Alliance Trust (ATST) has announced its annual results for the year ended 31 December 2021. During the period, ATST provided an NAV total return of 18.6% and a share price total return of 16.5%. In comparison, its benchmark returned 19.6%. ATST says that its performance in the year was significantly ahead of its benchmark until the fourth quarter of 2021, when the index became dominated by the performance of a few of the largest US technology companies. A significant increase in dividends was introduced for the third and fourth interim dividends resulting in a year-on-year total increase of 32.5%. To provide some context, if the first and second interim dividends had been at the higher level, this would have resulted in an annual dividend yield of 2.3%. ATST’s board says that it expects to continue extending the trust’s 55-year track record of increasing dividends.
Stock performance
ATST’s manager says that the main reason for the underperformance was that ATST held more mid and small-cap stocks and fewer large-cap stocks than the index. Based on company size alone, ATST’s size positioning cost it approximately 3% in performance terms. This was partially offset by good stock selection which improved performance by approximately 0.8%. This negative effect of the size allocation impacted ATST’s stock selection and allocation across the regional and sector level attributions.
ATST’s overweight in Communication Services, which tends to have fewer large-cap companies in it and which did less well than the index, detracted some value leading to a negative sector allocation effect. This overweight is a result of ATST’s Stock Pickers’ company selections as opposed to a macro view on the sector overall. In addition, stock selection was negative as the smaller and mid-cap companies ATST held in each sector did less well than their larger cap peers.
ATST benefited from being underweight in Asia and the Emerging Markets, although this benefit was outweighed by the choice of stocks which reduced performance by 2.8%. This negative stock selection impact was largest in the US, with ATST underweight to US large-caps significantly penalising the portfolio.
Key contributors to performance
- Stock selection within the Communication Services sector was positive. ATST’s holdings in Alphabet and Interpublic Group of Companies added value, as did being underweight Tencent and Verizon Communications Inc.
- Stock selection within the Health Care sector with a number of ATST’s holdings performing strongly such as CVS Health Corporation, UnitedHealth Group and Novo Nordisk
- ATST’s underweight in Emerging Markets, which was the worst performing region over the period
Key detractors from performance
- Certain emerging markets stocks, particularly, Chinese stocks, with ATST’s holdings in Baidu and New Oriental Education alone detracting -0.9%
- In the US, ATST did not hold Apple and Tesla which detracted -0.7% and some US stocks that were held such as Charter Communications, Fleetcor Technologies and Visa, lagged the market
- Some stocks held within the Information Technology and Consumer Discretionary sectors together with negative allocation impacts from ATST’s slight overweight in Communication Services (one of the worse performing sectors) also impacted performance
Comments from Gregor Stewart, Chairman of Alliance Trust
“The Company has delivered a strong absolute performance with a Total Shareholder Return of 16.5%. Against the backdrop of new Covid-19 variants, increasing inflation and a few large technology companies dominating returns, this was a robust result although behind our benchmark. A significant increase in dividends was introduced for the third and fourth interim dividends resulting in a year-on-year total increase of 32.5%. Had we applied the same increased level of interim dividend throughout 2021, this would have resulted in an annual dividend yield of 2.3%.2 From here, we expect to continue extending our 55-year track record of annual dividend increases.”