Fund profile

“a core equity holding for investors that delivers a real return over the long term”

alliancewitan.com

Alliance Witan Trust (ALW) aims to be a core investment for retail investors, professionally advised private clients and institutions, delivering a real return over the long term, through a combination of capital growth and a rising dividend.

Manager Willis Towers Watson (WTW) has carefully selected 11 expert stock pickers. Each of these manages a global portfolio of up to 20 of their best ideas. In addition, GQG Partners also manages a more diversified emerging markets portfolio, with up to 60 stocks alongside its global portfolio.

WTW blends these into a portfolio, allocating capital in a way that seeks to balance ALW’s exposures across geographies, sectors and styles, while emphasising the impact of stock selection on the trust’s returns.

WTW’s global chief investment strategist, Craig Baker, chairs ALW’s investment committee, which also includes co-portfolio managers Stuart Gray and Mark Davis. They are supported by WTW’s specialist portfolio management, equity manager research and operational due diligence teams.

For performance measurement purposes, the trust is benchmarked against the MSCI All Country World Index in sterling terms (MSCI ACWI), but index weightings have no bearing on stock selection decisions.

ALW (as Alliance Trust) has a long history dating back to 1888. The “manager of managers” approach under WTW was adopted with effect from 1 April 2017. ALW is an AIC Dividend Hero, having increased its dividend in each of its last 59 financial years.

Market backdrop – strong markets, narrow leadership

US equities remain close to record highs despite facing a number of headwinds

Global equity markets have continued to make progress during 2026, despite investors having to contend with a number of headwinds, notably persistent inflationary pressures, higher bond yields and renewed geopolitical uncertainty. Even with a sharp rise in oil prices due to the war in Iran, and long-dated US Treasury yields climbing to levels not seen for more than two decades, US equities have remained close to record highs.

But returns have been concentrated in a small number of US large cap AI-related names

However, behind the headline strength of markets, returns have often been concentrated in a relatively small number of companies associated with artificial intelligence (AI). This was evident during the first half of the year, when ALW’s benchmark, the MSCI ACWI index, returned 12.7%, compared with ALW’s NAV total return of 7.0%. The ALW board highlighted the unusually concentrated nature of the market as an important contributor to this underperformance, with ALW’s diversified portfolio not participating fully in all areas of AI-related momentum.

Within the US market, information technology’s year-to-date return to the end of September was 29.5%, comfortably ahead of most other sectors. September itself provided an especially clear illustration, with technology one of only two US sectors to record a positive return during the month. Indeed, the equal-weighted version of the S&P 500 fell sharply even as the conventional, technology-heavy index was broadly resilient. This is illustrated in Figure 1, which shows the clear outperformance of the conventional index over the equal-weighted version over the past six months, as markets recovered from their falls in the first quarter of the year.

Figure 1: US market six months to 30 September 2026, indices rebased to 100

This enthusiasm is rooted in a genuine structural shift. Spending on AI infrastructure has continued to grow rapidly and companies supplying the computing power, semiconductors and data infrastructure required to support it have enjoyed particularly strong demand. Other areas, such as power, have also benefitted but the effect is less visible than it is for the technology sector.

This has created a somewhat difficult environment for ALW. The trust has meaningful exposure to AI beneficiaries – Microsoft, NVIDIA and Taiwan Semiconductor Manufacturing were all among its largest holdings at the end of August (see page 10) – but it has deliberately not sought to replicate the increasingly concentrated exposure of the index.

ALW’s potential edge: opportunities beyond the market leaders

WTW believes the market currently shows unusually wide divergence in valuations

WTW believes that beyond the headline strength of technology, the market is becoming increasingly differentiated, with unusually wide divergence in valuations and expectations creating several distinct sources of potential return. Some of the companies most closely associated with AI may continue to justify their valuations through rapid earnings growth, while others could struggle, with investors already starting to demand evidence that the huge levels of investment are generating an adequate return. At the same time, businesses outside the immediate AI spotlight have considerably more scope to surprise positively because expectations are lower.

ALW managers see three broad areas of AI opportunity

AI itself could become a broader source of returns, and ALW’s managers identify three areas of opportunity. The first relates to the enablers – semiconductors, power generation and data centres – where demand should remain strong if AI adoption continues to spread. Indeed, AI appears to be the next general-purpose technology and, while there may be pauses in demand while businesses assess their AI needs, and the return they are making on those investments, we are still at the early stages of adoption and so these structural trends have a long way to run.

The second is companies that use AI successfully to change their own economics. Adoption remains at a relatively early stage and, as businesses redesign workflows rather than simply bolt AI tools onto existing processes, there is scope for lower costs, higher productivity and wider margins. There will also inevitably be demand generated by things that can’t currently be done or even envisaged, but will become possible with developments in AI.

The third opportunity comes from businesses where the market may have been too quick to assume AI disruption. Companies with proprietary datasets, embedded customer relationships, valuable brands or physical networks may be hard to displace in practice, and could themselves use AI to strengthen their businesses. Several ALW managers are looking for businesses where the share prices have derated significantly on the expectation of substantial disruption from AI, but where they believe that the underlying franchise is considerably more resilient than the market currently believes. One example is S&P Global, cited by ALW manager EdgePoint, where proprietary data provides protection that cannot simply be reproduced by an AI model, as it cannot be scraped off the internet.

The attention devoted to a relatively small number of mega-cap stocks has left many smaller and mid-sized businesses comparatively overlooked. Another ALW manager, Vulcan, argues that some high-quality companies in this part of the market are trading at unusually depressed valuations simply because they sit outside the dominant AI narrative. One example is Equifax, a data, analytics and technology company, where concerns about AI disruption have weighed on the shares despite the company’s extensive proprietary financial data and strong competitive position. Another is Ryan Specialty, a specialist insurance broker whose shares Vulcan believes have been unfairly penalised by a downturn in commercial property insurance pricing.

Meanwhile, GQG sees investment spending – both related to AI and more generally – broadening into industrials, utilities and financials, with earnings growth beginning to accelerate in areas beyond the technology giants.

ALW’s holdings are cheaper than the index despite having a higher ROE

Earlier this year, WTW calculated that its holdings were around 15% cheaper than the benchmark on conventional valuation measures, despite having a 35% higher return on equity, 15% higher return on invested capital and around 30% less debt.

WTW also showed that the underlying fundamentals of ALW’s holdings had grown much faster than those of the index, while their relative valuation multiples had compressed. That is to say, some of the recent relative underperformance reflected the market paying an increasingly high price for the winners in the index rather than this being due to deterioration in the businesses ALW owns. Figure 2 illustrates this using WTW’s fundamental return attribution tool, which is its means of breaking down the portfolio’s share price return between fundamental return, i.e. the growth in the underlying businesses, and multiple return, i.e. the change in the valuation.

Figure 2: Fundamental growth return of ALW’s companies versus the index, annualised, to 30 June 2026

This combination of unusually concentrated index leadership and wide dispersion between companies arguably gives active stock selectors more to work with than a market in which everything is being valued similarly. If portfolio companies continue to increase earnings, cash flows and intrinsic value, share prices should ultimately reflect that progress even without a major change in market sentiment.

Further, if market leadership broadens, with investors becoming more discriminating about AI or neglected companies demonstrating that disruption fears were excessive, some of the valuation gap could close as well.

Strategy review

WTW undertook a structured review of its investment approach, due to the underperformance

ALW’s continued underperformance prompted WTW, with the board’s support, to undertake a structured review of its investment approach. This covered underlying manager selection, their stock choices, portfolio construction and risk management, including the structure of the concentrated mandates given to each manager. The review examined whether the approach could be refined to improve shareholder outcomes in an increasingly concentrated, momentum-driven market.

In September, WTW confirmed that the review was complete. Its conclusion was that ALW’s fundamental investment approach remained sound and should add significant value over the long term. However, it also recognised that market conditions had changed, with unusually high concentration in both individual stocks and investment themes becoming a defining feature. It has also cited wider research suggesting that changes in market structure have reduced market efficiency and increased the need for a broader investment toolkit.

WTW has introduced an additional risk model

One enhancement already introduced is an additional risk model, intended to strengthen WTW’s understanding of both absolute and benchmark-relative exposures. However, WTW has yet to specify what other additional tools or freedoms are being considered.

Asset allocation

ALW’s asset allocation is primarily determined by the stock selection decisions of its underlying managers. However, WTW retains discretion to adjust manager allocations to either enhance alpha generation or improve diversification. Its standard practice is to allocate capital in a way that avoids any dominant stylistic biases within ALW’s portfolio, positioning it so that stock selection should remain the principal driver of performance.

Figure 3: ALW asset allocation by region as at 31 August 2026

Figure 4: ALW stock portfolio asset allocation relative to benchmark as at 31 August 2026

Since our last note in March (that used data as at 28 February 2026) the allocation to North America has risen slightly, although it remains a relatively large 8.1% underweight position against the benchmark. UK and Europe remain modest overweight positions, although in both cases by less than in February.

Looking at sector positioning, both the largest absolute weighting and the biggest overweight versus the benchmark remain financials. Information technology remains the largest underweight, and the size of this underweight has increased since the last note. The industrials and consumer discretionary weightings have both increased somewhat.

Figure 5: ALW asset allocation by sector as at 31 August 2026

Figure 6: ALW stock portfolio asset allocation by sector relative to benchmark as at 31 August 2026

ALW’s portfolio had a 72% active share as of end August 2026 (compared to 73% at end February).

The managers

Figure 7: Portfolio split by underlying manager 31 August 2026

WTW looks beyond recent returns when selecting managers, focusing on whether their skill and investment process can deliver sustained results. Its assessment considers how each manager identifies opportunities, constructs portfolios and controls risk.

There have been no sub-managers added or removed so far in 2026. However, WTW has adjusted the allocations to counter the portfolio’s tilt towards lower-beta stocks.

Figure 8: Change in quarterly manager allocation to end June 2026

Reducing Veritas, GQG and Metropolis

During 2025, the underlying managers’ stock choices – particularly GQG’s move towards more defensive companies – had left ALW more underweight US large-cap technology and more exposed to established, lower-risk businesses that the stock pickers considered undervalued. The combined effect was to increase ALW’s underweight to US mega-cap technology and tilt the portfolio towards more defensive businesses, leaving it poorly positioned for a market rally driven by the technology giants.

WTW responded by reducing allocations to Veritas, GQG and Metropolis. This illustrates how individual managers’ investment decisions can collectively create a portfolio bias that WTW needs to address. By adjusting the capital allocated to each manager, WTW moderated these exposures while leaving individual stock choices in their hands.

Increasing Jennison, Sands, Lyrical and Vulcan

The capital released was used to increase allocations to Jennison, Sands, Lyrical and Vulcan. Although this was done to increase the portfolio’s sensitivity to market movements, the four managers offer quite different sources of potential return.

Jennison is the most explicitly growth-orientated of the four. It looks for market-leading companies with distinctive business models, strong competitive positions and growth rates that are accelerating or have reached an inflection point. The team is prepared to pay higher valuations where it believes growth can persist for a long period, but will sell when the investment case changes or it expects that growth to slow.

Sands is also a growth investor, but its emphasis is more firmly on long-term structural change. It seeks innovative businesses capable of sustaining above-average growth over many years, often because they are disrupting an existing industry, developing new products or expanding into large new markets. Its approach is therefore less dependent on identifying shorter-term changes in growth rates than Jennison’s and more focused on the durability of a company’s long-term opportunity.

Lyrical provides a very different exposure. Its US-focused value strategy starts by looking among the cheapest stocks in its investable universe, before trying to distinguish genuinely undervalued businesses from companies that are cheap for good reason. It favours companies that combine low valuations with reasonable quality and prospects for earnings growth. This gives ALW exposure to the potential re-rating of overlooked US businesses rather than relying solely on the market’s more highly valued growth companies.

Vulcan sits somewhere between traditional value and quality investing. It looks for businesses with durable competitive advantages, dependable free cash flow and relatively stable underlying values, then waits for their shares to trade at a sufficiently attractive discount. Protecting against permanent losses of capital is central to its philosophy. As Vulcan tends to invest heavily in larger US companies, increasing its allocation also gave WTW another way of raising ALW’s exposure to the US market without abandoning valuation discipline.

Taken together, the changes illustrate that WTW’s response to the performance issue was broader than just adding exposure to growth stocks or the AI theme. It sought to increase the portfolio’s sensitivity to a rising market through managers spanning different approaches, while retaining stock selection as the principal driver of returns.

Top 10 holdings

ALW’s largest positions are often those that more than one of the underlying managers has picked for the portfolio. Two companies have moved out of the top 10 since we last published: Unilever and Philip Morris, which have been replaced by SAP and HCA Healthcare. The top 10 has become somewhat more concentrated in recent months, now representing just over a quarter of the total.

Figure 9: ALW’s 10 largest holdings as at 31 August 2026

Performance

ALW held up well in 2022 and 2023 but then struggled

ALW held up relatively well during the market weakness of 2022 and enjoyed a stronger 2023, but its relative performance has struggled from the beginning of 2024 as the rally in global equities became increasingly concentrated in a handful of US mega-cap technology stocks. This has proved a difficult environment for ALW’s diversified, multi-manager approach, with the portfolio unable to keep pace with an index increasingly driven by this relatively narrow group of companies. ALW’s short-term performance has improved recently – six-month returns are in the line with the benchmark, with three-month returns ahead.

Figure 10: ALW NAV total return performance relative to benchmark over five years to 30 September 2026

The surge in AI mega-cap stocks also largely explains the peer group’s substantial underperformance against the MSCI ACWI over five years. Figure 11 shows that ALW has in fact performed ahead of its peers over this period.

Figure 11: Cumulative total return performance over periods ending 30 September 2026

Dividend

ALW pays quarterly dividends and is an AIC Dividend Hero

ALW’s total dividend for 2025 was 28.32p per share, a 6.1% increase on the previous year. The first two quarterly dividends for 2026 have both been set at 7.33p per share, compared with 7.08p for the corresponding payments in 2025, which puts the trust on course for a 60th consecutive annual dividend increase. This gives it one of the strongest dividend records in the investment trust sector, which is recognised by its designation as an AIC Dividend Hero.

ALW is on course for its 60th consecutive annual dividend increase

ALW should not, however, be viewed primarily as an income fund. Its objective is to deliver total returns through a combination of capital growth and a rising dividend, and the board expects the yield to remain around the 2% level.

Portfolio income does not currently cover the full distribution: revenue earnings were 18.5p per share in 2025 against the 28.32p dividend, with the difference made up from reserves. ALW had approximately £5.2bn of distributable reserves as at 30 June 2026, and as such the board has said it regards the current dividend policy as sustainable.

Premium/(discount)

Over the 12 months ended 30 September 2026, ALW’s discount moved within a very tight range of 6.4% to 4.1% and averaged 5.0%. As at 12 October 2026, ALW was trading at a 4.9% discount.

Figure 12: ALW premium/(discount) over five years to 30 September 2026

ALW’s board seeks to maintain a relatively stable discount, with 5% regarded as the level beyond which it would normally intervene through share buybacks. Although the latest annual report describes the objective more broadly as keeping the shares trading close to NAV, chair Dean Buckley reaffirmed the importance of the 5% level at the April 2026 AGM.

Figure 13 shows that buybacks reduced somewhat in December from the levels earlier in 2025, and then remained relatively consistent for some months. The figure for September was markedly higher.

Figure 13: ALW shares repurchased by month to 30 September 2026

Each year, the board asks shareholders for permission to buy back up to 14.99% of ALW’s issued ordinary share capital. Shares that are repurchased are held in treasury.

SWOT analysis

Figure 14: SWOT analysis for ALW

Bull vs. bear case

Figure 15: Bull vs. bear case for ALW

Previous publications

Readers interested in further information about ALW may wish to read our previous notes (details are provided in Figure 16 below). You can read the notes by clicking on them in Figure 16 or by visiting our website.

Figure 16: QuotedData’s previously published notes on ALW

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