While returns were negative in 2022, Alliance Trust did beat its benchmark (MSCI All Countries World Index) over the course of the year, returning -7.1% in NAV terms as compared to -8.1% for the index. Shareholders did even better as the discount narrowed, the return to shareholders was -5.8%. The trust also points out that it did a lot better than its competitors, where the average return to shareholders was -23.2%.
The dividend of 24.0p was 26% higher than the dividend for 2021 (reflecting the new dividend policy), maintaining its position towards the top end of the AIC’s dividend heroes league table, with a 56-year track record of increasing dividends year-on-year.
Despite this reporting year’s good numbers, Alliance Trust did not match the objective that the board set for it at the time of the strategy change in April 2017. Naturally, that prompted some soul-searching. The chairman says that “the main findings of the review reinforced the board’s judgement that the investment strategy is sound, and the board continues to endorse Willis Towers Watson’s investment approach.” [Craig Baker from Willis Towers Watson (WTW) will be on our weekly show on 28 April and if you have any questions about the investment strategy, he’ll be available to answer them then.]
The manager’s statement notes that part of the reason for the trust’s NAV outperformance was a reduction in the fair value of its debt (as interest rates increased). Nevertheless, the trust’s portfolio did beat the benchmark.
Here are some extracts from the manager’s statement
Whereas in previous years, our diversified stance had held back performance versus the market and many growth-style peers, due to the concentration of returns in a handful of expensive US growth stocks, in 2022 it enabled us to avoid the worst of the tech rout and, at the same time, benefit from the recovery in energy stocks. Not owning Tesla and Apple boosted relative returns versus the index, and although we continue to own some other fallen growth stars such as Amazon, salesforce.com and Alphabet, the relative modesty of our exposures helped to contain the damage. The oil companies ExxonMobil in the US (held by GQG Partners ‘GQG’), BP in the UK (held by Jupiter Asset Management ‘Jupiter’) and Petrol Brasileiro (‘Petrobras’) in Brazil (held by GQG) were among the biggest contributors to relative returns. Our Stock Pickers also found winners in defence, where BAE Systems (held by Veritas Asset Management ‘Veritas’) and Booz Allen Hamilton (held by Black Creek Investment Management ‘Black Creek’) benefitted from rising demand due to increased government spending. Our positions in healthcare and financials, with US-based UnitedHealth Group (held by GQG and Veritas), and Indian bank HDFC (held by GQG) also boosted returns.
In terms of the Stock Pickers, GQG contributed most to the portfolio’s outperformance, having correctly timed its exit from many overpriced tech stocks in 2021 and increased its exposure to cheaper energy companies. Jupiter and Black Creek, which both have a bias towards value stocks, also did well, while the Stock Pickers with a growth-style bias, such as Sands Capital (‘Sands’) and Sustainable Growth Advisors (‘SGA’), which had performed well in prior years during the growth boom, were hit by the deratings of many of the stocks that they owned. We retain high conviction in the skill of both Sands and SGA to add value to the portfolio in the longer term, even though many of the stocks that they own may have been out of favour during 2022.
The portfolio’s positioning at the end of the year remained broadly neutral versus the benchmark across countries, sectors, and styles. Even so, the portfolio was marginally overweight in the UK and in industrials where some of our Stock Pickers see opportunities from investment in new capacity. The portfolio was also underweight in the US. These overweight and underweight sector/country positions were the byproducts of bottom-up stock selection versus top-down allocations and were well within our risk tolerance. Despite top-down similarities, the portfolio was vastly different to the index in terms of stocks, with an Active Share of 79%, ensuring stock selection drives relative returns.
ATST : Alliance Trust beats benchmark over volatile 2022