The biggest deterrent to investing in a multi-manager fund is obviously the price – the double layer of fees will automatically put off more experienced investors, wary that the negative impact of higher charges will compound over time to the detriment of their long-term returns.
However, by taking the 20 best ideas of quality managers rather than investing directly into their funds, Alliance Trust, run by Willis Towers Watson, is the seventh cheapest of the 21 vehicles in the IT Global sector.
Alliance Trust has eight managers, five of whom are unavailable to UK retail investors. David Shapiro, portfolio manager of Willis Towers Watson, said that while all the managers in the portfolio are bottom-up fundamental stockpickers, their different styles and best ideas-only focus mean there is little crossover.
“We are getting the benefit of a high-conviction approach, but we are also getting the benefit of having these different styles within the portfolio,” he explained.
“Someone like Hugh Sergeant using his value and timing process has no overlap with Andy Headley who is quality-first and about long-term capital preservation.”
As a result, while there are 185 stocks in the portfolio, only 15 of these are owned by more than one manager. Only one stock is held by more than two – Chinese internet services company Baidu, which is owned by three.
Willis Towers Watson took over the mandate for Alliance Trust in April 2017 following pressure from shareholders, notably Elliott Advisors, for a reshuffle at the board and management level. Although Willis Towers Watson has only applied its strategy at Alliance Trust for little over a year, it runs the same strategy for a charitable foundation, which has outperformed the MSCI All Country World index by an average of 3.8 percentage points per annum in the five years to the start of 2018. It has also run the same strategy in the Towers Watson Global Equity Focus fund for a shorter period of time.
Shapiro said the benefits of the blended approach can be seen in the performance of these funds during recent market volatility.
“In the past three years, we have been through Brexit, the election of Donald Trump and his proposed trade tariffs,” he continued.
“In the three of these periods where you have seen disruption from macro events, the individual portfolios have been quite volatile. If you picked a single one of those you might be worried from month to month what is going on in that portfolio – it doesn’t worry us as we are used to monitoring these concentrated portfolios, but for clients it is much easier to discuss the lack of correlation between these individual strategies.
“So we are getting the added value, but we are getting it in a much smoother manner.”
Despite all the upheaval, one thing that has remained constant for Alliance Trust is its dividend growth – the vehicle holds the joint record for increasing its payout to investors for the highest number of consecutive years, at 51 – a record it holds with Bankers Investment Trust and City of London.
However, the managers do not run their strategies with a dividend target. Shapiro said this is because Alliance Trust wanted to get back into a “trusted relationship” of delivering not just good income but good total returns and said the key to this is focusing more on income growth than a high yield.
This has allowed the managers to increase their allocations to the US, where there is less of a focus on dividends. However, Shapiro said this will not have a detrimental impact on Alliance Trust’s ‘Dividend Hero’ status.
“We have £111m of reserves, which would be enough to pay the dividend if there was no income off the whole portfolio for 2.5 years,” he explained.
“But if we wanted to use £9m of reserves for a year, we could do that for 11 or 12 years, and grow the dividend at the same time, and that would give us a window for either the income growth to come off the portfolio, or for us to substitute in managers that pay a higher yield.
“We have this window to play around with and we are not shy of asking the board to do the right thing with that window. At the moment, while the cover is tight, we think that if we pushed managers to increase their income, it would decrease the total returns and we don’t think that is a trade-off worth doing while we have these income reserves.”
“We are basically convinced that this should always be the right answer for total return,” he finished.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
Data from FE Analytics shows Alliance Trust has made 214.82 per cent over the past decade compared with 179.57 per cent from the IT Global sector and 170.05 per cent from its MSCI AC World benchmark.
Alliance Trust is on a discount of 5.81 per cent compared with 5.7 and 7.99 per cent from its one- and three-year averages. It is 5 per cent geared and has ongoing charges of 0.54 per cent.