Returns based more in reality than hope?

Alliance Witan (ALW) has announced its annual results for 2025, during which its returns lagged those of its benchmark, the MSCI All Countries World Index (MSCI ACWI). In this note, the reasons behind that underperformance are examined. According to ALW’s manager Willis Towers Watson (WTW), markets appear to have become more short-term-focused, momentum-driven, and detached from underlying fundamentals. WTW says that, on average, the results of ALW’s companies are stronger than those of the wider market, but valuations of unprofitable and revenue-less companies are rising, which WTW attributes to hope value.

WTW has made two changes to the manager line-up since our last publication, replacing SGA with Brown Advisory and Artisan with ARGA. The rationale for these changes and the potential implications for ALW’s portfolio are also outlined in this note.

The past few weeks have brought new challenges for markets. WTW believes that ALW’s diversified portfolio and emphasis on risk management position it to outperform when markets normalise.

Fund profile

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

alliancewitan.com

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

Manager Willis Towers Watson (WTW) has selected 11 stock pickers. Each of these manages a global portfolio of 10-20 stocks. In addition, GQG Partners manages a more diversified emerging market portfolio, with around 60 stocks alongside its global portfolio.

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

WTW’s chief investment strategist, Craig Baker, is the lead manager on ALW’s portfolio. He chairs the investment committee, which also includes Stuart Gray and Mark Davis. They are supported by eight portfolio management team associates working on ALW. In addition, they have access to a global research team of around 160 global research associates.

For performance measurement purposes, the trust is benchmarked against the MSCI All Countries World Index in sterling terms (MSCI ACWI), but index weightings do not influence stock selection decisions.

ALW (as Alliance Trust) has a 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.

Long-term performance driven by fundamentals

Figure 1: Analysis of the components of ALW’s returns versus its performance benchmark

ALW included the chart in Figure 1 in its annual results presentation. This aims to break down the returns of ALW and its benchmark into gains/losses attributed to changes in fundamentals (such as revenues and profits) and those attributed to changes in valuation multiples. The analysis suggests that ALW’s returns may be more closely linked to changes in fundamentals than those of the wider market.

Market backdrop

The macroeconomic outlook appears increasingly uncertain, which may be contributing to market volatility. Much of this uncertainty appears to be related to actions and policies from the White House, including changes in tariff policies, the One Big Beautiful Bill and the expanding deficit, shifts in support for Ukraine and NATO, military actions in Venezuela and Iran, proposals regarding Greenland, statements directed at the Federal Reserve, changes in climate policy, DOGE, and ICE, among other factors.

Added to this is the upheaval that appears to be associated with rapid advances in AI. These developments include increased capital expenditure, rising power prices, and potential threats to the business models of a range of companies, particularly those in the Software-as-a-Service sector.

In the early part of 2025, as noted previously, markets were affected by the advances made by DeepSeek’s AI model and the event referred to as “Liberation Day”. US mega-cap AI-related companies were impacted by both events, but subsequently recovered when Trump adjusted his initial tariff proposals. This is shown in Figure 2, which contrasts the returns of the Magnificent Seven and the other 493 constituents of the S&P500 Index.

Figure 2: MSCI ACWI (in sterling) since 1 January 2025

Figure 3: Mag 7 and S&P493

These events and Trump’s actions since – notably, his repeated assertion that he would like to see the dollar weaken – appear to have encouraged investors to diversify their portfolios away from the US.

WTW observes that a rational response to the increased uncertainty in markets would normally be for investors to demand a higher risk premium. However, WTW notes that, at least up until the outbreak of war with Iran, investors appear to have displayed risk-seeking behaviour. WTW states that this is evident in Figure 13, and that it has been a significant factor in ALW’s relative returns.

Asset allocation

ALW’s asset allocation is primarily determined by the stock selection decisions of its underlying managers. However, Willis Towers Watson retains discretion to adjust manager allocations to seek to enhance alpha generation or improve diversification. Its stated practice is to allocate capital in a way that aims to avoid any dominant stylistic biases within ALW’s portfolio, with the intention that stock selection remains the principal driver of performance.

In Figures 5 and 7, ALW’s weightings have been adjusted to exclude cash held within stock pickers’ portfolios, in order to enable a like-for-like comparison.

Figure 4: ALW asset allocation by region as at 28 February 2026

Figure 5 :ALW stock portfolio asset allocation relative to benchmark as at 28 February 2026

On a regional basis, ALW had an underweight exposure to North America relative to MSCI ACWI and overweight exposure to the UK. This may reflect the valuation gap between companies in North America and those in the UK. Since our last publication on ALW, using data as at 30 June 2025, ALW’s overweight to the UK has increased slightly, mainly at the expense of its allocations to Europe and Asia & emerging markets.

ALW’s sectoral biases show an overweight in financials relative to MSCI ACWI, and an underweight in information technology. Since the end of June 2025, there has been an increase in the financials and consumer staples weightings, with a corresponding decrease in information technology and industrials.

Figure 6: ALW asset allocation by sector as at 31 January 2026

Figure 7: ALW stock portfolio asset allocation by sector relative to benchmark as at 31 January 2026

ALW’s portfolio had a 73% active share as of end February 2026 (74% at end June 2025), and based on WTW’s analysis, the portfolio has a beta of 0.80 to the benchmark.

The managers

Figure 8: Portfolio split by underlying manager 28 February 2026

Since the last note, two sub-managers have been added: Artisan Partners and Brown Advisory. They replaced ARGA and SGA, respectively. According to WTW, manager selection decisions are not influenced by short-term performance, but are based on an assessment of manager skill, the perceived repeatability of past success, and an understanding of investment philosophy, approach, process, and risk controls. Changes to the line-up reflect a change of WTW’s view on the manager’s ability to add value relative to peers.

Replacing SGA with Brown Advisory

SGA had been picking stocks for ALW’s portfolio since 2017. According to WTW, SGA contributed to ALW’s returns for many years but has reduced returns in recent years. WTW states that this may partly reflect SGA’s investment style, as well as some stock selection mistakes.

The firm appears to have experienced growth from the 1990s under the leadership of its three original founders, who have now transferred responsibilities to a new generation of investment managers. WTW states that a change of leadership at a firm is not necessarily a reason to replace a manager, and notes that the new managers also have long experience of markets. However, the change did require a careful review.

WTW concluded that Brown Advisory, which has a similar style, offered what it considered to be a better proposition.

Readers may already be familiar with Brown Advisory as the manager of Brown Advisory US Smaller Companies and its recent acquisition of Marylebone Partners, manager of Majedie Investment Trust.

Brown Advisory: “thoughtful investors”

The firm states that its approach is “thoughtful investing”, which it describes as “a dedication to rigorous, fundamental research to gain a deep understanding of the businesses, issuers and managers in which we invest”. The firm aims to build low-turnover, concentrated portfolios.

ALW has secured access to the investment ideas of Brown Advisory’s Global Leaders team, which is led by Mick Dillon and Bertie Thomson, and utilises the analytical resources of the wider firm. Mick joined the firm in 2014 from HSBC in Hong Kong, where he co-headed Asian equities, and earlier worked in London managing global and technology strategies. Bertie joined the firm in 2015 after 13 years at Aberdeen Asset Management, where he was a senior investment manager in its pan-European equity team.

The team states that its philosophy is to invest in companies it considers high-quality, which deliver positive outcomes for their customers, have strong leadership positions, and demonstrate high (typically at least 20%) return on invested capital (ROIC). The team seeks to purchase these companies at prices it believes are below their intrinsic value and evaluates companies over a period of at least five years. According to the team, investing globally provides the flexibility to build diversified portfolios of companies that may benefit from a range of factors.

The emphasis on understanding a business’s relationships with its customers appears to be based on the view that customers play a significant role in determining which businesses succeed in the marketplace. The team seeks to identify businesses that can offer solutions tailored to customer needs. To gain that insight, Brown Advisory analysts regularly speak directly to customers and gather feedback to better understand a firm’s competitive position.

Quality-focused investment managers may pay a premium for businesses, citing their growth prospects and the sustainability of their returns. However, the Brown Advisory team emphasises the importance of not overpaying for quality.

Behavioural economics (considering factors such as risk aversion and loss aversion) is used to inform position sizes and the timing of purchases and sales; the team works with a coach to support decision-making and investment outcomes.

In summary, the Brown Advisory team states that it is seeking franchises that it considers high quality, with numerically higher returns, management teams with established track records, and entry points at valuations that, according to the team, offer the potential for double-digit annualised returns.

Replacing ARGA with Artisan Partners

ARGA was a relatively recent addition to the manager line-up, and in most instances, firms may remain in the portfolio for a longer period. However, ongoing due diligence carried out by the WTW team raised a concern (which the team states had no impact on ALW) and the decision was made to replace ARGA with Artisan Partners (Artisan).

Artisan has 11 distinct investment teams. The company allows its teams to make investment decisions without requirements to follow benchmarks, operate within certain bureaucratic structures, or obtain approval from committees. With the support of a business management team, investment personnel focus on selecting stocks. Team members are encouraged to invest their own money in the strategy, which is intended to align their interests with those of their clients.

ALW’s Artisan portfolio is managed by its Global Value Team. The six-person team is led by co-founder Dan O’Keefe, with support from co-manager Michael McKinnon. Before joining Artisan, Dan worked as an analyst at Harris Associates, BancAmerica Securities, and Morningstar. He has 30 years of experience investing using the same philosophy that he applies to selecting stocks for ALW. Michael joined the team in 2010, having previously worked at Legg Mason, Himalaya Capital, and Arthur Andersen.

Every member of the team, including Dan and Michael, is involved with analysing stocks. WTW states that they are detail-focused, long-term thinkers, and that they look for underappreciated quality and upside to intrinsic value.

A potential pitfall of value investing is that investors may buy stocks that are inexpensive due to underlying issues—commonly referred to as value traps. Artisan states that it seeks to avoid this by focusing on a company’s growth potential as well as its valuation.

Artisan states that it looks for businesses that it believes are strong and durable, and that can perform across different phases of the economic cycle. According to Artisan, these companies should be managed by teams that are aligned with investors and should be financially robust.

Top 10 holdings

ALW’s largest positions are often those that more than one of the underlying managers has selected for the portfolio. Five companies have moved out of the top 10 since the last publication using data as at the end of June 2025. They are Meta Platforms, Netflix, Diageo, UnitedHealth Group, and ServiceNow. Replacing them are Alphabet, Mastercard, Unilever, Philip Morris, and Samsung Electronics.

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

Performance

Relative to its performance benchmark, ALW’s outperformed over 2022 and 2023, but in 2024, performance appears to have declined, with six-month figures showing particular weakness.

Figure 11: ALW NAV total return performance relative to benchmark over five years to 28 February 2026

The rise of the AI mega caps appears to have influenced index returns, which may be a significant factor in the peer group lagging the MSCI ACWI over five years. However, ALW’s longer-term numbers are ahead of the peer group.

Figure 12: Cumulative total return performance over periods ending 28 February 2026

WTW describes ALW’s run of underperformance of MSCI ACWI over the past couple of years as “frustrating”. WTW states that the best explanation for this is that markets may have been influenced more by momentum than fundamentals. WTW believes that investors with short-term time horizons are dominating trading volumes, while retail investors appear to have been following prevailing market trends. It sees evidence of this in the US market, as illustrated in Figure 13, which was sourced from Alliance Witan.

Figure 13: Signs of speculative behaviour in the US – average performance of companies in each category, returns over 2025 in USD

Drivers of ALW’s returns over 2025

Stock selection drove ALW’s returns over 2025

Analysis of ALW’s returns over 2025, supplied by WTW, indicates that stock selection appears to have been the main contributor to its underperformance relative to the benchmark, detracting 8.9 percentage points. The impact of asset allocation was marginally positive, adding 0.1%.

WTW states that Dalton Investments was the strongest performer among the underlying managers, while Artisan also made a positive start. WTW observes that GQG, Veritas, Jennison, Sands Capital, and Vulcan all had a less successful year.

On a stock basis, positive contributions to relative performance came from having an underweight exposure to Apple (which is viewed by some as an AI laggard and may have been impacted by tariffs), and overweights to Ryanair (which has reported growth in passenger numbers, attributed in part to adding new routes, and has been buying back its stock), Safran (the aero engine maker is considered by some as a potential beneficiary of higher defence spending), TSMC (which may have benefited from demand for chips related to AI), and NRG Energy (which may have benefited from demand for power related to AI). Collectively, the positioning in these five stocks added 1.6% to ALW’s relative returns.

The main detractors from ALW’s returns were overweight exposures to Diageo (where revenue numbers have been weak) and ICON (a global clinical research organisation that reported weak numbers over 2025 on delays to clinical trials and has since announced an investigation into accounting irregularities) and underweights to NVIDIA, Broadcom, and Alphabet (all of which appear to have benefitted from investor interest in AI). Collectively, these five positions subtracted 2.4% from ALW’s relative performance.

Premium/(discount)

Over the 12 months ended 28 February 2026, ALW’s discount moved within a range of 10.0% to 3.0% and averaged 4.9%. As of 11 March 2026, ALW was trading at a 5.1% discount.

ALW’s board states that it aims to maintain a stable discount. To achieve this, the trust deploys share buybacks when necessary.

For the most part, the discount has moved within a narrow range. Figure 14 shows a spike in the discount that appears to be associated with the declines in markets following the tariff announcements in April 2025. Figure 15 shows that the pace of buybacks increased afterwards, peaking in November. More recently, the pace of buybacks has moderated.

Figure 14: ALW discount over five years

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.

Figure 15: ALW shares repurchased by month to 11 March 2026

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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