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Investment Trust Watch: ‘we’re improving’ says Alliance

Alliance Trust claims to be on the right track with performance and costs as the rating on its share price hits a new high.

 
Investment Trust Watch: ‘we’re improving’ says Alliance

Alliance Trust (ATST ) issued an end-of-year report card to shareholders this week after what has been a challenging 12 months for the Dundee-based fund.

Coming after US hedge fund Elliott Capital increased its stake to 15%, the update demonstrated how Alliance wants to be on the front foot with its largest and most hostile shareholder, which this year has forced it into a series of changes.

In the statement Alliance said it had taken action on all the targets set in October when former chief executive Katherine Garrett-Cox stepped down from the board and said it was ‘well placed for the future.’

Helped by the positive market reaction to the US interest rate rise, the shares responded with a 10p rise on Thursday. This narrowed the discount – or gap – between its share price and its net asset value to 8.4%, a 10-year low according to Morningstar data.

That increased its Z-score to 3.1, making it this week’s second most ‘expensive’ trust according to our table from Numis Securities (see below).

A Z-score is a measure used by analysts to put investment trust share prices in historical context. A trust with a Z-score of 2 or more is trading above its normal range and is therefore ‘expensive’, while a score of -2 or below shows it is beneath its normal range and is considered ‘cheap’.

Expensive' trusts Share price premium (- discount) to NAV % One-year average premium (- discount) % Z-score
Aurora Russia (AURR) -23.3 -48.9 3.8
Alliance Trust (ATST) -8.4 -12.1 3.1
RAB Special Situations (RSS) 14.6 -19.2 2.8
Aberforth Smaller Companies (ASL) -3.9 -9.9 2.7
BlackRock Throgmorton Trust (THRG) -8.8 -14.8 2.7
Jupiter European Opportunities (JEO) 4.1 1.3 2.5
Bankers (BNKR) 3.3 -1.9 2.5
European Real Estate (ERET) -13.5 -36.5 2.4
City Natural Resources High Yield (CYN) -9.7 -19.8 2.3
Standard Life UK Smaller (SLS) -2.8 -7.8 2.3
Mercantile (MRC) -8.3 -11.0 2.2
Herald (HRI) -15.5 -17.9 2.2
Vinaland (VNL) -31.1 -38.6 2.2
Sanditon Investment (SIT) 8.7 5.0 2.1
BlackRock Smaller Companies (BRSC) -5.6 -11.2 2.1

Source: Numis Securities

Is Alliance 'expensive'?

Whether Alliance Trust is actually ‘expensive’ or not depends on whether you think it can do more to lower the discount and improve shareholder returns.

After this year’s agm I bought some shares for my pension in the hope that one way or another performance would improve. I was also attracted to Alliance Trust's stance on sustainable investment that the new managers have brought since September 2014.

So far, so good it seems. The update made a number of points:

Share buybacks: since October Alliance has purchased 4.5% of its shares in an effort to reduce the discount.

Costs: Alliance says it is on track to save £6 million next year from the investment business Garrett-Cox now runs. This comes as Rod Davidson, Alliance Trust Investments’ head of fixed income, has left the company and its small Dynamic Bond fund has been closed following Alliance Trust’s decision to sell its holdings in ATI’s bond funds.

Performance: Alliance now seeks to beat the MSCI All Country World index by at least 1% a year after fees. Since the new managers took over the net asset value of its holdings have beaten the index by 3.7%, growing 7%, although the portfolio trails the benchmark by 4.4% and 5.8% over three and five years.

However, the actual shareholder returns investors have received are ahead of the index over all time periods up to five years because the share price has benefited from the improved NAV performance and the narrowing in the discount: in short, the classic, positive double whammy of a recovering investment trust. 

Over three years to 11 December its total shareholder return was 38.9% rising to 50.6% over five years. That’s still behind leading global growth trusts like Witan (WTAN ), Majedie Investments (MAJE ) and Scottish Mortgage (SMT ) but it’s getting better.

The only question is why did Garrett-Cox and her husband just sell £1.5 million shares?

Cheap' trusts Share price premium (- discount) to NAV % One-year average premium (- discount) % Z-score
Menhaden Capital (MHN) -6.5 8.1 -3.4
NB Distressed Debt - Extended Life (NBDX) -11.9 -6.4 -3.3
VPC Specialty Lending (VSL) -8.2 1.7 -3.2
Africa Opportunity (AOF) -23.3 -12.5 -3.1
Better Capital 2009 (BCAP) -27.6 -17.8 -2.9
UK Mortgages (UKML) 3.6 6.9 -2.9
Advance Developing Markets (ADMF) -14.2 -11.1 -2.9
GLI Finance (GLIF) -26.6 12.3 -2.9
DW Catalyst - £ (DWCG) -15.4 -4.7 -2.8
TR Property (TRY) -10.3 -2.7 -2.8
Aberdeen Asian Income (AAIF) -10.6 -2.8 -2.7
TwentyFour Income (TFIF) -0.1 5.6 -2.7
Chenavari Capital Solutions (CCSL) -7.8 2.0 -2.7
Hansa Trust A (HANA) -32.4 -28.1 -2.6
CQS New City High Yield (NCYF) -3.3 3.8 -2.6

Source: Numis Securities

3 comments so far. Why not have your say?

richard tomkin

Dec 18, 2015 at 13:42

Having suffererd "Alliancitis" for years,I am pleased that the Dundee dinosaur is stirring,( and I am not referring to the Garrett-Coxes )

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john_r

Dec 18, 2015 at 21:26

Alliance Trust is probably about to enjoy its finest moments for 6 years.

Well done Elliot for your determined approach.

report this

Francis Wilkinson

Dec 20, 2015 at 09:42

Hansa is a potential performer in my view-a class act well oversold.

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