Fear of an artificial intelligence (AI) bubble, an underweight position in banks such as JP Morgan and Goldman Sachs and a holding in struggling drinks giant Diageo cost Alliance Witan (ALW) dearly in 2025 as it underperformed the MSCI All Country World index for a second year in a row.

The £4.8bn multi-manager trust, which invests in global stocks through a panel of 11 external fund managers, made an underlying total return of 4.7% last year, although shareholders received 5.4% as the shares narrowed their gap to net asset value (NAV) from 4.7% to 4.1%.

These trailed the MSCI World which advanced 13.9% on the back of a small number of “mega-cap” US technology stocks.

Acknowledging that performance was “significantly behind” the benchmark, chair Dean Buckley pointed out that the underlying growth in NAV over three and five years of 44% and 59% beat the average 37% and 36% gains for trusts in its AIC Global sector.

Craig Baker, Stuart Gray and Mark Davis at Willis Towers Watson, who pick and oversee the external fund managers, said they were convinced AI would result in profound change for businesses, but were wary of the raw material stocks and risky start-ups that had shot up last year.

“For example, Palantir Technologies, which started out in 2008 as a defence contractor but now emphasises AI technology, has only ever had one full year of profitability. Yet its share price more than doubled last year. The company may well be the ‘next big thing’, warranting the share price surge, but as the FT recently pointed out, its anticipated growth is ‘the stuff of dreams’,” they said.

The underweight to AI was largely the result of fund manager GQG moving out of many expensive tech stocks into more defensive businesses. Its performance suffered a sharp reversal as the AI boom continued, though the WTW team noted that its bearish stance gained more supporters by the end of the year.

Japan specialist Dalton added the most value of the investment managers as it benefited from a very strong year in the Japanese stock market and its activist campaign against Fuji Media saw the broadcaster’s shares more than double.

Diageo was the single biggest detractor to returns as the Guinness to spirts group fell by more than 30%, shaken by tariffs and weak consumer demand. The WTW team said stock pickers Veritas and Metropolis believed the sell-off was overdone and the recent decision of new chief executive Dave Lewis to halve the dividend was positive, enabling it to increase investment.

On its own dividend, Alliance Witan, the product of a merger two years ago between Alliance Trust and Witan, achieved its 59^th year of rising pay-outs. In January it declared a fourth interim dividend of 7.08p per share, bringing the total for the year to 28.32p, up 6.1% on 2024.  

Looking ahead the WTW trio said war in the Middle East made the outlook uncertain but believed that if it was short lived it was “unlikely to threaten the relatively benign economic backdrop”. Meanwhile, they were confident their high conviction but diversified approach to stock picking would outperform the MSCI index in the long run.

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