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Alternative investment trusts to Alliance Trust

05 May 2015

Analysts at Winterflood Securities and Cantor Fitzgerald reveal their recommendations for those wishing to swap global exposure from the troubled Alliance Trust to something else in the sector.

By Daniel Lanyon,

Reporter, FE Trustnet

Rothschild Investment Trust, Scottish Mortgage and Law Debenture are among the global investment trusts that investors should consider when looking to sell out of the beleaguered Alliance Trust, according to Cantor Fitzgerald’s Charles Tan and Winterflood’s Kieran Drake.

The £2.8bn Alliance Trust has gone through a testing period of underperformance over the past few years and has more recently attracted the gaze of activist US hedge fund Elliott Advisers, which has previous form in scooping up distressed assets and leveraging its ownership to turn fortunes around.

Owning about 12 per cent of the trust, it argued for two new directors to be put on its board while agreeing to “not call a general meeting or seek to agitate against the company, its board or management publicly until after the company's 2016 AGM at the earliest”.

For those who don’t want to wait to see if the titan of the IT world can reverse its fortunes, we have put together five alternatives with the help of analysts at Cantor Fitzgerald and Winterflood Securities.

 

Rothschild Investment Trust (RIT)

First up the Winterflood team tips this £2.4bn vehicle, which was set up to manage the wealth of part of the Rothschild family, with Lord Jacob Rothschild as its chairman. For those not wanting to completely lose exposure, this trust also owns a small stake of Alliance Trust.

However, it focuses more on capital preservation than other IT Global trusts with less correlation to its MSCI World index and owns a wide range of securities and currencies.

Performance has been shaky for a few years but more recently it has started to shoot up. Manager Ron Tabbouche has been at the helm since 2012 with his multiple strategies only just starting to pay off, Drake says.

“We like the manager’s ‘six cylinder’ approach. Part of the portfolio is individual stocks where they have high conviction, part of it is theme driven which has included China, they also look at currencies and external managers and some private investments,” he said.

“The last ‘cylinder’ is downside protection – they have some allocation to absolute return and credit. Overall it is a top-down approach combined with the access they have to other managers.”

According to FE Analytics, RIT is up 48.49 per cent over three years, meaning it is – just – still behind the index but is ahead of the IT Global sector average.

Performance of trust, sector and index over 3yrs

Source: FE Analytics

The trust has an ongoing charges figure (OCF) of 1.25 per cent and a performance fee. It is 16 per cent geared and has a current discount of 1 per cent.

 


 

Scottish Mortgage


Next, Drake believes this £3.3bn growth-focused portfolio is a contrasting but good way to gain global exposure.

Managed by James Anderson since 2000 with Tom Slater joining in 2009, it plays two diverse themes: the rise of China and disruptive technology particularly connected to demographic trends.

Top holdings include some of the leading names in tech and biotech such as Illumina, Google, Facebook, Amazon and Baidu.

Over the long term the trust has been a top performer making 396.01 per cent since 2000, vastly more than the sector and index.


Performance of trust, sector and index over 3yrs

Source: FE Analytics


“It is high conviction portfolio with the top 10 roughly making about half of the total assets. There is a definite focus on growth with the managers very much having their own view of the world. They select stocks based on that view,” Drake said

The trust has an OCF of 0.5 per cent and is 12 per cent geared. It is on a current premium of 0.7 per cent.

 

Edinburgh Worldwide

The £231m Edinburgh Worldwide trust is the third pick from Winterflood. Like Scottish Mortgage it is managed by Baillie Gifford.

It had a torrid 2014 after a change of direction in its mandate and a new management team headed by FE Alpha Manager Douglas Brodie with John MacDougall as his deputy was brought in, but Drake believes the greater focus on smaller companies with a market cap of less than $5bn should make an interesting longer term play.

“It is basically identifying the large-cap companies of tomorrow, looking for growth companies and also for disruptive companies although its overlap with Scottish Mortgage is small,” he said

It has a clean OCF of 0.92 per cent. It is 9 per cent geared.




Law Debenture

Charles Tan, analyst at Cantor Fitzgerald, also likes a smaller companies focused trust and picks Law Debenture, headed up by FE Alpha Manager James Henderson.

“He is a manager that retail investors should know about. The premium has fallen quite considerably recently having historically been up to double digits,” Tan said

“Performance has been disappointing recently but if you look at the long-term track record, he has done some amazing things for shareholders on a 5 to 10-year view.”

The £600m trust has been managed by Henderson since 2003, over which time he has returned 305.61 per cent compared to an IT Global sector average of 247.35 per cent. He has also beaten the FTSE All Share benchmark index by more than 180 percentage points.


Performance of trust, sector and index since 2003

Source: FE Analytics


Manufacturing and aerospace continue to be a dominant theme in the trust with two largest holdings Senior and GKN.

It has an OCF of 0.46 per cent and is 6 per cent geared. It is sitting on a premium of 2 per cent.

 

Witan

Last up Tan backs the £1.6bn Witan investment trust, which despite a global mandate has a high weighting to the UK but normally in names with a high percentage of earnings from overseas such as Diageo and Unilever.

Witan has been managed by Andrew Bell since 2010 and he changed the strategy to a multi-manager approach. Since its shift it has returned 91.2 per cent, 30 percentage points more than the sector average and almost as much more than the index.



Performance of fund, sector and index since April 2010

Source: FE Analytics


“Bell came in and said he wasn’t a fantastic stock picker so he was going to pick the best fund managers and decide on asset allocation. However he keeps 10 per cent of the portfolio for stocks to try to add a bit of value. The strategy has worked well, particularly in contrast to Alliance Trust,” Tan said.

The trust has an OCF of 0.8 per cent and a performance fee. It is 10 per cent geared and trades on a discount of 0.8 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.