Alliance Trust

[Dod101]

Much to my surprise I am buying into Alliance again after selling some time ago when they were going through their turmoil.

I have always had a soft spot for it. Having been born in Dundee it is rather in my DNA and I think there is a reasonable investment case for it at the moment. I do not think the new chairman is in any way from the same mould as Leslie Knox or the Swedish Forseke. He has a reputation for being a tough cookie and I think the new arrangements, although somewhat cumbersome and maybe expensive, may produce the goods. The omens so far are good.

Dod

[Leither]

Much to my surprise I am buying into Alliance again after selling some time ago when they were going through their turmoil.

I have always had a soft spot for it. Having been born in Dundee it is rather in my DNA and I think there is a reasonable investment case for it at the moment. I do not think the new chairman is in any way from the same mould as Leslie Knox or the Swedish Forseke. He has a reputation for being a tough cookie and I think the new arrangements, although somewhat cumbersome and maybe expensive, may produce the goods. The omens so far are good.

Dod

Maybe you saw the good write-up in The Times earlier this week -

https://www.thetimes.co.uk/article/alli ... -6zxf7c2g6

After years of upheaval and boardroom struggles, most investors in Alliance Trust would doubtless welcome a return to its core principles of picking growth stocks and raising its dividend. The £3 billion investment trust has made quite significant progress in its efforts to do just that this year.

Regards,

Leither.

[Dod101]

Sorry Leither missed your post and indeed the article in The Times. It must have been something subliminal. Alliance has been vaguely of interest sine Lord Smith took over as Chairman but I did not have the opportunity to do anything about it until now. Anyway glad the Times has given its support.

Dod

[Leither]

Sorry Leither missed your post and indeed the article in The Times. It must have been something subliminal. Alliance has been vaguely of interest sine Lord Smith took over as Chairman but I did not have the opportunity to do anything about it until now. Anyway glad the Times has given its support.

Dod

Dod, I followed your lead and bought in too. Re Lord Smith, he was for a time President of my institute so I'm placing my face in him too.

Regards,

Leither.

[forlesen]

As a very long term investor, I'm happier with Alliance Trust at the moment than I have been for a very long time, back to before Alan Harden's stint as CEO. He gave us 5 years of lacklustre performance and (if memory serves me right) increased costs between 2003 and 2008. This was followed by 8 years of only slight improvement under Katherine Garrett-Cox. Performance on her watch broadly matched Foreign and Colonial and the FTSE World index, but did not really justify her substantial salary. And there were a string of distractions largely irrelevant to the main trust (trying to get a fund management business off the ground, feuding with Elliot, etc).

I think the trust now has a clearer focus, a more effective discount management policy, and a clearer separation of investment management from running Alliance as a business. Performance so far under the new regime has been solid.

[Leither]

Dod, I followed your lead and bought in too. Re Lord Smith, he was for a time President of my institute so I'm placing my face in him too.

Regards,

Leither.

Err, faith not face obviously.

Leither.

[Dod101]

I have just bought some more this morning and think that that will do me for a while. I aim to get along to the AGM this year and see what they have to say, in this first year of transition. I must say I do not understand why they have now expanded the number of holdings up to about 200, having shrunk the assets by more than 25% in the last year although that is I guess an inevitable consequence of having so many investment teams. It would be interesting to know how Towers Watson is going to monitor them all. At the half year they had 8 investments of less than £1 million which whilst it may be relevant to the particular manager is not going to influence the outcome of the Trust as a whole. Do they really think that having £200,000 in a Turkish industrial company called TAV is going to change the outcome for the Trust, even if it becomes a ten bagger in the next few years?

Dod

[Leither]

I have just bought some more this morning and think that that will do me for a while. I aim to get along to the AGM this year and see what they have to say, in this first year of transition. I must say I do not understand why they have now expanded the number of holdings up to about 200, having shrunk the assets by more than 25% in the last year although that is I guess an inevitable consequence of having so many investment teams. It would be interesting to know how Towers Watson is going to monitor them all. At the half year they had 8 investments of less than £1 million which whilst it may be relevant to the particular manager is not going to influence the outcome of the Trust as a whole. Do they really think that having £200,000 in a Turkish industrial company called TAV is going to change the outcome for the Trust, even if it becomes a ten bagger in the next few years?

Dod

Good point Dod, and a bit concerning.

Regards,

Leither.

[Dod101]

Actually I think I will write to the chairman and ask him! Good test to see his reaction. In the old days (when Lesley Knox was chairman) I would have got a two page letter from her. She was good at that sort of thing even if hopeless as a chairman.

I will report back.

Dod

[forlesen]

I will report back.

Please do. I'd also be interested to hear your report if you make it along to the AGM. I'd like to go myself, but if it's in Dundee as usual, that's a little far for me.

[Dod101]

I will report back.

Please do. I'd also be interested to hear your report if you make it along to the AGM. I'd like to go myself, but if it's in Dundee as usual, that's a little far for me.

I think attendance at AGM's is under rated. I like to go and listen and occasionally ask a question. It is the one time when the chairman has no option but to listen and reply to any question (however silly it may seem). I can also pick up vibes of how things are going. Is this man incompetent or can I trust him with my £50,000 or whatever the value of my shareholding is?

So I will get along to Dundee in May to attend if I can.

Dod

[forlesen]

I think attendance at AGM's is under rated. I like to go and listen and occasionally ask a question. It is the one time when the chairman has no option but to listen and reply to any question (however silly it may seem). I can also pick up vibes of how things are going. Is this man incompetent or can I trust him with my £50,000 or whatever the value of my shareholding is?

I agree. I've been to two Alliance Trust investor forums, which present a similar opportunity, a little nearer at hand than the AGM. At the first, I formed a negative view of Alan Harden, although after ten years or so, I can no longer remember why. At the second, Katherine Garrett-Cox was spinning a somewhat nebulous sustainable investment line, which again left me very underwhelmed. It's fair to say that several attendees made their views on performance, discount, costs etc very clearly heard!

At the same time, in both cases, some of the investment managers spoke excellent good sense, and convinced me to stay on board. It's been a bit of a strange ride, but over the last 10 years, Alliance has somehow managed to produce a pretty similar total return to Global IT alternatives such as Foreign and Colonial, Bankers, Monks, Witan, despite all the distractions and frustrations.

[Dod101]

Allan Harden was one of those 'disrupters' who can sometimes be helpful but he was not. He wanted to be all things to everybody, private equity, directly held property, opening an office in Hong Kong and so on. He and KGC were never Alliance types and should never have been employed.

As I reported on 10 January I wrote to the Chairman, Lord Smith, primarily about the number of very small holdings and indeed the large number of holdings overall compared to the previous managers. Today I have received a reply, sadly, not even under his hand, but from the Company Secretary, who tells me she passed a copy of my letter to the good Lord (despite the fact that it was personally addressed to him). He apparently grandly waived his imperious hand (or something) and asked her to reply which she has now done.

Black mark against the Chairman as I will have no hesitation in advising him at the AGM.

Naturally she has not really given me very much info that I could not have gleaned from the website. She does though write about 'high conviction' portfolios. Not very high conviction with 190 individual holdings v 60 when ATI was running a much bigger portfolio. They have 13 holdings of less than £1 million each and another 24 or so between £1/2 million. My point is that even if they had the odd ten bagger there it would not make a huge difference to the overall outcome so why bother? Her answer is that these holdings are mostly in emerging markets and the manager GQG sees these as ' meaningful' in terms of their portfolio (about 10% of the total) My response would be yes but so what? So we now have not one but 8 portfolios, run pretty well independently of each other. Pardon? Obviously I need to understand a bit more and will try to do that over the next few months.

Anyway I am being invited to attend the AGM where there will be a presentation by the overall manager Willis Towers Watson who will be happy to answer any questions. Typical response all round but not good enough and I will do a bit of stirring up then if I can manage to be there.

Dod

[schober]

Looks to me that IUSA would have been a better investment (ignoring the divi)!
https://tinyurl.com/ycmjokca

Perhaps someone might like to ask at the agm why this is the case and what strategies do they have to improve things? (I dont hold)

[scrumpyjack]

I'm also concerned that the share price is being supported by share buybacks at a level that cannot go on for ever.

[forlesen]

I'm also concerned that the share price is being supported by share buybacks at a level that cannot go on for ever.

Out of interest, I took a look through the last year's RNS notices to see how the buybacks have been progressing. I focussed on the remaining numbers of shares around the end of each month.

Since the mega buybacks of last March, when the size of the trust dropped by almost 25% in a single month (presumably paying off Elliot Associates), three distinct phases are discernable:

• From April 2017 - July 2017, around 3 million shares were repurchased each month (out of a remaining total of ~360 million), a total of about 3.5% of the shares at the start of this phase.
• From August 2017 to November 2017, the repurchase rate fell to around 1 million a month, a total of about 1% of the shares at the start of this second phase.
• Since December 2017, repurchases have become quite infrequent (none in January), with only 619,000 shares repurchased in this period, about 0.2% of the remaining shares.

Despite the sharply falling rate of buybacks, the discount has remained steady around 5-6% over the last 6 months or so. In short, it looks like ATST has managed a soft landing in terms of bringing the discount under control. And of course, share price and NAV have risen by around 10% since April 2017, so the trust is actually larger now than when the mega buybacks of last March ended.

So in summary, although it has been a dramatic period in the trust's history, I'm hopeful that going forwards, the board may be able to keep the discount under control without the trust gradually boiling away to nothing.

[tjh290633]

Yesterday they bought back 100,000 for cancellation.

TJH

[Dod101]

Well they are benchmarking the MSCI so that comes as near a world tracker I suppose as you are going to get. I am entirely unconvinced by their latest wheeze but of course at the coming AGM they will say that it is much too early to judge us, and it is so anyone buying (like me) is doing it as an act of faith or curiosity.

As for buybacks, I am totally relaxed about that. Many trusts now have some sort of discount control mechanism and Alliance's buyback programme is settling down. If there are too many shares in the market then remove them. It benefits ongoing holders to some extent if they are bought at under NAV and seems to me to be a good use of their money. Of course it would be better if they were issuing new shares because of the demand but it is very early days for Alliance's new approach.

Dod

[Dod101]

To indulge in a bit of nostalgia. I first bought Alliance and Second Alliance in 1991. In those days if you attended the AGMs (as I did) you were welcomed as a new face, and would be one of about a couple of dozen shareholders. After the business was over we were all served a glass of sherry and treated to a very informal chat with the directors including in these days with one Mr Thomson of the DC Thomson publishers clan.

They had their inhouse investment manager, a gentleman of indeterminate years (at one time this was George Stout, father of Bruce Stout of Murray International fame) It was entirely Scottish at that time and none the worse for that but after Gavin Sugget and his Chairman, Bruce Johnston, retired in the same year, it went to pieces with the awful Allan Harden as CEO and Lesley Knox as Chairman. It lost its ethos at that time and just went from bad to worse. I eventually got fed up and sold, but am curious to see what is going on now and so bought in again. The current chairman has a good name in Scottish business circles so I will be very interested to see how he performs, but the current arrangements do seem to me to be a far too top heavy structure. It is very early days though.

Dod

[Dod101]

I have just written an opus but it has disappeared into the ether which is more than a little annoying.

Anyway I have just returned from the AGM of Alliance and I think Fred is wrong. I approached the meeting in a very sceptical mood but have returned really quite happy with my investment. Willis Towers Watson are the overall investment managers and they gave a good presentation of what they are trying to achieve and how they go about it. They give each of 8 hand picked managers from around the world a mandate to invest in up to 20 of their best share ideas and then monitor the overall portfolio to try to ensure that it blends well. They say small individual and concentrated portfolios mean that they are seeking stockpickers and of course each is likely to be quite volatile but academic research shows that concentrated portfolios consistently show better returns over a longish period than more diversified ones. They say they get the diversity (or risk reduction) in the blending of the styles of different managers rather than the usual portfolio which has best picks and then a slew of other shares to try to reduce risk.

A characteristic of all the individual portfolios is that there are few megacaps but many shares in the smaller to medium range. WTW say that they have been running other portfolios using this method for some years with excellent results and in fact although it is very early days, for the first full year of this approach to 31 March, the TR is just over 19%.

After the formal business of the meeting, there were presentations by Bill Canko of Black Creek, Toronto and Andy Headley of Veritas Asset Management London. Both are stock pickers and have no concern about geographical location or sector except I think Headley said that they do not want more than 30% of their portfolio in any one sector. Bill Canko said he sees this as a momentum market with massive out performance of tech stocks, with shades of 1999/2000. If the other six managers are similar to these two we should be OK.

I will certainly follow this IT in the years to come.

Dod