Peters, an investment trust analyst, points out that the trust has underperformed for some time now, and rates other management teams far more highly.
When asked if he thought the Alliance Trust had put its disappointing run between 2009 and 2012 behind it, he replied: "Recent underperformance? The trust has been underperforming for a long time now. It hasn’t added any value to a relevant index for a long period."
Performance of trust vs index and sector over 10yrs
Source: FE Analytics
"When thinking about whether I would buy an investment trust, I think of three things – whether or not it’s better than I can find in the open-ended universe; whether it turns a perfectly liquid asset class into something that is illiquid; and whether I would create a trust today from scratch that resembled it. The answer to the first is no, the second is possibly yes, and the third is no."
"On a net asset value (NAV) basis, it’s been a median underperformer for many years now." His comments come in light of claims by Numis’s Charles Cade (pictured), who believes that the Alliance Trust is a good value opportunity given that it is trading on a discount of around 13 per cent and performance has been "solid" in recent months.
"The trust is currently trading at a discount of 12.8 per cent, which offers value in relation to the Global Growth peer group average of 7.9 per cent," Cade said.
"The trust is no longer a perennial underperformer. Performance has been a lot more solid and the changes they’ve made and what they’re trying to achieve are much clearer to understand."
Performance of trust vs index and sector over 3yrs
Source: FE Analytics
"With the discount where it is, it is likely to come in even with reasonable performance," he added.
However, Peters rejects the idea that it is a good value play.
"A value opportunity? No," he said. "You buy a trust on a discount because you think you’re getting a good manager at a good price, and I don’t think that’s the case."
"Besides, it’s been on a bit of a discount for many years. Over the past 25 years, the tightest discount it’s been on was 5 per cent in 1994 and 6 per cent in 2003, at a time when there was a lot of merger activity."
"The average discount over the past 25 years is 13 per cent, which is higher than it is now."
"I personally prefer to back something based on expectation rather than hope. I have no expectation that the trust’s discount will come in considerably unless it adopts a zero-discount policy, and I don’t think this is likely."
"It’s a very competitive market and I think it’s struggling compared with the likes of Newton, Veritas and M&G, which are well established and very successful," he added.
Cade rejects Peters’ view regarding average discounts, saying: "I don’t think you can draw a lot from average discounts over that kind of period."
"Some global growth trusts were on a huge discount a few years ago, but they’ve all come in because the rate of buyers has changed. The fact is that it’s on a wide discount relative to its peers and recent history."
AIC data shows that the Alliance Trust’s average discount over one year is just over 14 per cent, while its three-year average is 15.7 per cent. Its widest discount over the last year has been 16.8 per cent, while its narrowest has been 11.23 per cent.
A spokesperson representing Alliance Trust points out that the trust’s performance has improved since Katherine Garrett-Cox was appointed chief executive in August 2008.
"The changes have been far reaching, from the number of holdings falling from around 260 to less than 100, and the business being transformed into more of a pure global equity portfolio," the spokesperson said.
"Management has sold down a lot of its holdings in the property and private equity sectors, which only make up a fraction of assets now."
"The team has a new philosophy made up of three core principles: global equity, sustainable and responsible investment, and fixed interest. This trust is all about a combination of capital protection and wealth creation, which comes from a constant combination of income and growth."
"The trust was previously charged with concentrating only on the UK, but it’s now moved a lot into the US, emerging markets and Asia."
North American equities make up 45 per cent of assets, compared with the UK’s 22 per cent.
The spokesperson points out that Alliance Trust, which is currently yielding 2 per cent, is ahead of the FTSE All Share and IT Global Growth sector average over one, three and five years.
Performance of trust vs sector and indices
| Name | 1yr returns (%) |
3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| MSCI World in GB | 27.63 | 36.29 | 43.7 | 80.03 |
| Alliance Trust - Alliance Trust | 26.96 | 40.3 | 43.64 | 68.52 |
| IT Global Growth | 23.24 | 31.02 | 34.98 | 127.3 |
| FTSE All Share | 22.75 | 27.85 | 28.35 | 72.22 |
Source: FE Analytics
The Alliance trust does not have an official benchmark, but draws on the MSCI World as a means of comparison. It has fallen marginally short of it over one- and five-year periods in share price terms, but is ahead over three.
The spokesperson also highlighted the trust’s strong income record – it is set to grow its dividend for the 47th consecutive year.
Peters says he rates the fixed interest manager at the firm very highly, but points out that bonds only make up a fraction of the portfolio, at 8.4 per cent.
"I met with the manager of the equity portion of the portfolio, Ilario Di Bon, who uses a global thematic style. I think the approach is OK, but in a competitive environment it’s difficult to compare it to something like Newton."
"I like their fixed interest team, but that’s not the core focus of the trust. It’s used to prop up the yield, but doesn’t have a meaningful weighting."
The Alliance Trust has ongoing charges of 0.68 per cent.
