Alliance Trust Annual Report

[Dod101]

I have a relatively small holding in this Trust, more to take a close watch on their new management style than anything else.

I am highly amused that they describe their investment style as High Conviction Stockpicking with lower volatility. The set up is that Willis Towers Watson is the investment manager and they appoint eight managers who in turn pick a small portfolio of their best picks. WTW watch over the whole to ensure balance. Strangely the OCR is not bad at 0.65%.

The result is no fewer than 197 holdings at 31 December 2018, with the largest holding at 2.1% and the smallest £200,000, this in a portfolio worth nearly £2.6 billion! Diversified or what?

Then the overall manager tells us that there has been a 60% portfolio turnover in the year and that they are 'in continuous conversation with each of our (eight) managers'. Poor managers, but the WTW I suppose need to justify their fee.

If it is high conviction, how come they have so many holdings and a 60% turnover? Easily seen that the chairman has never been involved in ITs before. I suspect he is being led by the nose by WTW. It is too early to judge how well this arrangement is doing but so far not that good.

Dod

[Raptor]

Just so you can read the report. Here is a link

Raptor.

[MaraMan]

Thanks Dod and Raptor. Stupid question probably but does the OCR quoted on Fund of Funds type ITs include the original OCR on the individual fund, or is it just the WTW charge? I imagine WTW can charge lowish OCR as they aren't paying so much to a star fund manager.

I am no great fan of WTW and their comments in the report lead me to concur with Dod's view that they don't know what they are talking about, at least the people who write the report don't. In fact I am surprised they can get away with such mischaracterisations that could potentially mislead unwary investors.

MM

[Dod101]

As I read it the OCR quoted in the Annual Report is the overall charges, that is WTW's and the individual underlying managers' fees. I might have mentioned this also, that there is as far as I can see, no details spelled out of the breakdown of the 0.65%.

Dod

[MaraMan]

Thanks Dod, I am sure you are right. I just have a suspicious mind.
MM

[richfool]

There seems to be a lot of presumably highly paid advisors there, each advising on a small number of holdings, - several layers of costly administration. It all sounds rather costly to me. Noted that the KID refers to 0.01% transaction fees, plus 0.88% other ongoing costs, which sounds fairly modest.

[xeny]

Perhaps they achieve economies when one of the sub managers wants to buy an asset that one of the other sub managers is planning to sell, avoiding generating an actual trade?

[scotia]

Perhaps they achieve economies when one of the sub managers wants to buy an asset that one of the other sub managers is planning to sell, avoiding generating an actual trade?

I assume you meant to add a smiley.
Well - anyway I'll add one

[Lootman]

There seems to be a lot of presumably highly paid advisors there, each advising on a small number of holdings, - several layers of costly administration. It all sounds rather costly to me.

The model itself can be run very cheaply and efficiently. For instance Vanguard US uses this model for a number of their most popular active funds. They negotiate management contracts with groups like Wellington and, because of the size of the assets under management, are able to negotiate institutional fee structures, which are much lower than retail fee structures. Moreover Vanguard funds are run at cost - the funds actually own the management company.

That's not the case so much for Alliance and it seems it is doing well to keep its expense ratio below 1% a year, which is a lot for a fund with so many holdings that it's probably going to perform a lot like an index fund, but with higher expenses. A decade or two ago I recall that ATST had an expense ratio a little under 0.2%.

[Dod101]

I attended the AGM of Alliance in Dundee today (25 April) I came away quite impressed unlike my reaction to the Annual Report. There was a very good attendance which has become the norm for this Trust (I would say there must have been 150/200 there).

I asked about the number of holdings and the other concerns I raised in my comments above. They have 8 managers each investing in about 20 shares. They are picking their best shares from around the world and these managers are not accessible otherwise to retail investors. The portfolio turnover at 60% was because of the volatility in the last quarter of 2018 when they were not afraid to trade. They have sold most of their non core investments now and the ATS sale should complete in June. They have beaten their benchmark for the two years since their new strategy took effect(1 April 2017 to 31 March 2019) They are now about 50% invested in the US market and there are not many megacaps they say. I was impressed and am very happy to hold them now.

They had two of their investment managers present, Andrew Wellington from Lyrical, a value investor and Gordon Marchand from SGA, a growth investor. They are both American and wee very impressive I thought.

Re the sale of ATS the CEO of II was present and told me that if as expected the sale completes in June they should in August transfer the ATS account over to II by August. They will then retire the ATS system. I will not mind that because the ATS system is clunky and I find the II platform much better.

The culture is good now; it was toxic during the tenure of Katherine Garret Cox, all traces of whom have now been removed.

Dod

[Dod101]

Before I retire for the night, I should say that my view on their culture is reinforced by the fact that the Chairman and his Deputy have volunteered a reduction in their Annual Fees of 33% and 25% respectively in view of the fact that the workload will be considerably less once the non core assets are sold. That seems very fair to me.

Dod

[ADrunkenMarcus]

Re the sale of ATS the CEO of II was present and told me that if as expected the sale completes in June they should in August transfer the ATS account over to II by August. They will then retire the ATS system. I will not mind that because the ATS system is clunky and I find the II platform much better.

Thanks for your report.

My SIPP is with ATS. How does the II platform compare generally - what do you find better? Is it well laid out? (I realise this thread is about the trust itself so sorry for the quick query.)

Best wishes

Mark.

[Dod101]

I think the II platform is faster and nearly everything can be done online, but this is off topic I guess. Others may have different views.

Dod

[Luniversal]

Thanks, Dod. I appreciate these field reports from places I could not get to.

Not an ATST holder, but have been an Alliance Trust Savings customer for years, with ISA and dealing accounts. 'Clunky' its site may be, but never had any problems. Dreading the 'migration' if only because these exercises always seem to result in impasses. But I gather the flat-fee charging principle will be honoured by the acquirer. Being somewhat flusher than the average investor , that suits me.

One oddity with ATS was that because I had not topped up my ISA with them since c. 2015, I was told I would have to open a brand-new one with all the attendant formalities. So last tax year's sub went to Selftrade, but is this the rule everywhere?

[tjh290633]

If you do not subscribe in a tax year and wish to resume subscribing later, then you have to make a fresh declaration. My ISA with a Halifax clone says "Subscriptions currently suspended" for just that reason. You don't have to open a new account, unless your account moves to a new ISA manager. I would have thought that would be part of the transfer.


TJH

[Dod101]

Posters on the RIT thread complain of having to invest at a premium so Alliance might be for them. It is currently at a discount of around 5%. That is actually the lowest discount for a long while. There is a very positive article by Merryn Somerset Webb in today's FT for those with access.

I agree with it of course, particularly after my attendance at the AGM on Thursday. She was there as well apparently. I think I forgot to say that the managers Willis Towers Watson claim that their strategy outperforms their benchmark by around 2% per annum. I am certainly happy with my investment and so I think would any Doris.

Dod

[Luniversal]

If you do not subscribe in a tax year and wish to resume subscribing later, then you have to make a fresh declaration. My ISA with a Halifax clone says "Subscriptions currently suspended" for just that reason. You don't have to open a new account, unless your account moves to a new ISA manager. I would have thought that would be part of the transfer.


TJH

Thank you, Terry.

[yorkshirelad1]

I attended the AGM of Alliance in Dundee today (25 April) I came away quite impressed unlike my reaction to the Annual Report. There was a very good attendance which has become the norm for this Trust (I would say there must have been 150/200 there).

[snip]

The culture is good now; it was toxic during the tenure of Katherine Garret Cox, all traces of whom have now been removed.

Dod

There was a complimentary article in Saturday's (27 April 2019) FT Money section from Merryn Somerset Webb on Alliance Trust (she was at the AGM). You may find the article at (if not stumbling on the FT's paywall, and url goes via Google:
https://tinyurl.com/yxn95kcc

or alternatively
http://www.google.com/search?q="alliance+trust"&as_sitesearch=ft.com
and the article is entitled "Alliance Trust’s reinvention is a lesson to others"

[Dod101]

yorkshirelad1

See my post no 217771 of 27 April, covering the same item but the links may be useful to some.

Dod

[yorkshirelad1]

yorkshirelad1

See my post no 217771 of 27 April, covering the same item but the links may be useful to some.

Dod

Mea culpa, Dod, & apologies. Didn't mean to replicate what you had already posted.