net asset value, to 7.2% reduced shareholder returns to 7.6%.

Nevertheless, total shareholder returns that combined share price gains and dividends have mounted to 47.5% over five years, ranking Alliance second in the AIC Global sector behind only to Brunner (BUT ) on 53%, but ahead of direct rivals such as F&C (FCIT) on 27.1% and Witan (WTAN ) on just 15.5%.

AIC Global equity leaders over five years

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Company	Ticker	Market Cap (£)	Share price TR (%)	NAV TR (%)
Brunner	BUT	470m	56	56
Alliance Trust	ATST	3bn	49	48
Martin Currie Global Portfolio	MNP	263m	46	46
Mid Wynd	MWY	425m	43	51
AVI Global	AGT	908m	40	44
MSCI ACWI index			51

Source: Numis Securities 31/7/23

It’s a comparatively good performance, made all the better by the declines of Baillie Gifford’s former sector leaders Scottish Mortgage (SMT ) and Monks (MNKS ). 

However, it won’t assuage all investors as Alliance has still yet to achieve the target of beating the MSCI index by 2% a year, which WTW’s Craig Baker recently described as tough. Since Baker (pictured top) took charge of the trust’s portfolio in April 2017, net asset value (NAV) had grown by 68.9% at the end of June, just 1.3% ahead of the benchmark’s 67.6%.  

Its outperformance over three years was more impressive though, with NAV up 37.7% against the index’s 32.9%, according to figures from the company.

Alphabet makes up for Apple

A huge underweight to the four companies that led the mega-cap AI really, Tesla, Meta, Apple and chipmaker Nvidia was one of the main detractors to performance in the half year, but big overweights to Alphabet, Microsoft and Amazon, which also benefited, compensated those losses.  

These positions were held across quality growth investor Vulcan, which manages 7.2% of the trust’s assets, long-term growth investor Sands, which is responsible for 4.4%, and US value-style house Lyrical Asset Management, which looks after 5.9%.

Shifting markets meant WTW chief investment officer Baker stayed on his toes, especially as cheaper, value stocks made a comeback in June. Allocations to Vulcan, Sands and Lyrical were all trimmed over the period in line with their performance, with extra cash given to GQG, another quality growth global investor that also runs an emerging markets portfolio for the trust.

Last year’s top stockpicker, GQG slumped as commodity stocks, ExxonMobil and Exelon, and consumer staple Walmart fell. A pivot into technology stocks, Apple and Nvidia, revived its fortunes.

Cash was also made available for the trust’s tenth stockpicker, US-based Japanese value investor Dalton Investments, which last month received 4%, making the country an overweight position.   

Writing in his last interim report before stepping down after nine years, chair Gregor Stewart said that despite the ‘pleasing’ results, there was still a risk of ‘economic disappointment in the months ahead’ as the backdrop deteriorates.

He was also cautious about the hype behind AI, comparing it to the dotcom crash 23 years ago, and noted that it could take several years for the clear winners to emerge.

‘In the meantime, some of today’s front runners may fall by the wayside. So, while we do have exposure to AI, through Microsoft, for example, our stock pickers are playing it company by company rather than as a portfolio theme,’ he said.

Gearing, or borrowing, remains just below the typical 7.5%-12.5% range at 7.2% in June, reflecting caution over the global economy and its impact on stock markets.

Alliance, an AIC ‘dividend hero’ declared two interim dividends of 12.52p per share in the first half and is confident of paying at least 25.2p for the full year, which would be a 5% increase on last year and represent the 56th consecutive year the 2.5% yielder has raised the payout to shareholders.

The board maintained a low average discount to net asset value of 5.9% over the period, versus the sector average of 9.4%, buying back 2% of the shares.  

Investec, the trust’s broker, maintained a ‘buy’ recommendation, impressed by the consistent share buybacks that had kept the share price discount to a low 5.9%, underpinning the resilient medium-term performance under WTW.