Big 12: Alliance Witan open to further acquisitions

Fresh from its mega-merger, Alliance Witan (ALW ) is on the lookout for further acquisitions.

The historic decision by multi-manager rivals Alliance Trust and Witan to combine last year was sparked by the retirement of the latter’s chief executive Andrew Bell and marked the industry’s largest ever investment trust merger.

By December, the enlarged portfolio of global equities had taken pride of place on the FTSE 100 with a market cap of almost £5bn, making it the fourth largest trust on our Big 12 list, when private equity group 3i (III ) is stripped out.

Craig Baker, global chief investment officer at Willis Towers Watson, which took over the enlarged portfolio, expects they will be presented with further consolidation opportunities from here.

‘The board will continue to look at opportunities if it is in the interests of shareholders,’ he said. ‘We have not ruled out [another combination with another trust] but it is not the only way [to grow]. We are sitting here with a large trust that we think is very good value for a multi-manager approach.’

The £4.8bn global equity trust, which takes a fund-of-funds approach, currently trades on a 4.9% discount to net asset value (NAV). It has an ongoing charge of a little under 0.6%.

As wealth managers continue to merge, Baker anticipates they will be hunting for bigger trusts to invest in, something that bodes well for Alliance Witan.

While there is unlikely to be another merger of the size of last year’s deal, Baker said there could be opportunities to consolidate smaller trusts.

‘I definitely think that a lot of small trusts will have to look at whether they need to do something to remain relevant,’ he said.

In Baker’s opinion, Alliance Witan’s multi-manager strategy makes it ‘a lot more scalable’ than a single-strategy trust. When it is appropriate, the trust could potentially add other managers to its roster of strategies, of which there are currently 11 managers running 12 portfolios with a total of 200 stocks.

There are 11 managers as Alliance Trust and Witan already shared two managers at the time of the merger, while one new stock picker Jennison Associates has since been added for the combined trust. Willis Towers Watson already had ties with the asset manager through its business, which Baker said had helped to keep costs down.  

Shareholders in the enlarged Alliance Witan are already benefiting from the improved liquidity that comes with being close to £5bn in size, as well as lower fees and a bigger profile on the FTSE 100.

Light on Magnificent Seven

However, the first results delivered by the combined portfolio proved a little lacklustre, with a net asset value (NAV) return of 13.3% in 2024, falling short of a 19.6% rise by the MSCI All Country World index.

An underweight to Magnificent Seven stocks, where returns have been concentrated over the past year, was largely to blame for the trust falling short of its benchmark.

The trust is the most underweight the Magnificent Seven it has ever been with an allocation of 8% versus close to a quarter of the index – a position it has maintained for the majority of the time Willis Towers Watson has run the portfolio.

The trust has typically been 2-3% underweight but this has widened over the past month, partly due to the soaring share prices of Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia and Tesla, as well as a decision to cut Nvidia exposure in the portfolio.

‘We were overweight Nvidia for a while. We moved to an underweight in the first quarter of 2024 which was painful over the past nine months when it performed well,’ he said.

‘We still have a holding but at 3% it is significantly underweight.’

Apple and Tesla have not made the grade for eight years, with zero exposure in the trust, but one mega-cap that has impressed enough to remain in the portfolio is Amazon.

Six out of the 12 portfolios that make up the trust currently hold Amazon, making it the top holding at 3.9% of the fund.

Baker said that may increase if the managers consider adding to their positions following recent weakness.

Return to fundamentals

The Magnificent Seven has seen a reversal of fortunes over recent weeks as concerns about US president Donald Trump’s trade tariffs, a resurgence in inflation and a potential recession in the world’s biggest economy have all loomed large.

However, Baker does not see these mega-stocks crashing anytime soon, and neither does he want that to happen. He is simply hoping for a broadening out of returns across the market.

‘We want to see fundamentals drive share prices, and we would argue that it has not been fundamentals driving share prices in aggregate for quite some time,’ he said.

He said analysis of the Alliance Witan portfolio breaking down how much of the return comes from fundamentals and how much is from multiple expansion shows the trust is outperforming on fundamentals.

‘Now we need those fundamentals to come through, not for the Magnificent Seven to do badly. The rest of the market needs to catch up,’ he said.

Alliance Witan has delivered a 33% share price gain over the past three years. This compares to a 14.2% share price rise by the average trust in the AIC’s global sector.